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2005 Texas Insurance Code - Not Codified CHAPTER 4. TAXES AND FEES
INSURANCE CODE - NOT CODIFIED CHAPTER 4. TAXES AND FEES SUBCHAPTER A. IMPOSITION AND COLLECTION OF TAXES AND FEES Art. 4.01. TAX OTHER THAN PREMIUM TAX. All insurance companies incorporated under the laws of this state shall hereafter be required to render for county and municipal taxation all of their real estate and all furniture, fixtures, automobiles, equipment, and data processing systems, as other such real estate and tangible personal property is rendered in the city and county where such property is located. All other personal property owned by such insurance companies, except fire insurance companies and casualty insurance companies, shall be valued as other such property is valued for assessment by the taxing authority in the following manner: From the total valuation of the entire assets of each insurance company shall be deducted: (a) All the debts of every kind and character owed by such insurance company; (b) All intangible personal property owned by such insurance company; (c) All reserves, being the amount of the debts of such insurance company by reason of its outstanding policies in gross. From the remainder shall be deducted the assessed value of all real estate and the assessed value of all furniture, fixtures, automobiles, equipment, and data-processing systems, rendered for taxation, and the remainder, if any there be, shall be taxable as personal property by the city and county where the principal business office of any such company is fixed by its charter. All other personal property of fire insurance companies and casualty insurance companies incorporated under the laws of this state shall be valued as other such property is valued for assessment by the taxing authority in the following manner: From the total valuation of the entire assets of each insurance company shall be deducted: (a) All the debts of every kind and character owed by such insurance company; (b) All intangible personal property owned by such insurance company; (c) All reserves, which reserves shall be computed in such manner as may be prescribed by the rules and regulations of the State Board of Insurance, for unearned premiums and for all bona fide outstanding losses. From the remainder shall be deducted the assessed value of all real estate and the assessed value of all furniture, fixtures, automobiles, equipment, and data-processing systems, rendered for taxation, and the remainder, if any there be, shall be taxable as personal property by the city and county where the principal business office of any company is fixed by its charter. Acts 1951, 52nd Leg., p. 868, ch. 491. Amended by Acts 1957, 55th Leg., p. 812, ch. 344, Sec. 3; Acts 1969, 61st Leg., p. 2470, ch. 831, Sec. 1, eff. Jan. 1, 1970. Amended by Acts 2001, 77th Leg., ch. 763, Sec. 1, eff. Sept. 1, 2001. Art. 4.11A. ADMINISTRATIVE SERVICES TAX.Tax payment requirement Sec. 1. Each insurance carrier receiving any form of administrative or service fee, consideration, payment, premium, fund, reimbursement, or compensation for performing or providing any service, function, or duty, or acting in any administrative, clerical, management, advisory, or technical capacity, or providing any claims or expense review, service, administration, management, payment, indemnification, or reimbursement, under an administrative service contract to be performed in this state, or on behalf of persons in this state, or for risks located in this state, and relating to any employer-employee, multiple employer-employee, self-insurance group, member, or other medical, accident, sickness, injury, indemnity, death, or health benefit plan, including but not limited to any medical, surgical, orthopedic, chiropractic, physical therapy, speech pathology, audiology, mental health, dental, hospital, workers' compensation, optometric, or health maintenance organization plan or program, but excluding any portion of such plan for which premiums for insurance are received by the carrier and are otherwise subject to taxation by this state under Article 1.14-1, 1.14-2, 4.10, or 4.11, Insurance Code, or Section 33, Texas Health Maintenance Organization Act (Article 20A.33, Vernon's Texas Insurance Code), shall pay to the State Board of Insurance as provided by this article for transmittal to the comptroller an annual tax on the gross amount of administrative or service fees received by the carrier. This section does not apply to a person to the extent he receives an administrative or service fee, consideration, payment, premium, fund, reimbursement, or compensation, as provided by this section, from a unit or units of local government, or from units of local government that have organized under Chapter 791, Government Code, or Chapter 119, Local Government Code, to provide group workers' compensation, health, accident, dental, disability, and life insurance solely to local government employees. This section does not apply to local mutual aid associations or fraternal benefit societies or associations.Other tax payment requirement Sec. 2. Each person, except an insurance carrier subject to Section 1 of this article, receiving any form of administrative or service fee, consideration, payment, premium, fund, reimbursement, or compensation for performing or providing any service, function, or duty, or acting in any administrative, clerical, management, advisory, or technical capacity, or providing any claims or expense review, service, administration, management, payment, indemnification, or reimbursement, under an administrative service contract to be performed in this state, or on behalf of persons in this state, or for risks located in this state, and relating to any employer-employee, multiple employer-employee, self-insurance group, member, or other medical, accident, sickness, injury, indemnity, death, or health benefit plan, including but not limited to any medical, surgical, orthopedic, chiropractic, physical therapy, speech pathology, audiology, mental health, dental, hospital, workers' compensation, optometric, or health maintenance organization plan or program, but excluding any portion of such plan for which premiums for insurance are received by an insurance carrier and are otherwise subject to taxation by this state under Article 1.14-1, 1.14-2, 4.10, or 4.11, Insurance Code, or Section 33, Texas Health Maintenance Organization Act (Article 20A.33, Vernon's Texas Insurance Code), shall pay to the State Board of Insurance as provided by this article for transmittal to the comptroller an annual tax on the gross amount of administrative or service fees received by the person. This section does not apply to a person to the extent he receives an administrative or service fee, consideration, payment, premium, fund, reimbursement, or compensation, as provided by this section, from a unit or units of local government, or from units of local government that have organized under Chapter 791, Government Code, or Chapter 119, Local Government Code, to provide group workers' compensation, health, accident, dental, disability, and life insurance solely to local government employees. This section does not apply to local mutual aid associations or to fraternal benefit societies or associations.Definitions Sec. 3. In this article: (1) "Insurance carrier" or "carrier" means: (A) every type of foreign and domestic insurer engaged in the business of insurance; (B) every insurer that is licensed or operates under, or is required to be licensed or to operate under, Chapter 2, 3, 8, 11, 13, 14, 15, 16, 17, 18, 19, 20, or 22, Insurance Code, or Article 1.14-2, Insurance Code. (C) a health maintenance organization that is licensed or operates under the Texas Health Maintenance Organization Act (Chapter 20A, Vernon's Texas Insurance Code); and (D) an unauthorized insurer within the meaning of Article 1.14-1, Insurance Code. (2) "Gross amount of administrative or service fee" includes: (A) the total gross amount of all consideration, fees, payments, reimbursements, and all compensation received by the carrier or other person during the taxable year for each and every kind of such service, activity, or function described either in Section 1 or Section 2 of this article; and (B) the total amount of all claims and benefits paid to or on behalf of employers, multiple employers, employees, unions, beneficiaries, trusts, members, spouses, dependents, or other persons under a plan described in either Section 1 or Section 2 of this article. (3) "Taxable year" is the calendar year, January 1 through December 31. (4) "Person" includes an individual, corporation, organization, government or governmental subdivision or agency, business trust, estate, trust, partnership, association, plan, or any other legal entity. (5) "Administrative service contract" means a management contract, agency contract, or other written or oral contract or agreement under which the management, administration, or servicing of a plan or any portion of a plan, is provided by an insurance carrier or other person. (6) "Plan" means any plan, fund, trust, or other program to the extent that the plan, fund, trust, or program is established or maintained for the purpose of providing persons, including spouses and beneficiaries, through insurance or otherwise, the benefits or coverage specified in Section 1 or Section 2 of this article.Tax rate Sec. 4. (a) There is imposed on each insurance carrier subject to Section 1 of this article and on each person subject to Section 2 of this article an annual tax equal to 2.5 percent of the gross amount of administrative or service fees respecting that carrier or person, but that insurance carrier or person is not liable for the payment of the gross amount of administrative or service fees as defined in Section 3(2)(B) of this article to the extent that funds from which the insurance carrier or person is able to collect or retain that tax as provided by Subsection (c) of this section do not come into the possession or under the control of the carrier or person, or to the extent collection or retention is preempted by federal law. An insurance carrier subject to Section 1 of this article and a person subject to Section 2 of this article may not, on or after the effective date of this article, enter into any administrative service contract with any plan that does not provide for the retention or collection by the insurance carrier or person of the tax imposed on and required to be paid to the State Board of Insurance under this article. (b) An insurance carrier subject to Section 1 of this article or a person subject to Section 2 of this article shall remit any tax owed under this section as specified in Subsection (a) of this section on behalf of itself and the plan or person for whom the service, administration, activity, management, or similar function is performed, and for that purpose is authorized and directed to collect or retain the amount of tax imposed by this article from funds, assessments, dues, premiums, or other money coming into its hands or under its control. (c) Except to the extent preempted by federal law, there is imposed on each plan of the type described in Section 1 or 2 of this article an annual tax equal to 2.5 percent of the gross amount of administrative or service fees and that plan shall pay the tax to the State Board of Insurance for transmittal to the comptroller. The tax provided by this subsection is imposed and is owed only to the extent a tax is not paid under Subsection (a) of this section. (d) Notwithstanding any other provision of this article, the tax imposed under this article creates no duty and shall not be collected to the extent preempted or prohibited under the constitution of this state or the United States. It is the intent of the legislature that this article not apply to any person, risk, or transaction to which it may not lawfully apply under the constitution of this state or the United States.Date for filing tax return and paying tax Sec. 5. (a) Except as provided by Subsection (b) of this section, a tax return for each tax year ending the 31st day of December preceding shall be filed and the total amount of the tax due under this article shall be paid on or before March 1 of each year to the State Board of Insurance. (b) If an insurance carrier is required to file its annual statement later than March 1 of each year, the total amount of tax due under this article must be paid on or before the date the annual statement is due.Annual sworn returns; forms; additional information Sec. 6. Each insurance carrier or other person that is liable under this article for a tax on the gross amount of administrative or service fees shall file a sworn tax return annually on forms prescribed by the State Board of Insurance. The commissioner of insurance may require that carrier or other person to file any relevant additional information reasonably necessary to verify the amount of tax due.Certification of taxes paid Sec. 7. After receipt by the commissioner of insurance of each tax return and tax payments, the commissioner shall certify to the comptroller the amount of taxes paid by each insurance carrier or other person. The commissioner's certification shall be authorization for the comptroller to transfer those certified amounts from the insurance suspense account to the general revenue fund unless there is a lawful reason for maintaining the payment in the insurance suspense account.Supplemental certification of taxes due; suspension of time period; suit by commissioner Sec. 8. (a) Except as otherwise provided by this article, the amount of any tax imposed by this article if determined on examination of any carrier or other person liable for that tax, or if determined by any other manner, shall be filed by the commissioner of insurance with the comptroller by supplemental certificate showing the amount of any taxes due by that carrier or other person within four years after the return was filed, whether or not the return was filed on or after the date due. (b) When an administrative review or a judicial proceeding is pending in a court of competent jurisdiction prior to the expiration of the time presented in Subsection (a) of this section, the time period prescribed by Subsection (a) of this section shall be suspended with respect to the amount of tax in issue in that proceeding until such matters are finally determined, whereupon the running of that period of time shall resume until finally expired. (c) In the case of failure to file a return or pay the taxes due, the commissioner of insurance may notify the comptroller of the failure and the amount of taxes due, and the commissioner of insurance may proceed in a court of competent jurisdiction for collection of the tax at any time. Sec. 9. Repealed by Acts 1989, 71st Leg., ch. 232, Sec. 25(b)(4), eff. Sept. 1, 1989.Quarterly prepayment of taxes Sec. 10. A quarterly prepayment of the tax must be made on March 1, May 15, August 15, and November 15 by all carriers or other persons with net tax liability for the previous calendar year in excess of $1,000. The tax paid on each date must equal one-fourth of the total tax paid for the previous calendar year. Should no tax have been paid during the previous calendar year, the quarterly payment shall equal the tax which would be owed on the gross amount of administrative or service fees received during the previous calendar quarter ending March 31, June 30, September 30, or December 31 at the tax rate specified by law. The State Board of Insurance is authorized to certify for refund to the comptroller any overpayment of taxes that results from the quarterly prepayment system herein established.Rules, regulations, standards, limitations Sec. 11. The State Board of Insurance may establish any rules, regulations, minimum standards, or limitations that are fair and reasonable as may be appropriate for the augmentation and implementation of this article.Application of other laws Sec. 12. The taxes imposed by this article, the insurance carrier, and each person subject to this article, are also subject to Articles 4.12, 4.13, 4.14, 4.15, and 4.16 of this code in the same manner and to the same extent as they apply to taxes and taxpayers subject to other provisions of this code to which those articles apply.Tax additional Sec. 13. The tax imposed by this article is in addition to, and not in lieu of, any other taxes imposed by law, and shall not be deemed to be in conflict with any other such tax unless specifically repealed by the legislature. Added by Acts 1987, 70th Leg., 2nd C.S., ch. 5, art. 8, Sec. 1. Sec. 9 amended by Acts 1989, 71st Leg., ch. 232, Sec. 25(b)(4), eff. Sept. 1, 1989; Secs. 1 and 2 amended by Acts 1997, 75th Leg., ch. 1423, Sec. 11.21, eff. Sept. 1, 1997; Sec. 4(c) amended by Acts 1997, 75th Leg., ch. 1423, Sec. 11.22, eff. Sept. 1, 1997; Secs. 7, 8 and 10 amended by Acts 1997, 75th Leg., ch. 1423, Sec. 11.23, eff. Sept. 1, 1997.SUBCHAPTER B. PREMIUM TAX CREDIT FOR INVESTMENT IN CERTIFIED CAPITAL COMPANY Art. 4.51. DEFINITIONS. In this subchapter: (1) "Affiliate" of another person means: (A) a person who is an affiliate for purposes of Section 2, Article 21.49-1 of this code; (B) a person who directly or indirectly: (i) beneficially owns 10 percent or more of the outstanding voting securities or other voting or management interests of the other person, whether through rights, options, convertible interests, or otherwise; or (ii) controls or holds power to vote 10 percent or more of the outstanding voting securities or other voting or management interests of the other person; (C) a person 10 percent or more of the outstanding voting securities or other voting or management interests of which are directly or indirectly: (i) beneficially owned by the other person, whether through rights, options, convertible interests, or otherwise; or (ii) controlled or held with power to vote by the other person; (D) a partnership in which the other person is a general partner; or (E) an officer, director, employee, or agent of the other person, or an immediate family member of the officer, director, employee, or agent. (2) "Allocation date" means the date on which the certified investors of a certified capital company are allocated premium tax credits by the comptroller under this subchapter. (3) "Certified capital" means an investment of cash by a certified investor in a certified capital company that fully funds the purchase price of an equity interest in the company or a qualified debt instrument issued by the certified capital company. (4) "Certified capital company" means a partnership, corporation, or trust or limited liability company, whether organized on a profit or not-for-profit basis, that has as its primary business activity the investment of cash in qualified businesses and that is certified as meeting the criteria of this subchapter. (5) "Certified investor" means an insurance company or other person that has state premium tax liability and that contributes certified capital pursuant to an allocation of premium tax credits under this subchapter. (6) "Early stage business" means a qualified business that satisfies at least one of the following criteria: (A) is involved, at the time of a certified capital company's first investment, in activities related to the development of initial product or service offerings, such as prototype development or establishment of initial production or service processes; (B) was initially organized less than two years before the date of the certified capital company's first investment; or (C) during the fiscal year immediately preceding the year of the certified capital company's first investment had, on a consolidated basis with its affiliates, gross revenues of not more than $2 million as determined in accordance with generally accepted accounting principles. (7) "Person" means a natural person or entity, including a corporation, general or limited partnership, or trust or limited liability company. (8) "Premium tax credit allocation claim" means a claim for allocation of premium tax credits. (9) "Qualified business" means a business that, at the time of a certified capital company's first investment in the business: (A) is headquartered in this state and intends to remain in this state after receipt of the investment by the certified capital company; (B) has its principal business operations located in this state and intends to maintain business operations in this state after receipt of the investment by the certified capital company; (C) has agreed to use the qualified investment primarily to: (i) support business operations in this state, other than advertising, promotion, and sales operations which may be conducted outside of this state; or (ii) in the case of a start-up company, establish and support business operations in this state, other than advertising, promotion, and sales operations which may be conducted outside of this state; (D) has not more than 100 employees and: (i) employs at least 80 percent of its employees in this state; or (ii) pays 80 percent of its payroll to employees in this state; (E) is primarily engaged in: (i) manufacturing, processing, or assembling products; (ii) conducting research and development; or (iii) providing services; and (F) is not primarily engaged in: (i) retail sales; (ii) real estate development; (iii) the business of insurance, banking, or lending; or (iv) the provision of professional services provided by accountants, attorneys, or physicians. (10) "Qualified debt instrument" means a debt instrument issued by a certified capital company, at par value or a premium, that: (A) has an original maturity date of at least five years after the date of issuance; (B) has a repayment schedule that is not faster than a level principal amortization over five years; and (C) has no interest, distribution, or payment features that are related to the profitability of the certified capital company or the performance of the certified capital company's investment portfolio. (11) "Qualified distribution" means any distribution or payment from certified capital by a certified capital company in connection with: (A) the reasonable costs and expenses of forming, syndicating, managing, and operating the company, provided that the distribution or payment is not made directly or indirectly to a certified investor, including: (i) reasonable and necessary fees paid for professional services, including legal and accounting services, related to the formation and operation of the company; and (ii) an annual management fee in an amount that does not exceed two and one-half percent of the certified capital of the company; and (B) any projected increase in federal or state taxes, including penalties and interest related to state and federal income taxes, of the equity owners of the company resulting from the earnings or other tax liability of the company to the extent that the increase is related to the ownership, management, or operation of the company. (12) "Qualified investment" means the investment of cash by a certified capital company in a qualified business for the purchase of any debt, debt participation, equity, or hybrid security of any nature or description, including a debt instrument or security that has the characteristics of debt but that provides for conversion into equity or equity participation instruments such as options or warrants. (13) "State premium tax liability" means: (A) any liability incurred by any person under Chapter 221, 222, 223, or 224 of this code; or (B) if the tax liability imposed under Chapter 221, 222, 223, or 224 of this code is eliminated or reduced, any tax liability imposed on an insurance company or other person that had premium tax liability under Subchapter A of this chapter or Article 9.59 of this code as those laws existed on January 1, 2003. (14) "Strategic investment area" means an area of this state that qualifies as a strategic investment area under Subchapter O, Chapter 171, Tax Code, or, after the expiration of that subchapter, an area that qualified as a strategic investment area under that subchapter immediately before its expiration. (15) "Strategic investment business" means a qualified business that has its principal business operations located in one or more strategic investment areas and intends to maintain business operations in the strategic investment areas after receipt of the investment by the certified capital company. Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Subd. (2) amended by Acts 2003, 78th Leg., ch. 1310, Sec. 69, eff. June 20, 2003; Subd. (13) amended by Acts 2003, 78th Leg., ch. 1310, Sec. 69, eff. June 20, 2003; Subsecs. (5), (13) amended by Acts 2005, 79th Leg., ch. 99, Sec. 1, eff. Sept. 1, 2005. Art. 4.52. DUTIES OF COMPTROLLER; RULES; IMPLEMENTATION. The comptroller shall administer this subchapter and shall adopt rules and forms as necessary to implement this subchapter. The rules must provide that: (1) the comptroller shall begin accepting applications for certification as a certified capital company not later than the 30th day after the date the rules are adopted; and (2) the comptroller shall accept premium tax credit allocation claims on behalf of certified investors on a date not later than the 120th day after the date the rules are adopted. Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Amended by Acts 2003, 78th Leg., ch. 1310, Sec. 70, eff. June 20, 2003. Art. 4.53. CERTIFICATION. (a) The comptroller by rule shall establish the application procedures for certified capital companies. (b) An applicant must file an application in the form prescribed by the comptroller accompanied by a nonrefundable application fee of $7,500. The application must include an audited balance sheet of the applicant, with an unqualified opinion from an independent certified public accountant, as of a date not more than 35 days before the date of the application. (c) To qualify as a certified capital company: (1) the applicant must have, at the time of application for certification, an equity capitalization of at least $500,000 in the form of unencumbered cash or cash equivalents; (2) at least two principals or persons employed to manage the funds of the applicant must have at least four years of experience in the venture capital industry; and (3) the applicant must satisfy any additional requirement imposed by the comptroller by rule. (d) The comptroller shall review the application, organizational documents, and business history of each applicant and shall ensure that the applicant satisfies the requirements of this subchapter. (e) Not later than the 30th day after the date an application is filed, the comptroller shall: (1) issue the certification; or (2) refuse to issue the certification and communicate in detail to the applicant the grounds for the refusal, including suggestions for the removal of those grounds. Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Art. 4.54. MANAGEMENT BY CERTAIN ENTITIES PROHIBITED. (a) An insurance company, group of insurance companies, or other persons who may have state premium tax liability or the affiliates of the insurance companies or other persons may not, directly or indirectly: (1) manage a certified capital company; (2) beneficially own, whether through rights, options, convertible interests, or otherwise, more than 10 percent of the outstanding voting securities of a certified capital company; or (3) control the direction of investments for a certified capital company. (b) Subsection (a) of this article applies without regard to whether the insurance company or other person or the affiliate of the insurance company or other person is licensed by or transacts business in this state. (c) This article does not preclude a certified investor, insurance company, or any other party from exercising its legal rights and remedies, including interim management of a certified capital company, if authorized by law, with respect to a certified capital company that is in default of its statutory or contractual obligations to the certified investor, insurance company, or other party. Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Art. 4.55. OFFERING MATERIAL USED BY CERTIFIED CAPITAL COMPANY. Any offering material involving the sale of securities of the certified capital company must include the following statement: By authorizing the formation of a certified capital company, the State of Texas does not endorse the quality of management or the potential for earnings of the company and is not liable for damages or losses to a certified investor in the company. Use of the word "certified" in an offering does not constitute a recommendation or endorsement of the investment by the comptroller of public accounts. If applicable provisions of law are violated, the State of Texas may require forfeiture of unused premium tax credits and repayments of used premium tax credits. Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Art. 4.56. REQUIREMENTS FOR CONTINUANCE OF CERTIFICATION. (a) To continue to be certified, a certified capital company shall make qualified investments according to the following schedule: (1) before the third anniversary of its allocation date, a company must have made qualified investments in an amount cumulatively equal to at least 30 percent of its certified capital; and (2) before the fifth anniversary of its allocation date, a company must have made qualified investments in an amount cumulatively equal to at least 50 percent of its certified capital, subject to Subsection (b) of this article. (b) At least 50 percent of the amount of qualified investments required by Subsection (a)(2) of this article must be placed in early stage businesses. At least 30 percent of the amount of qualified investments required by Subsections (a)(1) and (2) of this article must be placed in a strategic investment business. (c) The aggregate cumulative amount of all qualified investments made by the certified capital company after its allocation date shall be considered in the computation of the percentage requirements under this subchapter. Any proceeds received from a qualified investment may be invested in another qualified investment and count toward any requirement in this subchapter with respect to investments of certified capital. (d) Nothing in this subchapter shall limit an insurance company's ownership of nonvoting equity interests in a certified capital company. (e) A business that is classified as a qualified business at the time of the first investment in the business by a certified capital company remains classified as a qualified business and may receive follow-on investments from any certified capital company. Except as provided by this subsection, a follow-on investment made under this subsection is a qualified investment even though the business may not meet the definition of a qualified business at the time of the follow-on investment. A follow-on investment does not qualify as a qualified investment if, at the time of the follow-on investment, the qualified business no longer has its principal business operations in this state. (f) A qualified investment may not be made at a cost to a certified capital company greater than 15 percent of the total certified capital of the company at the time of investment. (g) If, before the 90th day after the date that a certified capital company makes an investment in a qualified business, the qualified business moves its principal business operations from this state, the investment may not be considered a qualified investment for purposes of the percentage requirements under this subchapter. (h) A certified capital company shall invest any certified capital not invested in qualified investments only in the following: (1) cash deposited with a federally insured financial institution; (2) certificates of deposit in a federally insured financial institution; (3) investment securities that are obligations of the United States or its agencies or instrumentalities or obligations that are guaranteed fully as to principal and interest by the United States; (4) debt instruments rated at least "A" or its equivalent by a nationally recognized credit rating organization, or issued by, or guaranteed with respect to payment by, an entity whose unsecured indebtedness is rated at least "A" or its equivalent by a nationally recognized credit rating organization, and which indebtedness is not subordinated to other unsecured indebtedness of the issuer or the guarantor; (5) obligations of this state or any municipality or political subdivision of this state; or (6) any other investments approved in advance and in writing by the comptroller. Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Art. 4.57. EVALUATION OF BUSINESS BY COMPTROLLER. (a) A certified capital company may, before making an investment in a business, request from the comptroller a written opinion as to whether the business in which it proposes to invest is a qualified business, an early stage business, or a strategic investment business. (b) The comptroller shall, not later than the 15th business day after the date of the receipt of a request under Subsection (a) of this article, determine whether the business meets the definition of a qualified business, an early stage business, or a strategic investment business, as applicable, and notify the certified capital company of the determination and an explanation of its determination or notify the certified capital company that an additional 15 days will be needed to review and make the determination. (c) If the comptroller fails to notify the certified capital company with respect to the proposed investment within the period specified by Subsection (b) of this article, the business in which the company proposes to invest is considered to be a qualified business, early stage business, or a strategic investment business, as appropriate. Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Art. 4.58. REPORTS TO COMPTROLLER; AUDITED FINANCIAL STATEMENT. (a) Each certified capital company shall report to the comptroller as soon as practicable after the receipt of certified capital: (1) the name of each certified investor from whom the certified capital was received, including the certified investor's insurance premium tax identification number; (2) the amount of each certified investor's investment of certified capital and premium tax credits; and (3) the date on which the certified capital was received. (b) Not later than January 31 of each year, each certified capital company shall report to the comptroller: (1) the amount of the company's certified capital at the end of the preceding year; (2) whether or not the company has invested more than 15 percent of its total certified capital in any one business; (3) each qualified investment that the company made during the preceding year and, with respect to each qualified investment, the number of employees of the qualified business at the time the qualified investment was made; and (4) any other information required by the comptroller, including any information required by the comptroller to comply with Article 4.73 of this code. (c) Not later than April 1 of each year, the company shall provide to the comptroller an annual audited financial statement that includes the opinion of an independent certified public accountant. The audit shall address the methods of operation and conduct of the business of the company to determine whether: (1) the company is complying with this subchapter and the rules adopted under this subchapter; (2) the funds received by the company have been invested as required within the time provided by Article 4.56(a) of this code; and (3) the company has invested the funds in qualified businesses. Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Art. 4.59. RENEWAL. (a) Not later than January 31 of each year, each certified capital company shall pay a nonrefundable renewal fee of $5,000 to the comptroller. If a certified capital company fails to pay its renewal fee on or before that date, the company must pay, in addition to the renewal fee, a late fee of $5,000 to continue its certification. (b) Notwithstanding Subsection (a) of this article, a renewal fee is not required within six months of the date on which the company's certification is issued under Article 4.53 of this code. Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Art. 4.60. DISTRIBUTIONS; REPAYMENT OF DEBT. (a) A certified capital company may make a qualified distribution at any time. To make a distribution or payment, other than a qualified distribution, a company must have made qualified investments in an amount cumulatively equal to 100 percent of its certified capital. (b) Notwithstanding Subsection (a) of this article, a company may make repayments of principal and interest on its indebtedness without any restriction, including repayments of indebtedness of the company on which certified investors earned premium tax credits. (c) If a business in which a qualified investment is made relocates its principal business operations to another state during the term of the certified capital company's investment in the business, the cumulative amount of qualified investments made by the certified capital company for purposes of satisfying the requirements of Subsection (a) of this article only is reduced by the amount of the certified capital company's qualified investments in the business that has relocated. This subsection does not apply if the business demonstrates that it has returned its principal business operations to this state not later than the 90th day after the date of its relocation. Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Art. 4.61. ANNUAL REVIEW; DECERTIFICATION. (a) The comptroller shall conduct an annual review of each certified capital company to: (1) ensure that the company continues to satisfy the requirements of this subchapter and that the company has not made any investment in violation of this subchapter; and (2) determine the eligibility status of its qualified investments. (b) The cost of the annual review shall be paid by each certified capital company according to a reasonable fee schedule adopted by the comptroller. (c) A material violation of Article 4.56, 4.58, or 4.59 of this code is grounds for decertification of the certified capital company. If the comptroller determines that a company is not in compliance with Article 4.56, 4.58, or 4.59 of this code, the comptroller shall notify the officers of the company in writing that the company may be subject to decertification after the 120th day after the date of mailing of the notice, unless the deficiencies are corrected and the company returns to compliance with those articles. (d) The comptroller may decertify a certified capital company, after opportunity for hearing, if the comptroller finds that the company is not in compliance with Article 4.56, 4.58, or 4.59 of this code at the end of the period established by Subsection (c) of this article. Decertification under this subsection is effective on receipt of notice of decertification by the company. The comptroller shall notify any appropriate state agency of the decertification. Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Art. 4.62. ADMINISTRATIVE PENALTY. (a) The comptroller may impose an administrative penalty on a certified capital company that violates this subchapter. (b) The amount of the penalty may not exceed $25,000, and each day a violation continues or occurs is a separate violation for the purpose of imposing a penalty. The amount of the penalty shall be based on: (1) the seriousness of the violation, including the nature, circumstances, extent, and gravity of the violation; (2) the economic harm caused by the violation; (3) the history of previous violations; (4) the amount necessary to deter a future violation; (5) efforts to correct the violation; and (6) any other matter that justice may require. (c) Certified capital companies assessed penalties under this subchapter may request a redetermination as provided in Chapter 111, Tax Code. (d) The attorney general may sue to collect the penalty. (e) A proceeding to impose the penalty is considered to be a contested case under Chapter 2001, Government Code. Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Art. 4.63. RECAPTURE AND FORFEITURE OF PREMIUM TAX CREDITS: DECERTIFICATION OF COMPANY. (a) Decertification of a certified capital company may cause the recapture of premium tax credits previously claimed and the forfeiture of future premium tax credits to be claimed by certified investors with respect to the company, as follows: (1) decertification of a company on or before the third anniversary of its allocation date causes the recapture of any premium tax credit previously claimed and the forfeiture of any future premium tax credit to be claimed by a certified investor with respect to the company; (2) for a company that meets the requirements for continued certification under Article 4.56(a)(1) of this code and subsequently fails to meet the requirements for continued certification under Article 4.56(a)(2) of this code, any premium tax credit that has been or will be taken by a certified investor on or before the third anniversary of the allocation date is not subject to recapture or forfeiture, but any premium tax credit that has been or will be taken by a certified investor after the third anniversary of the allocation date of the company is subject to recapture or forfeiture; (3) for a company that has met the requirements for continued certification under Articles 4.56(a)(1) and (2) of this code and is subsequently decertified, any premium tax credit that has been or will be taken by a certified investor on or before the fifth anniversary of the allocation date is not subject to recapture or forfeiture, but any premium tax credit to be taken after the fifth anniversary of the allocation date is subject to forfeiture only if the company is decertified on or before the fifth anniversary of its allocation date; and (4) for a company that has invested an amount cumulatively equal to 100 percent of its certified capital in qualified investments, any premium tax credit claimed or to be claimed by a certified investor is not subject to recapture or forfeiture under this article. (b) The comptroller shall send written notice to the address of each certified investor whose premium tax credit is subject to recapture or forfeiture, using the address shown on the last premium tax filing. Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Art. 4.64. INDEMNITY AGREEMENTS AND INSURANCE AUTHORIZED. A certified capital company may agree to indemnify, or purchase insurance for the benefit of, a certified investor for losses resulting from the recapture or forfeiture of premium tax credits under Article 4.63 of this code. Any guaranty, indemnity, bond, insurance policy, or other payment undertaking made under this article may not be provided by more than one certified investor of the certified capital company or affiliate of the certified investor. Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Art. 4.65. PREMIUM TAX CREDIT. (a) A certified investor who makes an investment of certified capital shall in the year of investment earn a vested credit against state premium tax liability equal to 100 percent of the certified investor's investment of certified capital, subject to the limits imposed by this subchapter. Beginning with the tax report due March 1, 2009, for the 2008 tax year, a certified investor may take up to 25 percent of the vested premium tax credit in any taxable year of the certified investor. The credit may not be applied to estimated payments due in 2008. (b) The credit to be applied against state premium tax liability in any one year may not exceed the state premium tax liability of the certified investor for the taxable year. Any unused credit against state premium tax liability may be carried forward indefinitely until the premium tax credits are used. (c) A certified investor claiming a credit against state premium tax liability earned through an investment in a company is not required to pay any additional retaliatory tax levied under Article 21.46 of this code as a result of claiming that credit. An investment made under this subchapter is a "Texas investment" for purposes of Subchapter A of this chapter. Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Subsec. (a) amended by Acts 2003, 78th Leg., ch. 1310, Sec. 71, eff. June 20, 2003. Art. 4.66. PREMIUM TAX CREDIT ALLOCATION CLAIM FORM. (a) A premium tax credit allocation claim must be prepared and executed by a certified investor on a form provided by the comptroller. The certified capital company must file the claim with the comptroller on the date on which the comptroller accepts premium tax credit allocation claims on behalf of certified investors under rules adopted under Article 4.52(2) of this code. The premium tax credit allocation claim form must include an affidavit of the certified investor under which the certified investor becomes legally bound and irrevocably committed to make an investment of certified capital in a certified capital company in the amount allocated even if the amount allocated is less than the amount of the claim, subject only to the receipt of an allocation under Article 4.68 of this code. (b) A certified investor may not claim a premium tax credit under Article 4.65 of this code for an investment that has not been funded, even if the certified investor has committed to fund the investment. Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Subsec. (a) amended by Acts 2003, 78th Leg., ch. 1310, Sec. 72, eff. June 20, 2003. Art. 4.67. TOTAL LIMIT ON CREDITS. (a) The total amount of certified capital for which premium tax credits may be allowed under this subchapter for all years in which premium tax credits are allowed is $200 million. (b) The total amount of certified capital for which premium tax credits may be allowed for all certified investors under this subchapter may not exceed the amount that would entitle all certified investors in certified capital companies to take total credits of $50 million in a year. (c) A certified capital company and its affiliates may not file premium tax credit allocation claims in excess of the maximum amount of certified capital for which premium tax credits may be allowed as provided in this article. Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Amended by Acts 2003, 78th Leg., ch. 1310, Sec. 73, eff. June 20, 2003. Art. 4.68. PRO RATA ALLOCATION OF CREDITS. (a) If the total premium tax credits claimed by all certified investors exceeds the total limits on premium tax credits established by Article 4.67(a) of this code, the comptroller shall allocate the total amount of premium tax credits allowed under this subchapter to certified investors in certified capital companies on a pro rata basis in accordance with this article. (b) The pro rata allocation for each certified investor shall be the product of: (1) a fraction, the numerator of which is the amount of the premium tax credit allocation claim filed on behalf of the investor and the denominator of which is the total amount of all premium tax credit allocation claims filed on behalf of all certified investors; and (2) the total amount of certified capital for which premium tax credits may be allowed under this subchapter. (c) Not later than the 15th day after the date on which the comptroller accepts premium tax credit allocation claims on behalf of certified investors under rules adopted under Article 4.52(2) of this code, the comptroller shall notify each certified capital company of the amount of tax credits allocated to each certified investor. Each certified capital company shall notify each certified investor of their premium tax credit allocation. (d) If a certified capital company does not receive an investment of certified capital equaling the amount of premium tax credits allocated to a certified investor for which it filed a premium tax credit allocation claim before the end of the 10th business day after the date of receipt of notice of allocation, the company shall notify the comptroller by overnight common carrier delivery service and that portion of capital allocated to the certified investor shall be forfeited. The comptroller shall reallocate the forfeited capital among the certified investors in the other certified capital companies that originally received an allocation so that the result after reallocation is the same as if the initial allocation under this article had been performed without considering the premium tax credit allocation claims that were subsequently forfeited. (e) The maximum amount of certified capital for which premium tax credit allocation may be allowed on behalf of any one certified investor and its affiliates, whether by one or more certified capital companies, may not exceed the greater of: (1) $10 million; or (2) 15 percent of the maximum aggregate amount available under Article 4.67(a) of this code. Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Subsec. (c) amended by Acts 2003, 78th Leg., ch. 1310, Sec. 74, eff. June 20, 2003. Art. 4.69. TREATMENT OF CREDITS AND CAPITAL. In any case under this code or another insurance law of this state in which the assets of a certified investor are examined or considered, the certified capital may be treated as an admitted asset, subject to the applicable statutory valuation procedures. Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Art. 4.70. IMPACT OF TAX CREDITS CLAIMED BY A CERTIFIED INVESTOR ON INSURANCE RATES. A certified investor is not required to reduce the amount of premium tax included by the investor in connection with ratemaking for any insurance contract written in this state because of a reduction in the investor's Texas premium tax derived from the credit granted under this subchapter. Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Art. 4.71. TRANSFERABILITY OF CREDIT. (a) The comptroller shall adopt rules to facilitate the transfer or assignment of premium tax credits by certified investors. A certified investor may transfer or assign premium tax credits only in compliance with the rules adopted under this subsection. (b) The transfer or assignment of a premium tax credit does not affect the schedule for taking the premium tax credit under this subchapter. Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Art. 4.72. PROMOTION. The Texas Department of Economic Development shall promote the program established under this subchapter in the Texas Business and Community Economic Development Clearinghouse. Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Art. 4.73. REPORT TO LEGISLATURE. (a) The comptroller shall prepare a biennial report with respect to results of the implementation of this subchapter. The report must include: (1) the number of certified capital companies holding certified capital; (2) the amount of certified capital invested in each certified capital company; (3) the amount of certified capital the certified capital company has invested in qualified businesses as of January 1, 2006, and the cumulative total for each subsequent year; (4) the total amount of tax credits granted under this subchapter for each year that credits have been granted; (5) the performance of each certified capital company with respect to renewal and reporting requirements imposed under this subchapter; (6) with respect to the qualified businesses in which certified capital companies have invested: (A) the classification of the qualified businesses according to the industrial sector and the size of the business; (B) the total number of jobs created by the investment and the average wages paid for the jobs; and (C) the total number of jobs retained as a result of the investment and the average wages paid for the jobs; and (7) the certified capital companies that have been decertified or that have failed to renew the certification and the reason for any decertification. (b) The comptroller shall file the report with the governor, the lieutenant governor, and the speaker of the house of representatives not later than December 15 of each even-numbered year. Added by Acts 2001, 77th Leg., ch. 437, Sec. 1, eff. May 28, 2001. Subsec. (a) amended by Acts 2003, 78th Leg., ch. 1310, Sec. 75, eff. June 20, 2003.
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