MISSISSIPPI LEGISLATURE
2014 Regular Session
To: Ways and Means
By: Representative Moak
AN ACT TO AUTHORIZE AN INCOME TAX CREDIT FOR QUALIFIED MISSISSIPPI CYBERSECURITY COMPANIES IN WHICH CERTAIN INVESTMENTS ARE MADE; TO DEFINE CERTAIN TERMS; TO REQUIRE QUALIFIED MISSISSIPPI CYBERSECURITY COMPANIES TO APPLY TO THE MISSISSIPPI DEVELOPMENT AUTHORITY TO ESTABLISH THE COMPANY'S ELIGIBILITY FOR THE TAX CREDIT; TO PRESCRIBE THE MINIMUM REQUIREMENTS THAT MUST BE SATISFIED BY COMPANIES SEEKING THE TAX CREDIT; TO PRESCRIBE THE AMOUNT OF THE TAX CREDIT; TO PROVIDE THAT IF THE AMOUNT OF CREDIT CLAIMED BY A QUALIFIED MISSISSIPPI CYBERSECURITY COMPANY EXCEEDS THE AMOUNT OF INCOME TAX IMPOSED UPON THE COMPANY FOR THE TAXABLE YEAR, THEN THE COMPANY SHALL RECEIVE A REFUND FROM THE DEPARTMENT OF REVENUE FOR THE AMOUNT OF THE EXCESS; TO AUTHORIZE THE MISSISSIPPI DEVELOPMENT AUTHORITY TO ESTABLISH A PANEL OF EXPERTS IN CYBERSECURITY TECHNOLOGY FOR ASSISTANCE IN DETERMINING WHETHER A COMPANY MEETS THE CRITERIA TO BE A QUALIFIED MISSISSIPPI CYBERSECURITY COMPANY; TO REQUIRE COMPANIES TO SUBMIT A COPY OF THE FINAL TAX CREDIT CERTIFICATE ISSUED BY THE MISSISSIPPI DEVELOPMENT AUTHORITY TO THE DEPARTMENT OF REVENUE; TO ESTABLISH THE MISSISSIPPI CYBERSECURITY INVESTMENT TAX CREDIT RESERVE FUND IN THE STATE TREASURY AND TO REQUIRE ANNUAL APPROPRIATIONS TO THE FUND FOR THE PURPOSE OF OFFSETTING THE TAX CREDIT; TO REQUIRE THE MISSISSIPPI DEVELOPMENT AUTHORITY TO SUBMIT AN ANNUAL REPORT TO THE GOVERNOR AND THE LEGISLATURE ON THE TAX CREDIT CERTIFICATES AWARDED UNDER THIS ACT; AND FOR RELATED PURPOSES.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:
SECTION 1. (1) As used in this section, the following words and phrases have the meanings ascribed in this subsection unless the context clearly indicates otherwise:
(a) "Company" means an entity of any form, excluding a sole proprietorship, which is duly organized and existing under the laws of any jurisdiction for the purpose of conducting business for profit.
(b) "Cybersecurity company" means a company organized for profit which is engaged primarily in the development of innovative and proprietary cybersecurity technology.
(c) "Cybersecurity technology" means products or goods intended to detect or prevent activity intended to result in unauthorized access to, exfiltration of, manipulation of, or impairment to the integrity, confidentiality or availability of an information system or information stored on or transiting an information system.
(d) "MDA" means the Mississippi Development Authority.
(e) "Investment" means the contribution of money in cash or cash equivalents expressed in United States dollars, at a risk of loss, to a qualified Mississippi cybersecurity company in exchange for stock, a partnership or membership interest, or any other ownership interest in the equity of the qualified Mississippi cybersecurity company, title to which ownership interest vests in the qualified investor. The term "investment" does not include debt. For purposes of this section, an investment is at risk of loss when repayment entirely depends on the success of the business operations of the qualified company.
(f) "Panel" means the panel that the MDA may establish under subsection (5) of this section composed of experts in the area of cybersecurity technology.
(g) "Qualified investor" means any individual or entity that invests at least Twenty-five Thousand Dollars ($25,000.00) in a qualified Mississippi cybersecurity company and which is required to file an income tax return in any jurisdiction. The term "qualified investor" does not include a qualified pension plan, an individual retirement account or any other qualified retirement plan under the Employee Retirement Income Security Act of 1974, as amended, or fiduciaries or custodians under those plans, or similar tax–favored plans or entities under the laws of other countries.
(h) "Qualified Mississippi cybersecurity company" means a cybersecurity company that has met the criteria set forth in subsection (3)(b) of this section and been determined to qualify for the tax credit under this section.
(i) "Executive director" means the executive director of the MDA.
(2)(a) Subject to paragraph (b) of this subsection and subsections (4) and (7) of this section, for the taxable year in which an investment in a qualified Mississippi cybersecurity company is made, a qualified Mississippi cybersecurity company may claim a credit against the taxes imposed by this chapter in an amount equal to the amount of tax credit stated in the final credit certificate approved by the executive director for the investment as provided under this section.
(b) For purposes of the tax credit described in paragraph (a) of this subsection, the qualified investor:
(i) May not, after making the proposed investment, own or control more than twenty-five percent (25%) of the equity interests in the qualified Mississippi cybersecurity company in which the investment is made; and
(ii) Shall submit an application to the MDA containing the following:
1. Evidence that the investor is:
a. If a company, duly organized and in good standing in the jurisdiction under the laws under which it is organized;
b. Current in the payment of all tax obligations to a state or any political subdivision or taxing authority of a state; and
c. Not in default under the terms of any contract with, indebtedness to, or grant from a state or any political subdivision or taxing authority of a state; and
2. Any other information the MDA may require.
(3) (a) At least thirty (30) days before receiving an investment in a qualified Mississippi cybersecurity company for which a qualified Mississippi cybersecurity company would be eligible for an initial tax credit certificate, the qualified Mississippi cybersecurity company shall submit an application to the MDA.
(b) The application must evidence that the qualified Mississippi cybersecurity company has satisfied the following minimum requirements for consideration as a qualified Mississippi cybersecurity company:
(i) Has its headquarters and base of operations in this state;
(ii) Has not participated in the tax credit program under this section for more than one (1) prior fiscal year;
(iii) Has been in active business no longer than five (5) years;
(iv) Has an aggregate capitalization of at least One Hundred Thousand Dollars ($100,000.00);
(v) Owns or has properly licensed any proprietary technology;
(vi) Has fewer than fifty (50) full–time employees;
(vii) Does not have its securities publicly traded on any exchange;
(viii) Is in good standing;
(ix) Is current in the payment of all tax obligations to the state or any political subdivision or taxing authority of the state;
(x) Is not in default under the terms of any contract with, indebtedness to, or grant from the state or any political subdivision or taxing authority of the state; and
(xi) Meets any other reasonable requirements of the MDA evidencing that the company is a going concern primarily engaged in the development of innovative and proprietary cybersecurity technology.
(c) The MDA shall:
(i) Approve all applications that qualify for credits under this section on a first–come, first–served basis; and
(ii) Within thirty (30) calendar days of receipt of an application:
1. Certify the amount of any approved tax credits to a qualified Mississippi cybersecurity company; and
2. Determine whether a cybersecurity company qualifies for investments that are eligible for the tax credit under this section.
(d) (i) After the date on which the MDA issues an initial tax credit certificate under this section, a qualified investor shall have thirty (30) calendar days to make an investment in a qualified Mississippi cybersecurity company under this section.
(ii) Within ten (10) calendar days after the date on which a qualified investor makes the investment, the qualified Mississippi cybersecurity company shall provide to the MDA notice and proof of the making of the investment, including:
1. The date of the investment;
2. The amount invested;
3. Proof of the receipt of the invested funds by the qualified Mississippi cybersecurity company;
4. A complete description of the nature of the ownership interest in the equity of the qualified Mississippi cybersecurity company acquired in consideration of the investment; and
5. Any reasonable supporting documentation the MDA may require.
(iii) If a qualified Mississippi cybersecurity company does not provide the notice and proof of the making of the investment required in subparagraph (ii) of this paragraph within forty (40) calendar days after the date on which the MDA issues an initial tax credit certificate under this section:
1. The MDA shall rescind the initial tax credit certificate; and
2. The credit amount allocated to the rescinded certificate must revert to the Mississippi Cybersecurity Investment Tax Credit Reserve Fund and be available in the applicable fiscal year for allocation by the MDA to other initial tax credit certificates in accordance with this section.
(4) (a) The tax credit allowed in an initial tax credit certificate issued under this section is thirty-three percent (33%) of the investment in a qualified Mississippi cybersecurity company, not to exceed Two Hundred Fifty Thousand Dollars ($250,000.00).
(b) During any fiscal year, the executive director may not certify eligibility for tax credits for investments in a single qualified Mississippi cybersecurity company that in the aggregate exceed fifteen percent (15%) of the total appropriations to the Mississippi Cybersecurity Investment Tax Credit Reserve Fund for that fiscal year.
(c) Notwithstanding any other provision of law to the contrary, if the amount of the credit claimed by a qualified Mississippi cybersecurity company under this section exceeds the amount of income tax imposed upon the qualified Mississippi cybersecurity company for the taxable year, reduced by the sum of all other credits allowable to the qualified Mississippi cybersecurity company under state income tax laws, except credit for tax payments made by or on behalf of the qualified Mississippi cybersecurity company, then the qualified Mississippi cybersecurity company shall receive a refund from the Department of Revenue for the amount of such excess.
(5) The MDA may establish a panel composed of experts in the area of cybersecurity technology. Alternatively, the MDA, in its discretion, may opt to enter into service contracts with independent reviewers for those services that otherwise would be provided by the panel. The panel shall assist the MDA in its determination as to whether a company is a qualified Mississippi cybersecurity company. Any person who receives any benefit, direct or indirect, from the tax credit under this section is not eligible to serve as a member of the panel.
(6) To obtain the credit provided for in this section, a qualified Mississippi cybersecurity company must provide to the Department of Revenue a certified copy of the final tax credit certificate from the MDA setting forth the amount of the credit for which the qualified Mississippi cybersecurity company is qualified and any other information required by the Department of Revenue.
(7) (a) In this subsection, the term "reserve fund" means the Mississippi Cybersecurity Investment Tax Credit Reserve Fund established under paragraph (b) of this subsection.
(b) There is established the Mississippi Cybersecurity Investment Tax Credit Reserve Fund in the State Treasury. Money deposited into the reserve fund shall not lapse at the end of any fiscal year; however, investment earnings on the money in the reserve fund must be credited to the State General Fund. Money in the reserve fund may be used by the MDA to pay the costs of administering the tax credit program under this section.
(c) (i) Subject to the provisions of this subsection, the executive director shall issue an initial tax credit certificate to a qualified Mississippi cybersecurity company for each approved investment in a qualified Mississippi cybersecurity company eligible for a tax credit.
(ii) An initial tax credit certificate issued under this subsection must state the maximum amount of tax credit for which the qualified Mississippi cybersecurity company is eligible.
(iii) 1. Except as otherwise provided in this subparagraph, for any fiscal year, the executive director may not issue initial tax credit certificates for credit amounts in the aggregate totaling more than the amount appropriated by the Legislature to the reserve fund for that fiscal year, as reduced by the amount needed to pay the costs of administering the tax credit program under this section.
2. If the aggregate credit amounts under initial tax credit certificates issued in a fiscal year total less than the amount appropriated to the reserve fund for that fiscal year, any excess amount must remain in the reserve fund and may be issued under initial tax credit certificates for the next fiscal year.
3. For any fiscal year, if funds are transferred from the reserve fund under the authority of any provision of law other than under paragraph (d) of this subsection, the maximum credit amounts in the aggregate for which the executive director may issue initial tax credit certificates shall be reduced by the amount transferred.
(iv) For each fiscal year, the Legislature shall appropriate an amount equal to no less than Two Million Dollars ($2,000,000.00) to the reserve fund.
(v) Based on the actual amount of an investment made by a qualified investor, the executive director shall issue a final tax credit certificate to the qualified Mississippi cybersecurity company.
(d) (i) Except as otherwise provided in this paragraph, money appropriated to the reserve fund must remain in the reserve fund.
(ii) 1. Within fifteen (15) days after the end of each calendar quarter, the MDA shall notify the Department of Revenue as to each final credit certificate issued during the quarter:
a. The maximum credit amount stated in the initial tax credit certificate for the investment in the qualified Mississippi cybersecurity company; and
b. The final certified credit amount for the investment in the qualified Mississippi cybersecurity company.
2. On notification that an investment has been certified, the State Fiscal Officer shall transfer an amount equal to the credit amount stated in the initial tax credit certificate for the investment from the reserve fund to the State General Fund.
(iii) 1. Periodically, but not more frequently than quarterly, the MDA may submit invoices for costs that have been incurred or are anticipated to be incurred in administering the tax credit program under this section.
2. The State Fiscal Officer shall transfer money from the reserve fund to the MDA to pay for costs that have been incurred or are anticipated to be incurred in administering the tax credit program under this section.
(8) (a) The credit claimed under this section shall be recaptured as provided in paragraph (b) of this subsection if, within two (2) years from the close of the taxable year for which the credit is claimed:
(i) The qualified investor sells, transfers or otherwise disposes of the ownership interest in the qualified Mississippi cybersecurity company that gave rise to the credit; or
(ii) The qualified Mississippi cybersecurity company that received the credit:
1. Ceases operating as an active business with its headquarters and base of operations in the state; or
2. Pays out as dividends or otherwise distributes the equity investment.
(b) The amount required to be recaptured under this subsection is the product of multiplying:
(i) The total amount of the credit claimed or, in the case of an event described in paragraph (a)(i) of this subsection, the portion of the credit attributable to the ownership interest disposed of; and
(ii) 1. One hundred percent (100%), if the event requiring recapture of the credit occurs during the taxable year for which the tax credit is claimed;
2. Sixty-seven percent (67%), if the event requiring recapture of the credit occurs during the first year after the close of the taxable year for which the tax credit is claimed; or
3. Thirty-three percent (33%), if the event requiring recapture of the credit occurs more than one (1) year but not more than two (2) years after the close of the taxable year for which the tax credit is claimed.
(c) The qualified Mississippi cybersecurity company that claimed the credit must pay the amount to be recaptured as determined under paragraph (b) of this subsection as taxes payable to the state for the taxable year in which the event requiring recapture of the credit occurs.
(9) The MDA may revoke its initial or final certification of an approved credit under this section if any representation made in connection with the application for the certification is determined by the MDA to have been false. The revocation may be in full or in part as the MDA may determine and must be communicated to the qualified investor, the qualified Mississippi cybersecurity company and the Department of Revenue; however, the qualified Mississippi cybersecurity company must be given an opportunity to appeal any revocation to the MDA before notification is provided to the Department of Revenue. The Department of Revenue may make an assessment against the qualified Mississippi cybersecurity company to recapture any amount of tax credit that the qualified Mississippi cybersecurity company has already claimed.
(10) (a) On or before January 10 of each year, the MDA shall report to the Governor, the Secretary of the Senate, the Clerk of the House of Representatives and the Chairmen of House Ways and Means Committee and the Senate Finance Committee on the initial tax credit certificates awarded under this section for the prior calendar year. For each initial tax credit certificate awarded, the report must include:
(i) The name of the qualified investor and the amount of credit awarded or allocated to each qualified Mississippi cybersecurity company;
(ii) The name and address of the qualified Mississippi cybersecurity company that received the credit under this section and the county where the qualified Mississippi cybersecurity company is located; and
(iii) The dates of receipt and approval by the MDA of all applications for initial tax credit certificates.
(b) The report required under this subsection must summarize for the categories of qualified investors and qualified Mississippi cybersecurity companies:
(i) The total number of applicants for initial tax credit certificates under this section in each calendar year;
(ii) The number of applications for which initial tax credit certificates were issued in each calendar year; and
(iii) The total initial tax credit certificates authorized under this section for all calendar years under this section.
(11) The MDA and the Department of Revenue jointly shall adopt rules and regulations to carry out the provisions of this section and to specify criteria and procedures for application for, approval of, and monitoring continuing eligibility for the tax credit under this section.
SECTION 2. The provisions of Section 1 of this act shall be codified in Chapter 7, Title 27, Mississippi Code of 1972.
SECTION 3. This act shall take effect and be in force from and after January 1, 2014.