MISSISSIPPI LEGISLATURE
2013 Regular Session
To: Ways and Means
By: Representative Gipson
AN ACT TO AUTHORIZE AN INCOME TAX CREDIT FOR CERTAIN ACCREDITED INVESTORS CALLED ANGEL INVESTORS FOR CASH INVESTMENTS IN THE QUALIFIED SECURITIES OF QUALIFIED BUSINESSES; TO AUTHORIZE MISSISSIPPI BUSINESSES TO APPLY TO THE MISSISSIPPI TECHNOLOGY ALLIANCE FOR DESIGNATION AS A QUALIFIED MISSISSIPPI SMALL BUSINESS; TO PROVIDE THE REQUISITES FOR DESIGNATION AS A QUALIFIED MISSISSIPPI SMALL BUSINESS; TO PROVIDE FOR THE DURATION OF SUCH DESIGNATION; TO REQUIRE THE MISSISSIPPI TECHNOLOGY ALLIANCE TO COMPILE A LIST OF QUALIFIED MISSISSIPPI SMALL BUSINESSES; TO REQUIRE INVESTORS TO APPLY TO THE DEPARTMENT OF REVENUE FOR CERTIFICATION OF ELIGIBILITY FOR THE TAX CREDIT; TO PROVIDE THAT IF THE DEPARTMENT OF REVENUE DETERMINES THAT THE INVESTOR IS QUALIFIED, IT SHALL ISSUE TO THE INVESTOR A ONE-YEAR TAX CREDIT CERTIFICATE RESERVATION; TO LIMIT THE AMOUNT OF TAX CREDIT CERTIFICATIONS THAT MAY BE ISSUED IN FISCAL YEARS 2013, 2014 AND 2015; TO PROVIDE THE MANNER IN WHICH THE TAX CREDIT MAY BE CLAIMED; TO AUTHORIZE A SINGLE TRANSFER OR SALE TO ANOTHER MISSISSIPPI TAXPAYER OF TAX CREDITS NOT PREVIOUSLY CLAIMED; TO REQUIRE THE DEPARTMENT OF REVENUE, MISSISSIPPI TECHNOLOGY ALLIANCE AND THE STATE TREASURER TO EACH PREPARE A REPORT CONCERNING THE EFFECTIVENESS OF THIS ACT IN PROMOTING THE ESTABLISHMENT AND GROWTH OF MISSISSIPPI SMALL BUSINESSES AND TO REQUIRE SUCH REPORTS TO BE SUBMITTED TO THE CHAIRS OF THE SENATE FINANCE COMMITTEE AND THE WAYS AND MEANS COMMITTEE OF THE HOUSE OF REPRESENTATIVES; AND FOR RELATED PURPOSES.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:
SECTION 1. As used in this act:
(a) "Accredited investor" has the meaning ascribed to such term in 17 CFR Section 230.501, on the effective date of this act.
(b) "Angel investor" means an accredited investor who may seek active involvement, such as consulting and mentoring, in a Mississippi business. The term "angel investor" shall not include:
(i) A person controlling, or whose spouse or relative within the third degree of consanguinity or affinity controls, fifty percent (50%) or more of the Mississippi business invested in by the angel investor.
(ii) Any bank, bank and trust company, insurance company, trust company, national bank, savings association or building and loan association for activities that are a part of its normal course of business.
(c) "Cash investment" means the contribution of cash, at a risk of loss, to a qualified Mississippi business in exchange for qualified securities.
(d) "Qualified securities" means any form of equity, including a general or limited partnership interest, common stock, preferred stock, with or without voting rights, convertible notes that may be convertible into stock.
(e) "Qualified Mississippi small business" means any business that is designated as a qualified Mississippi business by Mississippi Technology Alliance pursuant to Section 3 of this act.
(f) "Qualified purposes" means use of proceeds from the investment must be used for capital improvements, plant equipment, research and development, working capital for the business, or other business activity as may be approved by the Mississippi Technology Alliance. The proceeds cannot be used to pay dividends, repay shareholder's loans, redeem shares, or repay debt unless approved by the Mississippi Technology Alliance.
(g) "Risk of loss" means that the repayment of the investment is entirely dependent on the success of the Mississippi qualified business.
(h) "Trade secrets" shall have meaning ascribed to such term in Section 75-26-3.
SECTION 2. (1) Subject to the requirements of this act, there shall be allowed a credit against the tax imposed under this chapter for cash investments for qualified purposes in the qualified securities of a qualified Mississippi small business by an angel investor. For each investment within a tax year of not less than Ten Thousand Dollars ($10,000.00) and not more than One Million Dollars ($1,000,000.00), the credit shall be in an amount equal to thirty-five percent (35%) of such investor's cash investment; however, the total aggregate amount of tax credits allowed to an angel investor in a taxable year shall not exceed Two Hundred Fifty Thousand Dollars ($250,000.00).
(2) If the angel investor is an S corporation or an entity treated as a partnership for federal income tax purposes, the tax credit limits in subsection (1) of this section apply to the individual shareholders or partners of the entity that is the angel investor.
SECTION 3. (1) A Mississippi business may apply to the Mississippi Technology Alliance for designation as a qualified Mississippi small business. The application shall include:
(a) The name of the business and a copy of the organizational documents of such business;
(b) A business plan, including a description of the business and the management, product, market and financial plan of the business;
(c) A statement of the potential economic impact of the business, including the number, location and types of jobs expected to be created;
(d) A description of the qualified securities to be issued and the amount of cash investment sought by the qualified Mississippi small business;
(e) A statement of the amount, timing and projected use of the proceeds to be raised from the proposed sale of qualified securities; and
(f) Such other information the Mississippi Technology Alliance may require.
(2) To be designated as a qualified Mississippi small business, a business shall be independently owned and operated and:
(a) Have its principal place of business in this state and at least sixty percent (60%) of its employees located in this state;
(b) Have had annual total gross revenues of less than Five Million Dollars ($5,000,000.00) in the most recent income year of such business prior to application;
(c) Have no more than one hundred (100) employees;
(d) Have received less than Two Million Dollars ($2,000,000.00) in cash investments eligible for the tax credits authorized by this act;
(e) Be involved primarily in research and development or manufacturing of new and/or innovative technologies, software, products, or processes, or business models; and
(f) Not be principally engaged in:
(i) Professional services provided by accountants, doctors or lawyers;
(ii) Banking, lending or investment;
(iii) Real estate development;
(iv) Insurance;
(v) Retail sales;
(vi) Restaurants;
(vii) Oil and gas exploration; or
(viii) Gambling activities.
(3) In addition to the requirements of subsection (2) of this section, a Mississippi small business shall only be designated as a qualified Mississippi small business for a period of one (1) year if the Mississippi Technology Alliance determines, based upon the application submitted by the business and any additional investigation conducted by the Mississippi Technology Alliance for the purpose of this section, that:
(a) The business has a reasonable chance of success;
(b) The business has the reasonable potential to create measurable employment within the state;
(c) The existing owners of the business and other founders have made or are committed to making a substantial financial and time commitment to the business;
(d) The securities to be issued and purchased are qualified securities;
(e) The existing owners of the business and other founders are committed to domicile their business in Mississippi unless a change of domicile is the result of a merger, consolidation, or other acquisition of such business with or by a party not affiliated with the business; and
(f) Binding commitments have been made by the business to the Mississippi Technology Alliance for adequate reporting of financial data, including the requirement for an annual report, and if requested by the Mississippi Technology Alliance, an annual audit of the financial and operational records of the business, the right of access to the financial records of the business, and the right of the Mississippi Technology Alliance to record and publish normal and customary data and information related to the issuance of tax credits that are not otherwise determined to be proprietary information or trade secrets.
(4) A Mississippi small business designated as a qualified Mississippi small business, but whose one-year designation has expired or may soon expire, may reapply for designation as a qualified Mississippi small business at any time.
(5) The Mississippi Technology Alliance shall, on or before December 31, 2013, and quarterly thereafter, compile a list of Mississippi businesses that it has determined are qualified Mississippi small businesses, categorized by the cash investments being sought by the qualified Mississippi small business and type of qualified securities offered. The list shall be posted on the Mississippi Technology Alliance website and submitted to the Commissioner of Revenue.
(6) The Mississippi Technology Alliance shall remove, as soon as is practicable, a Mississippi business from the list of qualified Mississippi small businesses if the Mississippi business no longer meets the requirements of this section. No investment in a Mississippi business made on or after the date the Mississippi business is removed from the list will be a qualifying investment for tax credit certification.
SECTION 4. Any information submitted to, or issued by, the Mississippi Technology Alliance pursuant to Section 3 or Section 5 of this act shall constitute a public record, as defined in the Mississippi Public Records Act of 1983, and shall be open for inspection by any citizen of this state; however, information submitted to the Mississippi Technology Alliance that constitutes proprietary information or trade secrets shall be exempt from the Mississippi Public Records Act of 1983.
SECTION 5. (1) An investor, or a designee of the investor on the investor's behalf, shall apply to the Department of Revenue for a certification of tax credit eligibility during the tax year in which the investments for which the investor seeks a tax credit are made. The investor shall submit, in the manner required by the Department of Revenue, documentation sufficient to demonstrate:
(a) That the investor is an angel investor; and
(b) The value of the cash investments intended to be made or made within ninety (90) days prior to the application by the investor in the qualified securities of a qualified Mississippi small business.
(2) If the Department of Revenue determines that the investor qualifies to receive a certification of tax credit eligibility, then the Department of Revenue shall issue to the investor a one-year tax credit certificate reservation in the amount authorized by Section 2 of this act. No reservation shall be issued if the reservation will cause the total value of reservations and credits issued to equal or exceed the applicable limit prescribed in subsection (5) of this section.
(3) The Department of Revenue shall issue a tax credit certificate to the investor upon submission by the investor of documentation evidencing the occurrence of such investment in the manner required by the Department of Revenue. The Department of Revenue shall develop the certificate in consultation with the Mississippi Technology Alliance. The tax credit certificate shall contain:
(a) The investor's name, address and tax identification number;
(b) The amount of the credit;
(c) The name of the qualifying business;
(d) A unique tax credit certificate number; and
(e) Other information required by the Department of Revenue.
(4) The Department of Revenue shall transmit to the Mississippi Technology Alliance a copy of any tax credit certificate issued. In the alternative, Mississippi Technology Alliance and the Department of Revenue are authorized to establish a means of electronically transmitting the information necessary for administration of the tax credit authorized by this act.
(5) If at the close of any calendar year in the five-year period beginning with the first year in which a tax credit certificate was issued to an investor, the qualified Mississippi small business is no longer domiciled in Mississippi, unless change of domicile is the result of a merger, consolidation or other acquisition of such business with or by a party not affiliated with the business, the Mississippi Technology Alliance shall request a report of the company's Mississippi employment history and future plans for Mississippi employment. In the event that this report does not indicate Mississippi employment sufficient to meet at least eighty percent (80%) of the company's employment obligations in their initial tax credit application, the company shall be notified by Mississippi Technology Alliance of the intent to recapture the tax credit. The company shall have ninety (90) days from this notification to try to comply with eighty percent (80%) of the company's employment obligations. If that compliance cannot be met, the tax credit shall be recaptured from the investor or current owner of the credit.
(6) The aggregate amount of all tax credit certifications under this section shall not exceed Five Million Dollars ($5,000,000.00) annually for the fiscal year commencing July 1, 2013, and shall not exceed Three Million Five Hundred Thousand Dollars ($3,500,000.00) in the two (2) fiscal years thereafter.
SECTION 6. (1) An angel investor shall attach a copy of any tax credit certificate issued pursuant to Section 5 of this act to the return filed under this chapter for the tax year in which the certificate or certificates were issued.
(2) The amount of the credit allowed to any investor pursuant to this act shall not exceed the amount of tax due from such investor under this chapter with respect to such taxable year. Any tax credit that is claimed by the angel investor but not applied against the tax due under this chapter may be carried forward for the five (5) immediately succeeding taxable years until the full credit has been applied.
(3) If the angel investor is an S corporation or an entity treated as a partnership for federal income tax purposes, the tax credit may be claimed by the shareholders or partners of the angel investor. If the angel investor is a single member limited liability company that is disregarded as an entity separate from its owner, the tax credit may be claimed by such limited liability company's owner, provided such owner is a Mississippi taxpayer.
(4) Any angel investor tax credits not previously claimed by any taxpayer against its tax may be transferred or sold to another Mississippi taxpayer, subject to the following conditions:
(a) A single transfer or sale may involve one or more transferees. The transferee of the tax credits may transfer or sell such tax credits subject to the conditions of this subsection.
(b) Transferors and transferees shall submit to the Department of Revenue in writing a notification of any transfer or sale of tax credits within thirty (30) days after the transfer or sale of such tax credits. The notification shall include the transferor's tax credit balance prior to transfer, a copy of any tax credit certificate issued by the Department of Revenue, the transferor's remaining tax credit balance after transfer, all tax identification numbers for both transferor and transferee, the date of transfer, the amount transferred, the price paid by the transferee to the transferor and any other information required by the Department of Revenue. Any pricing information submitted by a transferor or transferee shall be treated by the Department of Revenue as proprietary to the entity reporting such information and therefore confidential; however, this shall not prevent the publication of summary data that includes no fewer than three (3) transactions.
(c) Failure to comply with this subsection will result in the disallowance of the tax credit until the taxpayers are in full compliance.
(d) The transfer or sale of this credit does not extend the time in which the credit can be used. The carry forward period for credit that is transferred or sold begins on the date on which the credit was earned.
(e) To the extent that the transferor did not have rights to claim or use the credit at the time of the transfer, the Department of Revenue shall either disallow the credit claimed by the transferee or recapture the credit from the transferee through any collection method authorized by law. The transferee's recourse is against the transferor.
SECTION 7. The Department of Revenue, Mississippi Technology Alliance and the State Treasurer shall each prepare a report concerning the effectiveness of this act in promoting the establishment and growth of Mississippi small businesses. The reports shall be submitted to the chairs of the Senate Finance Committee and the Ways and Means Committee of the House of Representatives not later than January 1, 2015. The Finance Committee and the Ways and Means Committee shall evaluate the effectiveness of this act based on the reports submitted and any additional information obtained by the committees, and shall make recommendations to their respective houses as to continuation of this act.
SECTION 8. (1) Mississippi Technology Alliance and the Department of Revenue shall promulgate rules to effectuate the purposes of this act.
(2) Mississippi Technology Alliance and the Department of Revenue shall endeavor to make the procedures authorized by this part as uncomplicated and effortless to comply with as possible.
SECTION 9. Sections 1 through 8 of this act shall be codified as a separate code section in Chapter 7, Title 27, Mississippi Code of 1972.
SECTION 10. This act shall take effect and be in force from and after July 1, 2013.