§ 42-64.33-5. Tax credit recapture and exit.
(a) The corporation, working in coordination with the division of taxation, may recapture, from any entity that claims a credit on a tax return, the credit allowed under this chapter if:
(1) The small business development fund does not invest one hundred (100%) percent of its capital investment authority in qualified investments in this state within three (3) years of the first credit allowance date;
(2) The small business development fund, after satisfying subsection (a)(1) of this section, fails to maintain qualified investments equal to one hundred (100%) percent of its capital investment authority until the sixth anniversary of the initial credit allowance date. For the purposes of this subsection, a qualified investment is considered maintained even if the qualified investment was sold or repaid so long as the small business development fund reinvests an amount equal to the capital returned or recovered by the small business development fund from the original investment, exclusive of any profits realized, in other qualified investments in this state within twelve (12) months of the receipt of the capital. Amounts received periodically by a small business development fund shall be treated as continually invested in qualified investments if the amounts are reinvested in one or more qualified investments by the end of the following calendar year. A small business development fund shall not be required to reinvest capital returned from qualified investments after the fifth anniversary of the initial credit allowance date, and the qualified investments shall be considered held continuously by the small business development fund through the sixth anniversary of the initial credit allowance date;
(3) The small business development fund, before exiting the program in accordance with subsection (e) of this section, makes a distribution or payment that results in the small business development fund having less than one hundred percent (100%) of its capital investment authority invested in qualified investments in this state or available for investment in qualified investments and held in cash and other marketable securities;
(4) The small business development fund, before exiting the program in accordance with subsection (e) of this section, fails to make qualified investments in minority business enterprises that when added together equal at least ten percent (10%) of the small business development fund’s capital investment authority; or
(5) The small business development fund violates subsection (d) of this section.
(b) Recaptured credits and the related capital investment authority revert to the corporation and shall be reissued pro rata to applicants whose capital investment allocations were reduced pursuant to § 42-64.33-4(f) and then in accordance with the application process.
(c) Enforcement of each of the recapture provisions of subsection (a) of this section shall be subject to a six-month (6) cure period. No recapture shall occur until the small business development fund has been given notice of noncompliance and afforded six (6) months from the date of the notice to cure the noncompliance.
(d) No eligible business that receives a qualified investment under this chapter, or any affiliates of the eligible business, may directly or indirectly:
(1) Own or have the right to acquire an ownership interest in a small business development fund or member or affiliate of a small business development fund, including, but not limited to, a holder of a capital investment issued by the small business development fund; or
(2) Loan to or invest in a small business development fund or member or affiliate of a small business development fund, including, but not limited to, a holder of a capital investment issued by a small business development fund, where the proceeds of the loan or investment are directly or indirectly used to fund or refinance the purchase of a capital investment under this chapter.
(e) On or after the sixth anniversary of the initial credit allowance date, a small business development fund may apply to the corporation to exit the program and no longer be subject to regulation under this chapter. The corporation shall respond to the exit application within thirty (30) days of receipt. In evaluating the exit application, the fact that no credits have been recaptured and that the small business development fund has not received a notice of recapture that has not been cured pursuant to subsection (c) of this section shall be sufficient evidence to prove that the small business development fund is eligible for exit. The corporation shall not unreasonably deny an exit application submitted under this subsection. If the exit application is denied, the notice shall include the reasons for the determination.
(f) If the number of jobs created or retained by the eligible businesses that received qualified investments from the small business development fund, calculated pursuant to reports filed by the small business development fund pursuant to § 42-64.33-7, is:
(1) Less than sixty percent (60%) of the amount projected in the approved small business development fund’s business plan filed as part of its application for certification under § 42-64.33-4, then the state shall receive thirty percent (30%) of any distribution or payment to an equity or debt holder in an approved small business development fund made after its exit from the program in excess of eligible distributions; or
(2) Greater than sixty percent (60%) but less than one hundred percent (100%) of the amount projected in the approved small business development fund’s business plan filed as part of its application for certification under § 42-64.33-4, then the state shall receive fifteen percent (15%) of any distribution or payment to an equity or debt holder in an approved small business development fund made after its exit from the program in excess of eligible distributions.
(g) At the time a small business development fund applies to the corporation to exit the program, it shall calculate the aggregate internal rate of return of its qualified investments. If the small business development fund’s aggregate internal rate of return on its qualified investments at exit exceeds ten percent (10%), then, after eligible distributions, the state shall receive ten percent (10%) of any distribution or payment in excess of the aggregate ten percent (10%) internal rate of return to an equity or debtholder in an approved small business development fund.
(h) The corporation shall not revoke a tax credit certificate after the small business development fund’s exit from the program.
History of Section.
P.L. 2019, ch. 88, art. 12, § 10.