57-38.5 Seed Capital Investment Tax Credit

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CHAPTER 57-38.5SEED CAPITAL INVESTMENT TAX CREDIT57-38.5-01. Definitions. As used in this chapter, unless the context otherwise requires:1."Director" means the director of the department of commerce division of economic<br>development and finance.2."New wealth" means revenues to a North Dakota business which are generated by<br>sales of products or services to customers outside of the state. "New wealth" also<br>includes revenues to a qualified business the customers of which previously were<br>unable to acquire, or had limited availability of, the product or service from a North<br>Dakota provider.3."Passthrough entity" means a corporation that for the applicable tax year is treated<br>as an S corporation or a general partnership, limited partnership, limited liability<br>partnership, trust, or limited liability company and which for the applicable tax year is<br>not taxed as a corporation under chapter 57-38.4."Primary sector business" means a qualified business that through the employment<br>of knowledge or labor adds value to a product, process, or service and which results<br>in the creation of new wealth but does not include an agricultural commodity<br>processing facility as defined under section 57-38.6-01.5."Qualified business" means a business other than a real estate investment trust<br>which is a primary sector business that:a.Is incorporated or its satellite operation is incorporated as a for-profit<br>corporation or is a partnership, limited partnership, limited liability company,<br>limited liability partnership, or joint venture;b.Is in compliance with the requirements for filings with the securities<br>commissioner under the securities laws of this state;c.Has North Dakota residents as a majority of its employees in the North Dakota<br>principal office or the North Dakota satellite operation;d.Has its principal office in this state and has the majority of its business activity<br>performed in this state, except sales activity, or has a significant operation in<br>North Dakota that has or is projected to have more than ten employees or one<br>hundred fifty thousand dollars of sales annually; ande.Relies on innovation, research, or the development of new products and<br>processes in its plans for growth and profitability.6."Taxpayer" means an individual, estate, or trust or a corporation, passthrough entity,<br>or an angel fund. The term does not include a real estate investment trust.57-38.5-02. Certification - Investment reporting by qualified businesses - Maximuminvestments in qualified businesses.1.The director shall certify whether a business that has requested to become a<br>qualified business meets the requirements of subsection 5 of section 57-38.5-01.<br>The director shall establish the necessary forms and procedures for certifying<br>qualified businesses.2.A qualified business may apply to the director for a recertification.Only onerecertification is available to a qualified business. The application for recertificationPage No. 1must be filed with the director within ninety days before the original certification<br>expiry date.The recertification issued by the director must comply with theprovisions of subsection 3.3.A certification letter must be issued by the director to the qualified business. The<br>certification letter must include:a.The certification effective date.b.The certification expiry date. The expiry date may not be more than four years<br>from the certification effective date.4.The maximum aggregate amount of qualified investments a qualified business may<br>receive for all tax years is limited to five hundred thousand dollars under this<br>chapter. The tax credit allowed on qualified investments in a qualified business must<br>be allowed to taxpayers in the chronological order of the taxpayer's qualified<br>investments as determined from the forms filed under section 57-38.5-07.Thelimitation on investments under this subsection may not be interpreted to limit<br>additional investment by a taxpayer for which that taxpayer is not applying for a<br>credit.57-38.5-03.Seed capital investment tax credit.If a taxpayer makes a qualifiedinvestment in a qualified business, the taxpayer is entitled to a credit against state income tax<br>liability under section 57-38-30 or 57-38-30.3.1.The amount of the credit to which a taxpayer is entitled is forty-five percent of the<br>amount invested by the taxpayer in qualified businesses during the taxable year.2.The maximum annual credit a taxpayer may claim under this section is not more<br>than one hundred twelve thousand five hundred dollars. This subsection may not be<br>interpreted to limit additional investment by a taxpayer for which that taxpayer is not<br>applying for a credit.3.Any amount of credit under subsection 1 not allowed because of the limitation in<br>subsection 2 may be carried forward for up to four taxable years after the taxable<br>year in which the investment was made.4.A passthrough entity that invests in a qualified business must be considered to be<br>the taxpayer for purposes of the investment limitations in this section and the<br>amount of the credit allowed with respect to a passthrough entity's investment in a<br>qualified business must be determined at the passthrough entity level. The amount<br>of the total credit determined at the passthrough entity level must be allowed to the<br>members in proportion to their respective interests in the passthrough entity.5.An investment made in a qualified business from the assets of a retirement plan is<br>deemed to be the retirement plan participant's investment for the purpose of this<br>chapter if a separate account is maintained for the plan participant and the<br>participant directly controls where the account assets are invested.6.The investment must be made on or after the certification effective date and must be<br>at risk in the business to be eligible for the tax credit under this section.Aninvestment for which a credit is received under this section must remain in the<br>business for at least three years. Investments placed in escrow do not qualify for the<br>credit.7.The entire amount of an investment for which a credit is claimed under this section<br>must be expended by the qualified business for plant, equipment, research and<br>development, marketing and sales activity, or working capital for the qualified<br>business.Page No. 28.A taxpayer who owns a controlling interest in the qualified business or who receives<br>more than fifty percent of the taxpayer's gross annual income from the qualified<br>business is not entitled to a credit under this section. A member of the immediate<br>family of a taxpayer disqualified by this subsection is not entitled to the credit under<br>this section.For purposes of this subsection, "immediate family" means thetaxpayer's spouse, parent, sibling, or child or the spouse of any such person.9.The tax commissioner may disallow any credit otherwise allowed under this section<br>if any representation by a business in the application for certification as a qualified<br>business proves to be false or if the taxpayer or qualified business fails to satisfy any<br>conditions under this section or any conditions consistent with this section otherwise<br>determined by the tax commissioner. The commissioner has four years after the<br>due date of the return or after the return was filed, whichever period expires later, to<br>audit the credit and assess additional tax that may be found due to failure to comply<br>with the provisions of this chapter. The amount of any credit disallowed by the tax<br>commissioner that reduced the taxpayer's income tax liability for any or all applicable<br>tax years, plus penalty and interest as provided under section 57-38-45, must be<br>paid by the taxpayer.10.An angel fund that invests in a qualified business must be considered to be the<br>taxpayer for purposes of the investment limitations in this section. The amount of<br>the credit allowed with respect to an angel fund's investment in a qualified business<br>must be determined at the angel fund level.The amount of the total creditdetermined at the angel fund level must be allowed to the investors in the angel fund<br>in proportion to the investor's respective interests in the fund. An angel fund that is<br>subject to the tax imposed under chapter 57-38 is not eligible for the investment tax<br>credit under this chapter.57-38.5-04. Taxable year for seed capital investment tax credit. The tax credit undersection 57-38.5-03 must be credited against the taxpayer's income tax liability for the taxable<br>year in which the investment in the qualified business was received by the qualified business.57-38.5-04.1. Credit for investments made before 2005. 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height:815px; text-align:center;\"\u003eLoading PDF...\u003c/div\u003e\u003cscript type=\"text/javascript\"\u003e var pdf_url = 'https://law.justia.com/codes/north-dakota/2009/t57/pdf/t57c385.pdf'; $(document).ready(function() { var embedwindow = $(\"#embed_document\"); if ($.browser.msie){ embedwindow.html('\u003cembed src=\"'+pdf_url+'\" width=\"100%\" height=\"100%\"\u003e\u003c/embed\u003e'); } else { embedwindow.html('\u003ciframe style=\"width:100%; height:100%;\" src=\"https://docs.google.com/gview?url='+window.escape(pdf_url)+'\u0026embedded=true\" frameborder=\"0\"\u003e\u003c/iframe\u003e'); } });\u003c/script\u003e\u003cbr\u003e\u003cbr\u003e\u003cnoframes\u003eCHAPTER 57-38.5SEED CAPITAL INVESTMENT TAX CREDIT57-38.5-01. Definitions. As used in this chapter, unless the context otherwise requires:1.\u0026quot;Director\u0026quot; means the director of the department of commerce division of economic\u003cbr\u003edevelopment and finance.2.\u0026quot;New wealth\u0026quot; means revenues to a North Dakota business which are generated by\u003cbr\u003esales of products or services to customers outside of the state. \u0026quot;New wealth\u0026quot; also\u003cbr\u003eincludes revenues to a qualified business the customers of which previously were\u003cbr\u003eunable to acquire, or had limited availability of, the product or service from a North\u003cbr\u003eDakota provider.3.\u0026quot;Passthrough entity\u0026quot; means a corporation that for the applicable tax year is treated\u003cbr\u003eas an S corporation or a general partnership, limited partnership, limited liability\u003cbr\u003epartnership, trust, or limited liability company and which for the applicable tax year is\u003cbr\u003enot taxed as a corporation under chapter 57-38.4.\u0026quot;Primary sector business\u0026quot; means a qualified business that through the employment\u003cbr\u003eof knowledge or labor adds value to a product, process, or service and which results\u003cbr\u003ein the creation of new wealth but does not include an agricultural commodity\u003cbr\u003eprocessing facility as defined under section 57-38.6-01.5.\u0026quot;Qualified business\u0026quot; means a business other than a real estate investment trust\u003cbr\u003ewhich is a primary sector business that:a.Is incorporated or its satellite operation is incorporated as a for-profit\u003cbr\u003ecorporation or is a partnership, limited partnership, limited liability company,\u003cbr\u003elimited liability partnership, or joint venture;b.Is in compliance with the requirements for filings with the securities\u003cbr\u003ecommissioner under the securities laws of this state;c.Has North Dakota residents as a majority of its employees in the North Dakota\u003cbr\u003eprincipal office or the North Dakota satellite operation;d.Has its principal office in this state and has the majority of its business activity\u003cbr\u003eperformed in this state, except sales activity, or has a significant operation in\u003cbr\u003eNorth Dakota that has or is projected to have more than ten employees or one\u003cbr\u003ehundred fifty thousand dollars of sales annually; ande.Relies on innovation, research, or the development of new products and\u003cbr\u003eprocesses in its plans for growth and profitability.6.\u0026quot;Taxpayer\u0026quot; means an individual, estate, or trust or a corporation, passthrough entity,\u003cbr\u003eor an angel fund. The term does not include a real estate investment trust.57-38.5-02. Certification - Investment reporting by qualified businesses - Maximuminvestments in qualified businesses.1.The director shall certify whether a business that has requested to become a\u003cbr\u003equalified business meets the requirements of subsection 5 of section 57-38.5-01.\u003cbr\u003eThe director shall establish the necessary forms and procedures for certifying\u003cbr\u003equalified businesses.2.A qualified business may apply to the director for a recertification.Only onerecertification is available to a qualified business. The application for recertificationPage No. 1must be filed with the director within ninety days before the original certification\u003cbr\u003eexpiry date.The recertification issued by the director must comply with theprovisions of subsection 3.3.A certification letter must be issued by the director to the qualified business. The\u003cbr\u003ecertification letter must include:a.The certification effective date.b.The certification expiry date. The expiry date may not be more than four years\u003cbr\u003efrom the certification effective date.4.The maximum aggregate amount of qualified investments a qualified business may\u003cbr\u003ereceive for all tax years is limited to five hundred thousand dollars under this\u003cbr\u003echapter. The tax credit allowed on qualified investments in a qualified business must\u003cbr\u003ebe allowed to taxpayers in the chronological order of the taxpayer's qualified\u003cbr\u003einvestments as determined from the forms filed under section 57-38.5-07.Thelimitation on investments under this subsection may not be interpreted to limit\u003cbr\u003eadditional investment by a taxpayer for which that taxpayer is not applying for a\u003cbr\u003ecredit.57-38.5-03.Seed capital investment tax credit.If a taxpayer makes a qualifiedinvestment in a qualified business, the taxpayer is entitled to a credit against state income tax\u003cbr\u003eliability under section 57-38-30 or 57-38-30.3.1.The amount of the credit to which a taxpayer is entitled is forty-five percent of the\u003cbr\u003eamount invested by the taxpayer in qualified businesses during the taxable year.2.The maximum annual credit a taxpayer may claim under this section is not more\u003cbr\u003ethan one hundred twelve thousand five hundred dollars. This subsection may not be\u003cbr\u003einterpreted to limit additional investment by a taxpayer for which that taxpayer is not\u003cbr\u003eapplying for a credit.3.Any amount of credit under subsection 1 not allowed because of the limitation in\u003cbr\u003esubsection 2 may be carried forward for up to four taxable years after the taxable\u003cbr\u003eyear in which the investment was made.4.A passthrough entity that invests in a qualified business must be considered to be\u003cbr\u003ethe taxpayer for purposes of the investment limitations in this section and the\u003cbr\u003eamount of the credit allowed with respect to a passthrough entity's investment in a\u003cbr\u003equalified business must be determined at the passthrough entity level. The amount\u003cbr\u003eof the total credit determined at the passthrough entity level must be allowed to the\u003cbr\u003emembers in proportion to their respective interests in the passthrough entity.5.An investment made in a qualified business from the assets of a retirement plan is\u003cbr\u003edeemed to be the retirement plan participant's investment for the purpose of this\u003cbr\u003echapter if a separate account is maintained for the plan participant and the\u003cbr\u003eparticipant directly controls where the account assets are invested.6.The investment must be made on or after the certification effective date and must be\u003cbr\u003eat risk in the business to be eligible for the tax credit under this section.Aninvestment for which a credit is received under this section must remain in the\u003cbr\u003ebusiness for at least three years. Investments placed in escrow do not qualify for the\u003cbr\u003ecredit.7.The entire amount of an investment for which a credit is claimed under this section\u003cbr\u003emust be expended by the qualified business for plant, equipment, research and\u003cbr\u003edevelopment, marketing and sales activity, or working capital for the qualified\u003cbr\u003ebusiness.Page No. 28.A taxpayer who owns a controlling interest in the qualified business or who receives\u003cbr\u003emore than fifty percent of the taxpayer's gross annual income from the qualified\u003cbr\u003ebusiness is not entitled to a credit under this section. A member of the immediate\u003cbr\u003efamily of a taxpayer disqualified by this subsection is not entitled to the credit under\u003cbr\u003ethis section.For purposes of this subsection, \u0026quot;immediate family\u0026quot; means thetaxpayer's spouse, parent, sibling, or child or the spouse of any such person.9.The tax commissioner may disallow any credit otherwise allowed under this section\u003cbr\u003eif any representation by a business in the application for certification as a qualified\u003cbr\u003ebusiness proves to be false or if the taxpayer or qualified business fails to satisfy any\u003cbr\u003econditions under this section or any conditions consistent with this section otherwise\u003cbr\u003edetermined by the tax commissioner. The commissioner has four years after the\u003cbr\u003edue date of the return or after the return was filed, whichever period expires later, to\u003cbr\u003eaudit the credit and assess additional tax that may be found due to failure to comply\u003cbr\u003ewith the provisions of this chapter. The amount of any credit disallowed by the tax\u003cbr\u003ecommissioner that reduced the taxpayer's income tax liability for any or all applicable\u003cbr\u003etax years, plus penalty and interest as provided under section 57-38-45, must be\u003cbr\u003epaid by the taxpayer.10.An angel fund that invests in a qualified business must be considered to be the\u003cbr\u003etaxpayer for purposes of the investment limitations in this section. The amount of\u003cbr\u003ethe credit allowed with respect to an angel fund's investment in a qualified business\u003cbr\u003emust be determined at the angel fund level.The amount of the total creditdetermined at the angel fund level must be allowed to the investors in the angel fund\u003cbr\u003ein proportion to the investor's respective interests in the fund. An angel fund that is\u003cbr\u003esubject to the tax imposed under chapter 57-38 is not eligible for the investment tax\u003cbr\u003ecredit under this chapter.57-38.5-04. Taxable year for seed capital investment tax credit. The tax credit undersection 57-38.5-03 must be credited against the taxpayer's income tax liability for the taxable\u003cbr\u003eyear in which the investment in the qualified business was received by the qualified business.57-38.5-04.1. Credit for investments made before 2005. 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