Texas Administrative Code › Title 34 - PUBLIC FINANCE › Part 1 - COMPTROLLER OF PUBLIC ACCOUNTS › Chapter 3 - TAX ADMINISTRATION › Subchapter GG - INSURANCE TAX › Section 3.833 - Certified Capital Companies and Certified Investor Premium Tax Credits

Current through Reg. 49, No. 28; July 12, 2024
(a) Definitions. The following words and
				  terms, when used in this section, shall have the following meanings, unless the
				  context clearly indicates otherwise.
(1)
				  Administrator means the Comptroller of Public Accounts for the State of
				  Texas.
(2) Affiliate means:
(A) a person who is an affiliate for purposes
				  of Insurance Code, Article 823.003;
(B) a person who directly or indirectly:
(i) beneficially owns 10% or more of the
				  outstanding voting securities or other voting or management interests of
				  another person, whether through rights, options, convertible interests, or
				  otherwise; or
(ii) controls or
				  holds power to vote 10% or more of the outstanding voting securities or other
				  voting or management interests of the other person;
(C) a person 10% or more of which the
				  outstanding voting securities or other voting or management interests 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 of the other
				  person.
(3) Allocation
				  date means the date on which the comptroller allocates premium tax credits to
				  certified investors of a CAPCO under this section, except that in the case of a
				  pro rata reallocation pursuant to subsection (g)(7)(B)(ii) of this section, the
				  allocation date shall be the date of the reallocation.
(4) CAPCO means a certified capital company
				  as defined herein.
(5) Certified
				  capital means an investment of cash by a certified investor in a CAPCO that
				  fully funds the purchase price of an equity interest in the company or a
				  qualified debt instrument issued by the CAPCO.
(6) Certified capital company means a
				  partnership, corporation, trust, or limited liability company, whether
				  organized on a profit or not-for-profit basis, that is in good standing with
				  the State of Texas, is headquartered in Texas and has as its primary business
				  activity the investment of cash in qualified businesses and that is certified
				  as meeting the criteria of this section.
(7) Certified investor means an insurance
				  company or health maintenance organization licensed by the Texas Department of
				  Insurance or other person that has state premium tax liability under Insurance
				  Code, Chapter 4, or a successor statute, that invests certified capital
				  pursuant to an allocation of premium tax credits under this section.
(8) Early stage business means a qualified
				  business that satisfies at least one of the following criteria:
(A) is involved, at the time of a CAPCO'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 CAPCO's first investment; or
(C) during the fiscal year immediately
				  preceding the year of the CAPCO'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.
(9) Headquartered in Texas means
				  the following requirements, at a minimum, are met with respect to Texas CAPCOs:
(A) the CAPCO has its principal office in
				  Texas for operations covered under this section, in which the main investment
				  and administrative functions of the CAPCO are conducted;
(B) the original principal books and records
				  of the CAPCO are maintained in the Texas principal office; and
(C) a minimum of 80% of the CAPCO's expenses
				  are spent in Texas including management fees, and administrative costs
				  including but not limited to organizational fees, but for the purposes of this
				  subparagraph, expenses do not include underwriting fees; closing costs
				  (including rating agency fees, and other fees related to the closing of the
				  CAPCO's funding); fees related to any insurance issued for a qualified debt
				  instrument or associated premium tax credits; interest payments on
				  indebtedness; and other expenses for services that the CAPCO demonstrates
				  cannot be reasonably obtained in Texas.
(10) Initially organized means the date that
				  an entity's organizational documents were first accepted as filed by the
				  appropriate official in the state of its incorporation or organization, as
				  applicable, or, in the case of an entity that is not required to file its
				  organizational documents with any state official, the date on which its
				  members, partners, or owners, as applicable, originally executed the entity's
				  organizational documents.
(11)
				  Low-income community has the meaning assigned by Internal Revenue Code of 1986,
				  §45D(e).
(12) Person means a
				  natural person or entity, including a corporation, general or limited
				  partnership, trust, or a limited liability company.
(13) Premium tax credit allocation claim
				  means a claim for allocation of Texas premium tax credits on a form provided by
				  the comptroller.
(14) Primary or
				  primarily under this section means at least 80%.
(15) Principal business operations means at
				  least 80% of the business organization's employees reside in Texas or 80% of
				  the business payroll is paid to individuals living in Texas.
(16) Principal office means the location in
				  Texas that is the primary place for investment functions of the CAPCO and the
				  principal location for books and records of the CAPCO.
(17) Program One means the program for
				  allocation and investment of certified capital under this chapter before
				  January 1, 2007.
(18) Program Two
				  means that program for allocation and investment of certified capital on or
				  after January 1, 2007.
(19)
				  Qualified business means a business that, at the time of a CAPCO's first
				  investment in the business:
(A) is
				  headquartered in Texas or relocates its headquarters and principal business
				  operations to Texas within 90 days, and based on an affidavit by an officer or
				  owner of the business, that it intends to remain in Texas after receipt of an
				  investment by the CAPCO;
(B) has
				  its principal business operations in Texas or relocates its principal business
				  operations to Texas within 90 days, and based on a copy of its business plan or
				  other evidence of domicile, intends to maintain business operations in Texas
				  after receipt of an investment by the CAPCO;
(C) has agreed to use the qualified
				  investment primarily:
(i) to support its
				  principal business operations in Texas, other than for advertising, promotion,
				  and sales operations, which may be conducted outside of Texas; or
(ii) in the case of a start-up company, to
				  establish and support business operations in Texas as evidenced by an affidavit
				  of an officer or owner of the business, other than for advertising, promotion,
				  and sales operations, which may be conducted outside of Texas;
(D) does not have more than 100
				  employees either full-time or part-time employees, as evidenced by official
				  state or federal employment tax returns or an affidavit signed by an owner or
				  director of the business and:
(i) at least
				  80% of its employees reside in Texas; or
(ii) pays 80% of its payroll to Texas
				  residents;
(E) is
				  primarily engaged in:
(i) manufacturing,
				  processing, or assembling products;
(ii) conducting research and development;
				  or
(iii) providing
				  services;
(F) does not
				  incur more than 20% of its expenses and does not receive more than 20% of its
				  income from:
(i) retail sales;
(ii) real estate development;
(iii) insurance, banking, leasing or lending;
				  or
(iv) the provision of
				  professional services provided by accountants, attorneys, or
				  physicians;
(G) is not
				  or does not:
(i) formed or organized,
				  directly or indirectly, by a CAPCO or an affiliate of the CAPCO as evidenced by
				  a capitalization table prior to the initial investment and a post transaction
				  proforma capitalization table;
(ii)
				  a franchisee of a CAPCO; or
(iii)
				  an affiliate of the CAPCO; or
(iv)
				  have any financial relationship with a CAPCO before the date on which the CAPCO
				  makes its first investment in such business.
(20) Qualified debt instrument means a debt
				  instrument issued by a CAPCO, 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, including payments
				  of cash and tax credits. A repayment schedule is not faster than a level
				  principal amortization over five years if the repayment schedule for the debt
				  instrument issued by the CAPCO has a scheduled outstanding principal balance
				  greater than a hypothetical note with the same price and yield as the CAPCO's
				  debt instrument that provides for principal to be amortized over equal,
				  consecutive daily payments, where payments are first allocated to accrued
				  interest and then to principal, however, a certified investor may receive
				  payments at any time for future earned interest, provided the amount received
				  does not exceed the present value of that future interest payment, discounted
				  by a factor that is not less than the stated interest rate of the debt
				  instrument.
(C) Has no interest,
				  distribution, or payment features that are related to the profitability of the
				  CAPCO or the performance of the CAPCO's investment portfolio.
(21) Qualified distribution means
				  any distribution or payment from certified capital, the return of capital from
				  qualified investments, or the profits earned thereon by a CAPCO in connection
				  with:
(A) the reasonable costs and expenses
				  of forming, syndicating, managing, and operating the CAPCO, provided that the
				  distribution or payment is not made directly or indirectly to a certified
				  investor or an affiliate of a certified investor, including:
(i) the reasonable costs and expenses of
				  forming, syndicating, or organizing the CAPCO, so long as these costs;
(I) shall be limited to the greater of;
(-a-) $250,000; or
(-b-) 5.0% of the amount of certified capital
				  the CAPCO initially received as investment from its certified investors;
				  or
(-c-) $1,500,000; and
(II) provided that at the time the
				  CAPCO closes its investment from its certified investors and after deducting
				  the aggregate of the costs of organizing, forming, syndicating, insuring and
				  defeasing the obligations, the CAPCO must have available for qualified
				  investments, cash and/or permissible investments in an amount equal to at least
				  50% of the amount of certified capital initially received from its certified
				  investors.
(ii)
				  reasonable and necessary fees paid for professional services, including legal
				  and accounting services, related to the operation of the company are limited to
				  1.0% in any calendar year of the amount of certified capital the CAPCO
				  initially received as investment from its certified investors; and
(iii) an annual management fee in an amount
				  that does not exceed 2.5% of the certified capital of the company;
(B) any projected increase in
				  federal income or state taxes based on income or imputed income of the CAPCO,
				  including penalties and interest related to those taxes, of the equity owners
				  of the CAPCO resulting from the earnings or other tax liability of the CAPCO to
				  the extent that the increase is related to the ownership, management, or
				  operation of the CAPCO in Texas.
(22) Qualified investment means the
				  investment of cash by a CAPCO 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; provided that the
				  investment must not have a final stated maturity or be subject to mandatory
				  redemption or repurchase prior to two years from the date of initial investment
				  and, provided further, that not more than 50% is used to refinance existing
				  non-CAPCO debt. Notwithstanding the foregoing, a qualified investment shall not
				  include an investment that results, or could result, in a CAPCO owning 50% or
				  more of the voting or non-voting stock of a qualified business as evidenced by
				  a proforma capitalization table presented to the administrator, unless:
(A) such ownership is the result of:
(i) the CAPCO's exercise of its rights and
				  remedies following a default in the obligations of the qualified
				  business;
(ii) the CAPCO's exercise
				  of preemptive rights granted to it in connection with its initial investment in
				  a qualified business, provided such rights are exercised in connection with an
				  investment in such qualified business by a party other than the CAPCO or an
				  affiliate of the CAPCO;
(iii) the
				  operation of any anti-dilution rights granted to a CAPCO in connection with its
				  initial investment in a qualified business; or
(B) such investment is approved by the
				  comptroller prior to its being made.
(23) State premium tax liability means:
(A) any gross insurance premium tax or health
				  maintenance organization gross receipts tax liability incurred by any person
				  under Insurance Code, Chapter 4; or
(B) if the gross premium tax liability
				  imposed under Insurance Code, Chapter 4, on January 1, 2003, is eliminated or
				  reduced, any substitute tax liability imposed on an insurance company or other
				  person that had premium tax liability or health maintenance organization gross
				  receipts tax liability under the Insurance Code on that date.
(24) Strategic investment area
				  means an area of Texas that qualifies at the time of investment as a strategic
				  investment area under Tax Code, Chapter 171, Subchapter O, or after the
				  expiration of that subchapter, an area that qualified as a strategic investment
				  area under that subchapter immediately before its expiration.
(25) Strategic investment business means a
				  qualified business that has its principal business operations located in one or
				  more strategic investment areas and that intends to maintain business
				  operations in the strategic investment areas after receipt of an investment by
				  the CAPCO as documented in the business plan or other business records that
				  were generated at or before the time of the investment.