Senate Study Bill 1064





                                     SENATE FILE       
                                     BY  (PROPOSED COMMITTEE ON
                                          ECONOMIC GROWTH BILL
                                          BY CO=CHAIRPERSON BRUNKHORST)


    Passed Senate, Date               Passed House,  Date             
    Vote:  Ayes        Nays           Vote:  Ayes        Nays         
                 Approved                            

                                      A BILL FOR

  1 An Act relating to tax credit certificates issued by the Iowa
  2    capital investment board.
  3 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:
  4 TLSB 1872XC 81
  5 tm/sh/8

PAG LIN



  1  1    Section 1.  Section 15E.63, subsections 6 and 7, Code 2005,
  1  2 are amended to read as follows:
  1  3    6.  The board shall, in cooperation with the department of
  1  4 revenue, establish criteria and procedures for the allocation
  1  5 and issuance of tax credits to designated investors by means
  1  6 of certificates issued by the board.  The criteria shall
  1  7 include the contingencies that must be met for a certificate
  1  8 to be redeemable by a designated investor or transferee in
  1  9 order to receive a tax credit.  The contingencies to
  1 10 redemption shall be tied to the scheduled rates of return and
  1 11 scheduled redemptions of equity interests purchased by
  1 12 designated investors in the Iowa fund of funds.  The
  1 13 procedures established by the board, in cooperation with the
  1 14 department of revenue, shall relate to the procedures for the
  1 15 issuance of the certificates and the related tax credits, for
  1 16 the transfer of a certificate and related tax credit by a
  1 17 designated investor, and for the redemption of a certificate
  1 18 and related tax credit by a designated investor or transferee.
  1 19 The board shall also establish criteria and procedures for
  1 20 assessing the likelihood of future certificate redemptions by
  1 21 designated investors and transferees, including, without
  1 22 limitation, criteria and procedures for evaluating the value
  1 23 of investments made by the Iowa fund of funds and the returns
  1 24 from the Iowa fund of funds.
  1 25    7.  Pursuant to section 15E.66, the board shall issue
  1 26 certificates which may be redeemable for tax credits to
  1 27 provide incentives to designated investors to make equity
  1 28 investments in the Iowa fund of funds.  The board shall issue
  1 29 the certificates so that not more than twenty million dollars
  1 30 of tax credits may be initially redeemable in any fiscal year.
  1 31 The board shall indicate on the tax certificate the principal
  1 32 amount of the tax credit and the taxable year or years for
  1 33 date or dates on which the credit may be first claimed.
  1 34    Sec. 2.  Section 15E.65, subsection 2, paragraph a, Code
  1 35 2005, is amended to read as follows:
  2  1    a.  The Iowa fund of funds shall be organized as a private,
  2  2 for=profit, limited partnership or limited liability company
  2  3 under Iowa law pursuant to which the Iowa capital investment
  2  4 corporation shall be the general partner or manager.  The
  2  5 entity shall be organized so as to provide for equity
  2  6 interests for designated investors which provide for a
  2  7 designated scheduled rate of return and a scheduled redemption
  2  8 which shall occur not less than five years following the
  2  9 issuance of such equity interests.  The interest of the Iowa
  2 10 capital investment corporation in the Iowa fund of funds shall
  2 11 be to serve as general partner or manager and to be paid a
  2 12 management fee for the service as provided in section 15E.64,
  2 13 subsection 8, and to receive investment returns of the Iowa
  2 14 fund of funds in excess of those payable to designated
  2 15 investors.  Any returns in excess of those payable to
  2 16 designated investors shall be reinvested by the Iowa capital
  2 17 investment corporation by being held in the Iowa fund of funds
  2 18 as a revolving fund for reinvestment in venture capital funds
  2 19 or investments until the termination of the Iowa fund of
  2 20 funds.  Any returns received from these reinvestments shall be
  2 21 deposited in the revolving fund.
  2 22    Sec. 3.  Section 15E.66, subsections 1, 2, 3, and 5, Code
  2 23 2005, are amended to read as follows:
  2 24    1.  The board may issue certificates and related tax
  2 25 credits to designated investors which, if redeemed for the
  2 26 maximum possible amount, shall not exceed a total aggregate of
  2 27 one hundred million dollars of tax credits.  The certificates
  2 28 shall be issued contemporaneously with an investment a
  2 29 commitment to invest in the Iowa fund of funds by a designated
  2 30 investor.  A certificate issued by the board shall have a
  2 31 specific calendar year maturity date or dates designated by
  2 32 the board of not less than five years after the date of
  2 33 issuance and shall be redeemable on a schedule similar to the
  2 34 scheduled redemption of investments by designated investors
  2 35 only in accordance with the contingencies reflected on the
  3  1 certificate or incorporated therein by reference.  A
  3  2 certificate and the related tax credit shall be transferable
  3  3 by the designated investor.  A tax credit shall not be claimed
  3  4 or redeemed except by a designated investor or transferee in
  3  5 accordance with the terms of a certificate from the board.  A
  3  6 tax credit shall not be claimed for a tax year that begins
  3  7 during earlier than the calendar year maturity date or dates
  3  8 stated on the certificate.  An individual may claim the credit
  3  9 of a partnership, limited liability company, S corporation,
  3 10 estate, or trust electing to have the income taxed directly to
  3 11 the individual.  The amount claimed by the individual shall be
  3 12 based upon the pro rata share of the individual's earnings
  3 13 from the partnership, limited liability company, S
  3 14 corporation, estate, or trust.  Any tax credit in excess of
  3 15 the taxpayer's tax liability for the tax year may be credited
  3 16 to the tax liability for the following seven years, or until
  3 17 depleted, whichever is earlier.
  3 18    2.  The board shall certify the maximum amount of a tax
  3 19 credit which could be issued to a designated investor and
  3 20 identify the specific calendar year earliest date or dates the
  3 21 certificate may be redeemed pursuant to this division.  The
  3 22 amount of the tax credit shall be limited to an amount
  3 23 equivalent to any difference between the scheduled aggregate
  3 24 return to the designated investor at rates of return
  3 25 authorized by the board and aggregate actual return received
  3 26 by the designated investor and any predecessor in interest of
  3 27 capital and interest on the capital.  The rates, whether fixed
  3 28 rates or variable rates, shall be determined pursuant to a
  3 29 formula stipulated in the certificate or incorporated therein
  3 30 by reference.  The board shall clearly indicate on the
  3 31 certificate, or incorporate therein by reference, the
  3 32 schedule, the amount of equity investment, the calculation
  3 33 formula for determining the scheduled aggregate return on
  3 34 invested capital, and the calculation formula for determining
  3 35 the amount of the tax credit that may be claimed.  Once moneys
  4  1 are invested by issued to a designated investor, the a
  4  2 certificate shall be binding on the board and the department
  4  3 of revenue and shall not be modified, terminated, or
  4  4 rescinded.
  4  5    3.  If a designated investor or transferee elects to redeem
  4  6 a certificate, the certificate shall not be redeemed on June
  4  7 30 of prior to the calendar year maturity date or dates stated
  4  8 on the certificate.  At the time of redemption, the board
  4  9 shall determine the amount of the tax credit that may be
  4 10 claimed by the designated investor based upon the returns
  4 11 received by the designated investor and its predecessors in
  4 12 interest and the provisions of the certificate.  The board
  4 13 shall issue a verification to the department of revenue
  4 14 setting forth the maximum tax credit which can be claimed by
  4 15 the designated investor with respect to the redemption of the
  4 16 certificate.
  4 17    5.  The board shall issue the tax credits in such a manner
  4 18 that not more than twenty million dollars of tax credits may
  4 19 be initially redeemable in any fiscal year.  The board shall
  4 20 indicate on the tax certificate the principal amount of the
  4 21 tax credit and the taxable year or years for maturity date or
  4 22 dates on which the credit may be first claimed.
  4 23                           EXPLANATION
  4 24    This bill relates to tax credit certificates issued by the
  4 25 Iowa capital investment board.
  4 26    Currently, the contingencies to redemption of the tax
  4 27 credit certificates are tied to the scheduled rates of return
  4 28 and scheduled redemptions of equity interests purchased by
  4 29 designated investors in the Iowa fund of funds.  The bill
  4 30 eliminates the requirement that contingencies to redemption be
  4 31 tied to scheduled redemptions.
  4 32    Currently, the tax credit certificates are issued
  4 33 contemporaneously with an investment in the Iowa fund of
  4 34 funds.  The bill provides that the certificates shall be
  4 35 issued contemporaneously with a commitment to invest in the
  5  1 Iowa fund of funds.
  5  2    The bill provides that a tax credit certificate issued by
  5  3 the board may have more than one maturity date and eliminates
  5  4 the requirement that the maturity date be not less than five
  5  5 years after the date of issuance.  The bill provides that a
  5  6 tax credit certificate shall be redeemable only in accordance
  5  7 with the contingencies reflected on the certificate or
  5  8 incorporated therein by reference and eliminates the
  5  9 requirement that the certificates shall be redeemable on a
  5 10 schedule similar to the scheduled redemption of the
  5 11 investments by designated investors.
  5 12    The bill provides that a tax credit shall not be claimed
  5 13 for a tax year that begins earlier than the maturity date or
  5 14 dates stated in the certificate.
  5 15    The bill provides that the board shall identify the
  5 16 specific earliest date or dates the certificate may be
  5 17 redeemed instead of identifying the specific calendar year.
  5 18    Currently, a tax credit certificate is binding on the board
  5 19 and the department of revenue once moneys are invested by a
  5 20 designated investor.  The bill provides that the certificate
  5 21 is binding upon issuance to the designated investor.
  5 22    Currently, if a designated investor elects to redeem a
  5 23 certificate, the certificate must be redeemed on June 30 of
  5 24 the calendar year maturity date stated on the certificate.
  5 25    The bill provides that the designated investor or a
  5 26 transferee, upon election to redeem, shall not redeem the
  5 27 certificate prior to the maturity date or dates stated on the
  5 28 certificate.
  5 29    The bill requires the board to identify on the certificate
  5 30 the maturity date or dates on which the credit may be first
  5 31 claimed.
  5 32 LSB 1872XC 81
  5 33 tm:nh/sh/8