An Act To Improve the Maine Seed Capital Tax Credit
Maine Legislature, Session 125, LD 0022
Committee: Taxation
Sponsors: VALENTINO, BRYANT, CHASE, KNIGHT, NELSON, PILON, BARTLETT, COURTNEY, CRAVEN
Amends: 10 MRSA §1100-T, 36 MRSA §5122, 36 MRSA §5200-A, 36 MRSA §5216-B

Legislative Document 
No. 22 
H.P. 14 
House of Representatives, January 4, 2011 
An Act To Improve the Maine Seed Capital Tax Credit 
Reference to the Committee on Taxation suggested and ordered printed. 
HEATHER J.R. PRIEST 
Clerk 
Presented by Representative VALENTINO of Saco. 
Cosponsored by Representatives: BRYANT of Windham, CHASE of Wells, KNIGHT of 
Livermore Falls, NELSON of Falmouth, PILON of Saco, Senators: BARTLETT of 
Cumberland, COURTNEY of York, CRAVEN of Androscoggin. 
Be it enacted by the People of the State of Maine as follows: 
Sec. 1.  10 MRSA §1100-T, sub-§1, as amended by PL 1991, c. 854, Pt. A, §7, is 
further amended to read: 
1.  Legislative findings; authorization.  The Legislature finds that the growth of 
new and existing small businesses in the State results in increased job opportunities for 
Maine residents, produces more spending in the State and increases municipal tax bases.  
Businesses that export their products or services out of the State bring capital into the 
State and help to develop export markets for Maine products.  Small new and existing 
businesses can provide significant economic benefits to the State if they can obtain 
sufficient seed equity financing to carry them from start-up through the initial 
development phases of a business.  The jobs created by such businesses tend to pay 
higher wages and offer more benefits than other businesses; however, the per capita level 
of private venture capital investment in businesses located in the State is substantially 
below the national average and the average of the other New England states.  In order to 
encourage the increased availability of risk equity capital to enterprises that have the 
potential for rapid growth and that bring capital into the State, the authority is authorized 
to issue certificates of eligibility for the seed capital investment tax credit permitted by 
Title 36, section 5216-B, subject to the requirements of this section.  This program is 
known as the Maine Seed Capital Tax Credit Program. 
Sec. 2.  10 MRSA §1100-T, sub-§1-A is enacted to read: 
1-A.  Private venture capital fund.  As used in this section, "private venture capital 
fund" means a professionally managed pool of capital organized for a limited life to make 
equity or equity-like investments in unrelated private companies using capital derived 
from multiple limited partners or members at least half of which, measured in dollar 
commitments, are unaffiliated and unrelated, and includes any venture capital fund 
licensed by the United States Small Business Administration.  The authority may require 
such information as may be necessary or desirable for determining whether an entity 
qualifies as a private venture capital fund. 
Sec. 3.  10 MRSA §1100-T, sub-§2, ¶A, as amended by PL 2003, c. 451, Pt. E, 
§1, is further amended to read: 
A.    A For investments made in tax years beginning before January 1, 2012, a tax 
credit certificate may be issued in an amount not more than 40% of the amount of 
cash actually invested in an eligible Maine business in any calendar year or in an 
amount not more than 60% of the amount of cash actually invested in any one 
calendar year in an eligible Maine business located in a high-unemployment area, as 
determined by rule by the authority.  For investments made in tax years beginning on 
or after January 1, 2012, a tax credit certificate may be issued to an investor other 
than a private venture capital fund in an amount not more than 60% of the amount of 
cash actually invested in an eligible Maine business in any calendar year.  Rules 
adopted pursuant to this section are routine technical rules as defined in Title 5, 
chapter 375, subchapter 2-A. 
Sec. 4.  10 MRSA §1100-T, sub-§2, ¶H, as enacted by PL 1987, c. 854, §§2 and 
5, is amended to read: 
H.    The investors qualifying for the credit must collectively each own less than 1/2 
of the business. 
Sec. 5.  10 MRSA §1100-T, sub-§2-A, as amended by PL 2009, c. 470, §3, is 
further amended to read: 
2-A.  Eligibility of private venture capital funds for tax credit certificate.  The 
authority shall adopt rules in accordance with the Maine Administrative Procedure Act to 
implement application of the program to investment in a private venture capital fund.  
Without limitation, the This subsection does not apply to credits claimed for tax years 
beginning on or after January 1, 2012.  The requirements for eligibility for a tax credit 
certificate for investment in a private venture capital fund include the following. 
A.    A For investments made in tax years beginning before January 1, 2012, a tax 
credit certificate may be issued to an individual who invests in a private venture 
capital fund in an amount that: 
 (1)  Is not more than 40% of the amount of cash actually invested in or 
unconditionally committed to a private venture capital fund in any calendar year 
by the individual or entity, except that with respect to fund investments that are 
made in eligible businesses that are located in a high unemployment area, as 
determined by rule of the authority under subsection 2, the tax credit certificate 
may not be more than 60% of the cash actually invested in or unconditionally 
committed to a private venture capital fund in any calendar year by the individual 
or entity; and 
 (2)  Does not exceed 40% of the amount of cash invested by the fund in eligible 
businesses, except that with respect to fund investments that are made in eligible 
businesses that are located in a high unemployment area, as determined by rule of 
the authority under subsection 2, a tax credit certificate may not be more than 
60% of the cash invested by the fund in any calendar year in such businesses; 
provided that the authority may issue tax credit certificates in an amount not to 
exceed 20% of the amount of cash actually invested in or unconditionally 
committed to a private venture capital fund in any calendar year if the authority 
determines that the private venture capital fund is located in this State, is owned 
and controlled primarily by residents of this State and has designated investing in 
eligible businesses of this State as a major investment objective.  The credit may 
be revoked to the extent that the private venture capital fund does not make 
investments eligible for the tax credit in an amount sufficient to qualify for the 
credits within 3 years after the date of the tax credit certificates.  Notwithstanding 
any revocation pursuant to this subparagraph, each investor remains eligible for 
tax credit certificates for eligible investments as and when made by the private 
venture capital fund. 
The aggregate amount of credits issued to investors in a fund may not exceed 40% of 
the amount of cash invested by the fund in eligible businesses, except that with 
respect to fund investments in eligible businesses that are located in a high 
unemployment area, the aggregate amount of tax credits issued to investors in a fund 
may not exceed 60% of the cash invested by the fund in eligible businesses. 
B.  As used in this subsection, unless the context otherwise indicates, an "eligible 
business" means a business located in the State that: 
(1)  Is a manufacturer; 
(2)  Is engaged in the development or application of advanced technologies; 
(3)  Provides a service that is sold or rendered, or is projected to be sold or 
rendered, predominantly outside of the State;  
(4)  Brings capital into the State, as determined by the authority; or 
(5)  Is certified as a visual media production company under Title 5, section 
13090-L. 
C.    Aggregate investment eligible for tax credits may not be more than $5,000,000 
for any one business for any one private venture capital fund as of the date of 
issuance of a tax credit certificate. 
D.    The investment with respect to which any individual or entity is applying for a 
tax credit certificate may not be more than an aggregate of $500,000 in any one 
eligible business invested in by a private venture capital fund in any 3 consecutive 
calendar years, except that this paragraph does not limit other investment by any 
applicant for which that applicant is not applying for a tax credit certificate and 
except that, if the entity applying for a tax credit certificate is a partnership, limited 
liability company, S corporation, nontaxable trust or any other entity that is treated as 
a flow-through entity for tax purposes under the federal Internal Revenue Code, the 
aggregate limit of $500,000 or $200,000, as applicable, applies to each individual 
partner, member, stockholder, beneficiary or equity owner of the entity and not to the 
entity itself.  This paragraph does not limit other investment by any applicant for 
which that applicant is not applying for a tax credit certificate. 
E.    Each business receiving an investment from a private venture capital fund, which 
investment is used as the basis for the issuance of a tax credit certificate, must have 
annual gross sales of $3,000,000 or less and the operation of the business must be the 
full-time professional activity of the principal owner, as determined by the authority.  
The principal owner and principal owner's spouse, if any, are not eligible for a credit 
for investment in that business or for an investment by the private venture capital 
fund in that business.  A tax credit certificate may not be issued to a parent, brother, 
sister or child of a principal owner if the parent, brother, sister or child has any 
existing ownership interest in that business or for an investment by the private 
venture capital fund in that business. 
F.    Each investment received by a business from a private venture capital fund, 
which investment is used as the basis for the issuance of a tax credit certificate, must 
be expended on plant maintenance and construction, equipment, research and 
development or working capital for the business or on such other business activity as 
may be approved by the authority. 
G.    The authority shall establish limits on repayment of the investment by an 
individual in and the investments made by a private venture capital fund, which 
investment is used as the basis for the issuance of a tax credit certificate.  The 
investments must be at risk in the private venture capital fund and the business, 
respectively. 
H.    The investors in a private venture capital fund are not entitled to the credit for 
collective ownership in excess of 50% of any business.  An investor in a private 
venture capital fund determined by the authority to be a principal owner of a business 
and the principal owner's spouse, if any, are not entitled to a credit with respect to 
investment in that business, nor are the principal owner's parents, siblings or children 
entitled to a credit if they have any existing ownership interest in the business. 
Sec. 6.  10 MRSA §1100-T, sub-§2-C is enacted to read: 
2-C.  Eligibility of private venture capital funds for refundable tax credit 
certificate.  This subsection applies to investments by private venture capital funds in 
eligible businesses made in tax years beginning on or after January 1, 2012.  The 
authority shall adopt routine technical rules as defined in Title 5, chapter 375, subchapter 
2-A to implement application of the program to investments in eligible businesses by 
private venture capital funds. The requirements for eligibility for a tax credit certificate 
for an investment by a private venture capital fund include the following. 
A.  For investments made in tax years beginning on or after January 1, 2012, a tax 
credit certificate may be issued to a private venture capital fund in an amount that is 
not more than 50% of the amount of cash actually invested in an eligible business.  
The tax credit certificate may be revoked and the credit recaptured pursuant to Title 
36, section 5216-B, subsection 5 to the extent that the authority determines that the 
eligible business for which the tax credit certificate was issued moves substantially 
all of its operations and assets outside of the State during the period ending 4 years 
after an investment, except in the case of an arm's length, fair value acquisition 
approved by the authority.  A private venture capital fund that received the 20% 
credit certificate under subsection 2-A, paragraph A, subparagraph (2) for an 
investment is not eligible for a tax credit certificate under this subsection for that 
investment. 
B.  As used in this subsection, unless the context otherwise indicates, "eligible 
business" means a business located in the State that: 
(1)  Is a manufacturer; 
(2)  Is engaged in the development or application of advanced technologies; 
(3)  Provides a service that is sold or rendered, or is projected to be sold or 
rendered, predominantly outside of the State; 
(4)  Brings capital into the State, as determined by the authority; or 
(5)  Is certified as a visual media production company under Title 5, section 
13090-L. 
C.  Aggregate investment eligible for tax credit certificates, including investments 
under this subsection and under subsection 2, may not be more than $5,000,000 for 
any one eligible business. 
D.  The investment with respect to which any entity is applying for a tax credit 
certificate may not be more than an aggregate of $500,000 in any one eligible 
business invested in by a private venture capital fund in any 3 consecutive calendar 
years, except that this paragraph does not limit other investment by an applicant for 
which that applicant is not applying for a tax credit certificate and except that, if the 
entity applying for a tax credit certificate is a partnership, limited liability company, S 
corporation, nontaxable trust or any other entity that is treated as a flow-through 
entity for tax purposes under the federal Internal Revenue Code, the aggregate limit 
of $500,000 applies to each individual partner, member, stockholder, beneficiary or 
equity owner of the entity and not to the entity itself. This paragraph does not limit 
other investment by an applicant for which that applicant is not applying for a tax 
credit certificate.  A private venture capital fund must certify to the authority that it 
will be in compliance with these limitations.  The tax credit certificate issued to a 
private venture capital fund may be revoked and any credit taken recaptured pursuant 
to Title 36, section 5216-B, subsection 5 if the fund is not in compliance with this 
paragraph. 
E.  An eligible business receiving an investment from a private venture capital fund, 
which investment is used as the basis for the issuance of a tax credit certificate, may 
not have annual gross sales of more than $3,000,000 and the operation of the business 
must be the full-time professional activity of the principal owner, as determined by 
the authority. A tax credit certificate may not be issued to a private venture capital 
fund if an investor in the fund is a principal owner of the eligible business or a 
spouse, parent, sibling or child of a principal owner and if the spouse, parent, sibling 
or child has any existing ownership interest in the business. A private venture capital 
fund must certify to the authority that it will be in compliance with these limitations.   
The tax credit certificate issued to a private venture capital fund may be revoked and 
any credit taken recaptured pursuant to Title 36, section 5216-B, subsection 5 if the 
fund is not in compliance with this paragraph. 
F.  An investment received by an eligible business from a private venture capital fund 
for which the investment is used as the basis for the issuance of a tax credit certificate 
must be expended on plant maintenance and construction, equipment, research and 
development or working capital for the business or on such other business activity as 
may be approved by the authority. 
G.  The authority shall establish limits on repayment of the investments made by a 
private venture capital fund for which the investments are used as the basis for the 
issuance of tax credit certificates. The investments must be at risk in the private 
venture capital fund and the eligible business, respectively. 
H.  A private venture capital fund is not entitled to the credit if it owns in excess of 
50% of the eligible business, except that, if the private venture capital fund is issued a 
tax credit certificate and later makes an additional investment that increases its 
ownership to more than 50%, the existing tax credit certificate remains valid and is 
not subject to revocation due to the ownership percentage as long as there was no 
intent to take controlling ownership at the time of the initial qualified investment. 
Sec. 7.  10 MRSA §1100-T, sub-§4, as amended by PL 2003, c. 451, Pt. E, §5, is 
further amended to read: 
4.  Total of credits authorized.  The authority may issue tax credit certificates to 
investors eligible pursuant to subsections 2 and, 2-A and 2-C in an aggregate amount not 
to exceed $2,000,000 up to and including calendar year 1996, $3,000,000 up to and 
including calendar year 1997, $5,500,000 up to and including calendar year 1998, 
$8,000,000 up to and including calendar year 2001, $11,000,000 up to and including 
calendar year 2002, $14,000,000 up to and including calendar year 2003, $17,000,000 up 
to and including calendar year 2004, $20,000,000 up to and including calendar year 2005, 
$23,000,000 up to and including calendar year 2006, $26,000,000 up to and including 
calendar year 2007 and $30,000,000 thereafter.  The authority may provide that investors 
eligible for a tax credit under this section in a year when there is insufficient credit 
available are entitled to take the credit when it becomes available. 
Sec. 8.  10 MRSA §1100-T, sub-§6, as enacted by PL 2001, c. 642, §10 and 
affected by §12, is amended to read: 
6.  Reports.  Any business eligible to have investors receive a tax credit under this 
section must report to the authority, in a manner to be determined by the authority, the 
following information regarding its activities in the State over the calendar year in which 
the investment occurred and for such additional years as may be required by the 
authority: 
A.    The total amount of private investment received; 
B.    The total number of persons employed as of December 31st; 
C.    The total numbers of jobs created and retained; 
D.    Total annual payroll; and 
E.    Total sales revenue. 
The authority shall report annually to the joint standing committee of the Legislature 
having jurisdiction over taxation matters on the activity under this section during the prior 
calendar year. 
Sec. 9.  36 MRSA §5122, sub-§2, ¶HH is enacted to read: 
HH.  To the extent included in federal adjusted gross income, an amount equal to the 
distribution from a private venture capital fund of the refundable portion of the credit 
allowed under section 5216-B. 
Sec. 10.  36 MRSA §5200-A, sub-§2, ¶S, as amended by PL 2009, c. 213, Pt. 
ZZZ, §12 and Pt. BBBB, §14, is further amended to read: 
S.  An amount equal to the value of any prior year addition modification under 
subsection 1, paragraph U, but only to the extent that: 
(1)  Maine taxable income is not reduced below zero; 
(2)  The taxable year is within the allowable federal period for carryover of the 
net operating loss plus one year; and 
(3)  The amount has not been previously used as a modification pursuant to this 
subsection; and 
Sec. 11.  36 MRSA §5200-A, sub-§2, ¶T, as repealed and replaced by PL 2009, 
c. 652, Pt. A, §56, is amended to read: 
T.  An amount equal to the value of any prior year addition modification under 
subsection 1, paragraph V, but only to the extent that: 
(1)  Maine taxable income is not reduced below zero; 
(2)  The taxable year is within the allowable federal period for carry-over plus the 
number of years that the net operating loss carry-over adjustment was not 
deducted as a result of the restriction with respect to tax years beginning in 2009, 
2010 and 2011; 
(3)  The amount has not been previously used as a modification pursuant to this 
subsection; and 
(4)  The modification under this paragraph is not claimed for any tax year 
beginning in 2009, 2010 or 2011; and 
Sec. 12.  36 MRSA §5200-A, sub-§2, ¶U, as enacted by PL 2009, c. 652, Pt. A, 
§57 and affected by §58, is amended to read: 
U.  An amount equal to the gross income from discharge of indebtedness previously 
deferred under the Code, Section 108(i) and included in federal taxable income. The 
total subtraction for all years under this paragraph may not exceed the amount of the 
addition modification under subsection 1, paragraph W for the same indebtedness.; 
and 
Sec. 13.  36 MRSA §5200-A, sub-§2, ¶V is enacted to read: 
V.  To the extent included in federal taxable income, an amount equal to the 
refundable portion of the credit allowed under section 5216-B and an amount equal to 
the distribution from a private venture capital fund of the refundable portion of the 
credit allowed under section 5216-B. 
Sec. 14.  36 MRSA §5216-B, sub-§1, ¶C, as enacted by PL 1987, c. 854, §§4 
and 5, is amended to read: 
C.    "Investor" means a taxpayer who or private venture capital fund that has 
received a certificate. 
Sec. 15.  36 MRSA §5216-B, sub-§1, ¶D is enacted to read: 
D.  "Private venture capital fund” has the same meaning as under Title 10, section 
1100-T, subsection 1-A. 
Sec. 16.  36 MRSA §5216-B, sub-§2, as amended by PL 2003, c. 451, Pt. E, §8, 
is further amended to read: 
2.  Credit.  An investor is entitled to a credit against the tax otherwise due under this 
Part equal to the amount of the tax credit certificate issued by the Finance Authority of 
Maine in accordance with Title 10, section 1100-T and as limited by this section.  In 
Except with respect to tax credit certificates issued under Title 10, section 1100-T, 
subsection 2-C, in the case of partnerships, limited liability companies, S corporations, 
nontaxable trusts and any other entities that are treated as flow-through entities for tax 
purposes under the Code, the individual partners, members, stockholders, beneficiaries or 
equity owners of such entities must be treated as the investors under this section and are 
allowed a credit against the tax otherwise due from them under this Part in proportion to 
their respective interests in those partnerships, limited liability companies, S corporations, 
trusts or other flow-through entities.  Except as limited or authorized by subsection 3 or 4, 
25% of the credit must be taken in the taxable year the investment is made and 25% per 
year must be taken in each of the next 3 taxable years.  With respect to tax credit 
certificates issued under Title 10, section 1100-T, subsection 2-C, the credits are fully 
refundable. 
Sec. 17.  36 MRSA §5216-B, sub-§3, as enacted by PL 1987, c. 854, §§4 and 5, 
is amended to read: 
3.  Limitation.  The With respect to tax credit certificates issued under Title 10, 
section 1100-T, subsection 2 or 2-A, the amount of the credit allowed under this section 
for any one taxable year shall may not exceed 50% of the tax imposed by this Part on the 
investor for the taxable year before application of the credit. 
Sec. 18.  36 MRSA §5216-B, sub-§5, as enacted by PL 1987, c. 854, §§4 and 5, 
is amended to read: 
5.  Recapture.  In the event that the Finance Authority of Maine revokes a certificate, 
there shall must be added to the tax imposed on the investor under this Part for the 
taxable year in which the revocation occurs an amount equal to the excess of the total 
amount of credit authorized and revoked over minus the amount of credit not yet taken. 
SUMMARY 
This bill changes the Maine Seed Capital Tax Credit Program for tax years beginning 
on or after January 1, 2012 by increasing the existing credit from 40% of an eligible 
investment to 60% and applying it uniformly across the State rather than basing it on 
unemployment rates. The bill eliminates the up-front tax credit for investors in certain 
private venture capital funds and authorizes a refundable tax credit of 50% for 
investments in eligible businesses by private venture capital funds in the current amount 
of $30,000,000 that the Finance Authority of Maine may issue. Any income recognized 
on a taxpayer’s federal tax return from the refundable tax credit is subtracted from federal 
adjusted gross income for state income tax purposes.  The bill requires the Finance 
Authority of Maine to report annually to the joint standing committee of the Legislature 
having jurisdiction over taxation matters on activity in the program in the prior year.