FIRST REGULAR SESSION

HOUSE BILL NO. 753

90TH GENERAL ASSEMBLY

INTRODUCED BY REPRESENTATIVE RIZZO.

Read 1^st time February 3, 1999, and 1000 copies ordered printed.

ANNE C. WALKER, Chief Clerk

L1804.01I

AN ACT

To repeal section 620.1039, RSMo Supp. 1998, relating to tax credits programs administered by the department of economic development, and to enact in lieu thereof seven new sections relating to the same subject.

Be it enacted by the General Assembly of the state of Missouri, as follows:

Section A. Section 620.1039, RSMo Supp. 1998, is repealed and seven new sections enacted in lieu thereof, to be known as sections 620.1039, 1, 2, 3, 4, 5 and 6, to read as follows:

620.1039. 1. As used in this section, the term "taxpayer" means an individual, a partnership, or a corporation as described in section 143.441, 143.471, RSMo, or section 148.370, RSMo, and the term "qualified research expenses" has the same meaning as prescribed in 26 U.S.C. 41.

2. Beginning January 1, 1994, a taxpayer may be allowed a tax credit against the tax otherwise due pursuant to chapter 143, RSMo, or chapter 148, RSMo, other than the taxes withheld pursuant to sections 143.191 to 143.265, RSMo, if approved by the director of the department of economic development, in an amount up to six and one-half percent of the excess of the taxpayer's qualified research expenses, as certified by the director of the department of economic development, within this state during the taxable year over the average of the taxpayer's qualified research expenses within this state over the immediately preceding three taxable years; except that, no tax credit shall be allowed on that portion of the taxpayer's qualified research expenses incurred within this state during the taxable year in which the credit is being claimed, to the extent such expenses exceed two hundred percent of the taxpayer's average qualified research expenses incurred during the immediately preceding three taxable years. In order to receive a tax credit pursuant to this section, certification by the director of the department of economic development shall be required as proof that the taxpayer made qualified research expenses during the taxable year.

3. The director of economic development shall prescribe the manner in which the tax credit may be claimed. The tax credit allowed by this section may be claimed by the taxpayer to offset the tax liability imposed by chapter 143, RSMo, or chapter 148, RSMo, that becomes due in the tax year during which such qualified research expenses were incurred. Where the amount of the credit exceeds the tax liability, the difference between the credit and the tax liability may only be carried forward for the next five succeeding taxable years or until the full credit has been claimed, whichever first occurs. The application for claiming tax credits allowed in subsection 2 of this section shall be made in the taxpayer's tax period immediately following the tax period for which the credits are being claimed. No rule or portion of a rule promulgated [under] pursuant to the authority of this section shall become effective unless it has been promulgated pursuant to the provisions of chapter 536, RSMo. All rulemaking authority delegated prior to June 27, 1997, is of no force and effect and repealed; however, nothing in this section shall be interpreted to repeal or affect the validity of any rule filed or adopted prior to June 27, 1997, if such rule complied with the provisions of chapter 536, RSMo. The provisions of this section and chapter 536, RSMo, are nonseverable and if any of the powers vested with the general assembly pursuant to chapter 536, RSMo, including the ability to review, to delay the effective date, or to disapprove and annul a rule or portion of a rule, are subsequently held unconstitutional, then the purported grant of rulemaking authority and any rule so proposed and contained in the order of rulemaking shall be invalid and void.

4. The aggregate of all tax credits authorized pursuant to this section shall not exceed ten million dollars in any taxable year.

5. No tax credits authorized pursuant to the provisions of this section may be claimed by a taxpayer or certified by the department of economic development for otherwise eligible research and development activities conducted during the period beginning on January 1, 2000, and concluding on December 31, 2003. During that four-year period, tax credits may only be claimed and certified for eligible research and development activities completed before January 1, 2000, and research and development activities conducted that normally would qualify for tax credits pursuant to the provisions of this section shall not be certified for tax credits until after December 31, 2003.

Section 1. Sections 1 to 6 of this act shall be known and may be cited as the "Missouri New Enterprise Creation Act".

Section 2. As used in sections 1 to 6 of this act, the following terms mean:

(1) "Board", the Missouri seed capital investment board, as established pursuant to section 3 of this act;

(2) "Committed contributions", the total amount of qualified contributions that are committed to a qualifying fund by contractual agreement;

(3) "Department", the department of economic development;

(4) "Director", the director of the department of economic development;

(5) "Follow-up capital", capital provided to a qualified business in which a qualified fund has previously invested seed capital or start-up capital. No more than forty percent of the qualified contributions to a qualified fund may be used for follow-up capital, and no qualified contributions which generate tax credits before the second round of allocations as authorized by section 6 of this act shall be used for follow-up capital investments;

(6) "Person", any individual, corporation, partnership, limited liability company or other entity;

(7) "Positive cash flow", total cash receipts from sales or services, but not from investments or loans, exceeding total cash expenditures as calculated on a fiscal year basis;

(8) "Qualified business", any independently owned and operated business which is headquartered and located in Missouri and which is involved in or intends to be involved in commerce for the purpose of manufacturing, processing or assembling products, conducting research and development, or providing services in interstate commerce. Such a business shall maintain its headquarters in Missouri for a period of at least three years from the date of receipt of a qualified investment or be subject to penalties pursuant to section 620.017, RSMo;

(9) "Qualified contribution", cash contributions to a qualified fund pursuant to the terms of contractual agreements made between the qualified fund and a qualified economic development organization authorized by the board to enter into such contracts;

(10) "Qualified economic development organization", any corporation organized pursuant to the provisions of chapter 355, RSMo, that, as of January 1, 1991, had obtained a contract with the department to operate an innovation center to promote, assist and coordinate the research and development of new services, products or processes in this state, or any corporation organized pursuant to the provisions of chapter 355, RSMo, and located in a municipality with a population of between one hundred forty thousand and one hundred fifty thousand as of the 1990 decennial census, that obtains a contract with the department to operate such an innovation center;

(11) "Qualified fund", a fund established by any corporation, partnership, joint venture, unincorporated association, trust or other organization established pursuant to the laws of Missouri and approved by the board;

(12) "Qualified investment", any investment of seed capital, start-up capital or follow-up capital in a qualified business that does not cause more than ten percent of all the qualified contributions to a qualified fund to be invested in a single qualified business;

(13) "Seed capital", capital provided to a qualified business for research, development and precommercialization activities to prove a concept for a new product, process or service, and for activities related thereto; provided that, seed capital shall not be provided to any business which in a past fiscal year has experienced a positive cash flow;

(14) "Start-up capital", capital provided to a qualified business for use in preproduction product development, service development or initial marketing thereof; provided that, start-up capital shall not be provided to any business which has experienced a positive cash flow in a past fiscal year;

(15) "Uninvested capital", that portion of any qualified contribution to a qualified fund, other than management fees not to exceed three percent per year of committed contributions, qualified investments and other expenses or fees authorized by the board, that is not invested as a qualified investment within ten years of its receipt.

Section 3. There is hereby established the "Missouri Seed Capital Investment Board", to be composed of not more than thirteen persons. One person shall be the director, or the director's designee, and each qualified economic development organization, not to exceed five, shall respectively be represented by one member appointed by each organization. Seven members shall be appointed by the governor with the advice and consent of the senate. Of these, one shall represent a major public research university located within the state, one shall represent a major private research university located within the state and the remaining five members shall have backgrounds in technology, banking or small business development. The seven members appointed by the governor shall serve terms of three years; except that, of those first appointed, three shall serve for terms of three years, two for terms of two years and two for terms of one year. The members of the board shall annually elect one of its members who has been appointed by the governor as chairman of the board. At any meeting of the board, seven members must be present to constitute a quorum. The department shall provide support services necessary to carry out the duties of the board.

Section 4. 1. The Missouri seed capital and commercialization strategy shall be jointly developed and approved by the boards of directors of all of the qualified economic development organizations and submitted as one plan to the board for its approval. The board shall not approve any qualified fund unless such fund is described in the Missouri seed capital and commercialization strategy. The strategy shall include a proposal for the establishment and operation of between one and five qualified funds in Missouri. The initial strategy shall be submitted to the board no later than July 1, 2000, and shall be approved or rejected by the board within three months of receipt. No tax credits authorized pursuant to the provisions of sections 1 to 6 of this act shall be awarded until such strategy has been approved by the board.

2. As soon as practicable after the board approves the Missouri seed capital and commercialization strategy, the department shall authorize the use of up to forty million dollars in tax credits by the approved qualified funds, in aggregate pursuant to the provisions of section 6 of this act, with not more than ten million dollars of tax credits being issued in any one year.

3. The board shall approve the professional managers employed by the qualified funds according to criteria similar to that used by the U.S. Small Business Administration's Small Business Investment Corporation Program.

4. The department may promulgate any rules and regulations necessary to administer the provisions of sections 1 to 6 of this act. No rule or regulation or portion of a rule or regulation promulgated pursuant to the authority of this section shall become effective unless it has been promulgated pursuant to the provisions of chapter 536, RSMo.

Section 5. 1. The board may authorize each qualified economic development organization to enter into contractual agreements with any qualified fund allowing such qualified fund to offer tax credits authorized pursuant to the provisions of sections 1 to 6 of this act to those persons making qualified contributions to the qualified fund. All tax credits authorized pursuant to sections 1 to 6 of this act shall be administered by the department.

2. Each qualified fund shall, pursuant to the strategy approved by the board, enter into a contract with one or more qualified economic development organizations which shall entitle all qualified economic development organizations in existence at that time to receive and share equally not less than sixty percent of all distributions of equity and dividends or other earnings of the fund generated by qualified contributions. Such contracts shall require the qualified funds to transfer to the board all distributions of dividends or other earnings of the fund that are owed to any qualified economic development organization that has dissolved or has ceased doing business for a period of one year or more.

3. All distributions of dividends, earnings, equity or the like owed pursuant to the provisions of sections 1 to 6 of this act to a qualified economic development organization by any qualified fund shall be paid to the qualified economic development organization. The qualified economic development organization shall use such payments solely for reinvestment in qualified funds in order to provide ongoing seed capital, start-up capital and follow-up capital for Missouri businesses. No qualified economic development organization may transfer any dividends, earnings, equity or the like owed it pursuant to sections 1 to 6 of this act to any other person or entity without the approval of the board.

Section 6. 1. The sole purpose of each qualified fund is to make investments. One hundred percent of investments made from qualified contributions shall be qualified investments.

2. Any person who makes a qualified contribution to a qualified fund shall receive a tax credit against the tax otherwise due pursuant to chapter 143, RSMo, chapter 147, RSMo, or chapter 148, RSMo, other than taxes withheld pursuant to sections 143.191 to 143.265, RSMo, in an amount equal to one hundred percent of such person's qualified contribution.

3. Such person shall submit to the department an application for the tax credit on a form provided by the department. The department shall award tax credits in the order the applications are received and based upon the strategy approved by the board. Tax credits issued pursuant to this section may be claimed for the tax year in which the qualified contribution is made or in any of the following ten years, and may be assigned, transferred or sold.

4. There is hereby imposed on each qualified fund a tax equal to fifteen percent of the qualified fund's uninvested capital at the close of such qualified fund's tax year. For purposes of tax computation, any distribution made by a qualified fund during a tax year is deemed made at the end of such tax year. Each tax year, every qualified fund shall remit the tax imposed by this section to the director of the department of revenue for deposit in the state treasury to the credit of the general revenue fund.

Missouri House of Representatives