The Office of General Counsel issued the following opinion on December 10, 2003, representing the position of the New York State Insurance Department.
Re: Decertification / Revocation or Recapture of Tax Credits for Failure to Meet Requirements of N.Y. Tax Law § 11(h)(3)
Question:
Is it true that the requirement set forth in N. Y. Tax Law § 11(e)(4) (i.e., the requirement in subparagraph (C) of paragraph one of subdivision (c) of this section) is to invest 16.67% in Empire Zones and and 16.67% in Underserved Areas at the 50% milestone.
Conclusion:
Yes, assuming that a certified capital company ("CAPCO") had invested exactly 50% of its certified capital in compliance with the "50% milestone", then an investment of 16.67% of such capital in Empire Zones and 16.67% in Underserved Areas would satisfy the N.Y. Tax Law § 11(e)(4) requirement.
Facts:
The inquiry is general in nature and provided no particular facts.
Analysis:
Under N.Y. Tax Law §11(c)(1)(C)(McKinney Supp. 2003), a CAPCO, in order to maintain its certification, is required to invest at least fifty percent of its certified capital in qualified businesses within four years of the starting date of the CAPCO program for which the certified capital was allocated. At least fifty percent of such investment must be placed in "early stage businesses", but in the event investments are made in a business located in an Empire Zone,1 the requirement for qualified investments in early stage businesses shall not apply. With respect to CAPCO program three, N.Y. Tax Law § 11(h)(3)(McKinney Supp. 2003) further mandates that one-third of the certified capital raised by a CAPCO " shall be used to make qualified investments in qualified businesses located in [Empire Zones] ." Finally, N.Y. Tax Law § 11(e) (McKinney Supp. 2003) sets forth the rules for the decertification of a CAPCO. Paragraph (4) thereof provides a mechanism affording a CAPCO additional time to comply with the investment requirements and contains the potential for the waiver, under certain conditions, of the requirements of N.Y. Tax Law § 11(h)(3). Each of the above-cited statutes is reproduced below, in pertinent part, and in the order cited:
Within four years after the starting date of a specific certified capital company program of a certified capital company, at least fifty percent of its certified capital allocable to such certified capital company program must be placed in qualified investments, at least fifty percent of which must have been placed in early stage businesses, except that in the case of qualified investments made in qualified businesses located in empire zones established pursuant to article eighteen-B of the general municipal law under the provisions of certified capital company program three from allocations of certified capital made specifically for such targeted investments in such zones, the requirement for qualified investments in early stage businesses shall not apply.
N. Y. Tax Law § 11(c)(1)(C) (McKinney Supp. 2003).
Certified capital may be raised by each certified capital company with respect to certified capital company program three at any time subsequent to its certification date, and credits shall be allocated to and vested in certified investors at the time of each such investment as provided in this paragraph, although such credits shall not be first allowed or incurred for state tax purposes, until, at the earliest, tax years beginning in two thousand two. One-third of the certified capital raised by each certified capital company with respect to certified capital company program three shall be used to make qualified investments in qualified businesses located in empire zones established pursuant to article eighteen-B of the general municipal law, and one-third of such certified capital shall be used to make qualified investments in qualified businesses located in underserved areas outside such empire zones.
N.Y. Tax Law § 11(h)(3) (McKinney Supp. 2003).
(4) Notwithstanding the provisions of [§ 11(e)(2)&(3)], if a certified capital company in certified capital company program three fails to satisfy the requirement in [§ 11(c)(1)(B)] because it has been unable to make a sufficient amount of qualified investments in qualified businesses located either in empire zones or in underserved areas , such certified capital company shall not be subject to decertification at that time. However, if such certified capital company fails to satisfy the requirement in [§ 11(c)(1)(C)] because it has been unable to make a sufficient amount of qualified investments in qualified businesses located either in such empire zones or in underserved areas outside such empire zones, but certifies to the superintendent that it had made a good faith effort to make such investments, such certified capital company shall be allowed two additional years to satisfy the requirement in such subparagraph (C). If, after the conclusion of such two year period, the certified capital company still has not been able to satisfy the requirement to make such investments, and such certified capital company certifies to the superintendent that it had made a good faith effort to make such investments, the requirement in [§ 11(h)(3)] to make qualified investments in qualified businesses located in empire zones or in underserved areas shall be waived. Such certified capital company shall then be allowed one additional year to satisfy the requirement in such subparagraph (C), and if, at the conclusion of that additional one year period, such requirement is still not satisfied, such certified capital company shall be subject to decertification and the provisions of [§ 11(e)(2)&(3)] shall apply.
N.Y. Tax Law § 11(e)(4) (McKinney Supp. 2003).
The present inquiry is made to obtain further clarification of our opinion dated November 13, 2003. Specifically, the inquirer seeks confirmation of the fact that satisfaction of the "50% milestone" test of N.Y. Tax Law § 11(c)(1)(C) necessarily requires a proportionate degree of compliance with the "one-third investment in Empire Zones/Underserved Areas" requirement of N.Y. Tax Law § 11(h)(3) in order to meet the requirement of N.Y. Tax Law § 11(e)(4). As set forth in the letter of November 13, compliance with section 11(c)(1)(C), by its terms, also encompasses compliance with section 11(h)(3). Accordingly, if a certified capital company ("CAPCO") had invested exactly 50% of its certified capital in compliance with the "50% milestone," then an investment of 16.67% of such capital in Empire Zones and 16.67% in Underserved Areas would satisfy the N.Y. Tax Law § 11(e)(4) requirement.
For further information you may contact Supervising Attorney Michael Campanelli at the New York City Office.
1 The text of the statute refers to "economic development zone established pursuant to article eighteen-B of the general municipal law ." The term "empire zone" was substituted for "economic development zone" by 2000 N.Y. Laws 63, pt GG, §15.