2006 Code of Virginia § 58.1-339.4 - Qualified equity and subordinated debt investments tax credit

58.1-339.4. Qualified equity and subordinated debt investments tax credit.

A. As used in this section:

"Equity" means common stock or preferred stock, regardless of class orseries, of a corporation; a partnership interest in a limited partnership; ora membership interest in a limited liability company, which is not requiredor subject to an option on the part of the taxpayer to be redeemed by theissuer within three years from the date of issuance.

"Qualified business" means a business which (i) has annual gross revenuesof no more than $3 million in its most recent fiscal year, (ii) has itsprincipal office or facility in the Commonwealth, (iii) is engaged inbusiness primarily in or does substantially all of its production in theCommonwealth, (iv) has not obtained during its existence more than $3 millionin aggregate gross cash proceeds from the issuance of its equity or debtinvestments (not including commercial loans from chartered banking or savingsand loan institutions), and (v) is not primarily engaged, or is not primarilyorganized to engage, in any of the following types of businesses:

1. Banks;

2. Savings and loan institutions;

3. Credit or finance;

4. Financial, broker or investment;

5. Businesses organized for the primary purpose of rendering professionalservices as defined in Chapter 7 ( 13.1-542 et seq.) of Title 13.1;

6. Accounting;

7. Government, charitable, religious or trade institutions or organizations;

8. Conventional coal, oil and gas, and mineral exploration;

9. Insurance;

10. Real estate design or engineering;

11. Construction or construction contracting;

12. Business consulting or business brokering;

13. Residential housing, real estate brokerage, sale or leasing businesses,or real estate development; or

14. Any other business which the Department of Taxation determines byregulation to be against the public interest, the purposes of this section orin violation of the law.

"Qualified investment" means a cash investment in a qualified business inthe form of equity or subordinated debt; however, an investment shall not bequalified if the taxpayer who holds such investment, or any of suchtaxpayer's family members, or any entity affiliated with such taxpayer,receives or has received compensation from the qualified business in exchangefor services provided to such business as an employee, officer, director,manager, independent contractor or otherwise in connection with or within oneyear before or after the date of such investment. For the purposes hereof,reimbursement of reasonable expenses incurred shall not be deemed to becompensation.

"Subordinated debt" means indebtedness of a corporation, general or limitedpartnership, or limited liability company that (i) by its terms required norepayment of principal for the first three years after issuance; (ii) is notguaranteed by any other person or secured by any assets of the issuer or anyother person; and (iii) is subordinated to all indebtedness and obligationsof the issuer to national or state-chartered banking or savings and loaninstitutions.

B. For taxable years beginning on or after January 1, 1999, a taxpayer shallbe allowed a credit against the tax levied pursuant to 58.1-320 and58.1-360 in an amount equal to 50 percent of such taxpayer's qualifiedinvestments during such taxable year. No credit shall be allowed to anytaxpayer that has committed capital under management in excess of $10 millionand engages in the business of making debt or equity investments in privatebusinesses, or to any taxpayer that is allocated a credit as a partner,shareholder, member or owner of an entity that engages in such business.

C. The amount of any credit attributable to a qualified investment by apartnership, electing small business corporation (S corporation), or limitedliability company shall be allocated to the individual partners,shareholders, or members, as the case may be, as they may determine.

D. The aggregate amount of the credit for each taxpayer shall not exceed thelesser of (i) the tax imposed for such taxable year or (ii) $50,000. Anycredit not usable for the taxable year in which the credit was allowed maybe, to the extent usable, carried over for the next 15 succeeding taxableyears or until the total amount of the tax credit has been taken, whicheveroccurs first.

E. The amount of tax credits available under this section for a calendar yearshall be $5 million.

F. Unless the taxpayer transfers the equity received in connection with aqualified investment as a result of (i) the liquidation of the qualifiedbusiness issuing such equity, (ii) the merger, consolidation or otheracquisition of such business with or by a party not affiliated with suchbusiness, or (iii) the death of the taxpayer, any taxpayer that fails to holdsuch equity for at least three full calendar years following the calendaryear for which a tax credit for a qualified investment is allocated pursuantto this section shall forfeit both used and unused tax credits and inaddition shall pay the Department of Taxation interest on the total allowedcredits at the rate of one percent per month, compounded monthly, from thedate the tax credits were allocated to the taxpayer. The Department ofTaxation shall deposit any amounts received under this subsection into thegeneral fund of the Commonwealth.

G. Prior to December 31, 1998, the Department of Taxation shall promulgateregulations in accordance with the Administrative Process Act ( 2.2-4000 etseq.) (i) establishing procedures for claiming the tax credit provided bythis section and (ii) providing for the allocation of tax credits amongtaxpayers requesting credits in the event the amount of credits for whichrequests are made exceeds the available amount of credits in any one calendaryear. Notwithstanding the foregoing, the Department of Taxation shall permitan application for certification as a qualified business to be filed at anytime during the calendar year regardless of when the investment was madeduring the calendar year.

(1998, c. 491; 2004, c. 614.)