NEW YORK STATE
INSURANCE DEPARTMENT

REGULATION NO. 156
(11 NYCRR 400)

CERTIFIED CAPITAL COMPANIES UNDER SECTION 11 OF THE TAX LAW

 

I, NEIL D. LEVIN, Superintendent of Insurance of the State of New York, pursuant to the authority granted by Sections 201, 301, and Article 14 of the Insurance Law, Sections 11 and 1511 of the Tax Law, Chapter 389 of the Laws of 1997, and Section 89 of the Public Officers Law, do hereby promulgate a new Part 400 of Title 11 of the Official Compilation of Codes, Rules and Regulations of the State of New York (Regulation 156), to take effect upon publication in the State Register. A new Chapter XVII, entitled "Certified Capital Companies under Section 11 of the Tax Law", is added. Part 400 shall read as follows:

Section 400.1 Purpose.

This Part implements section 11 of the Tax Law, as added by section 144 of Chapter 389 of the Laws of 1997, which provides for the establishment of certified capital companies and confers authority on the Insurance Department ("the department") to certify and regulate such companies. Section 11 of the Tax Law creates a tax credit incentive mechanism to increase investment of financial resources of insurers into the State's venture capital markets. Section 1511(k) of the Tax Law, as added by section 143 of Chapter 389, describes the operation of the tax credit. In section 142 of Chapter 389, the Legislature made a finding that, in order to promote the growth of the State economy, a need exists to further encourage the investment of private financial resources into the State's venture capital markets, emphasizing viable smaller business enterprises which traditionally have had difficulty in attracting institutional venture capital. In addition, the legislation and this Part implement the legislative goal of promoting the formation and expansion of new and existing businesses, thereby creating jobs and resulting in growth in the State's economy.

 

 

400.2 Definitions.

(a) "Primary business activity", as used in section 11(a)(3) of the Tax Law, means that the investment of cash in qualified businesses constitutes at least 75 percent of the business activity of the certified capital company.

(b) As used in section 11(a)(6)(c) of the Tax Law, a business shall be deemed "predominantly engaged" in professional services provided by accountants, lawyers or physicians if (i) over 40 percent of the revenues of such business for the preceding fiscal year or (ii) if a new enterprise, over 40 percent of its projected revenues for its first fiscal year, taken as a whole are derived from such professional services.

(c) "Principal", as used in section 11(b)(5) of the Tax Law, shall mean officers, directors, or other management personnel of a certified capital company.

(d) A "qualified investment", as used in section 11(a)(9) of the Tax Law, shall not include (i) an investment in any affiliate of the certified capital company (except any follow-on investment in a qualified business that was not an affiliate of the certified capital company at the time of the first investment in said business by a certified capital company), (ii) any debt investment that is evidenced solely by any loan receivable or note receivable which has a stated final maturity date of less than one year from the origination date of the loan or note or (iii) any equity investment which the certified capital company may require the qualified business to redeem or repurchase within one year from the date of investment.

400.3 Procedures for making an application for a certified capital company.

(a) A partnership, corporation, trust or limited liability company organized on a for-profit basis that is located, headquartered and licensed or registered to conduct business in New York and has as its primary business activity the investment of cash in qualified businesses may make application to the Superintendent of Insurance to be designated as a certified capital company. The application form, including filing instructions, may be obtained upon request by contacting:

New York State Insurance Department
Taxes and Accounts Bureau
Empire State Plaza
Albany, New York 12257
(518) 474-8567

(b) The applicant shall certify in the application form that it has contacted the Department of Economic Development for information identifying businesses in New York that are or may be eligible for qualified investments based upon the likelihood that such business or industry will qualify as a qualified business and for which the state of New York may have significant location or structural advantages.

(c) The applicant shall include a non-refundable fee of $500 at the time of filing the application with the superintendent. Each application shall be stamped as to date of receipt.

(d) Applications to become a certified capital company which are received by the department on or before March 2, 1998 shall be treated as having been received by the department on March 2, 1998 and, if satisfactory, shall be treated as approved simultaneously. After March 2, 1998, in the event more than one application is received by the department on any one date, all such applications shall be reviewed and, if satisfactory, shall be treated as approved simultaneously. In the case of incomplete applications, such applications shall be treated as received on the date of the department's receipt of the complete application. Nothing herein shall be deemed to preclude the department from requesting additional information, and if such information requested is of a non-substantive nature, from treating the application as having been filed on the date it was originally received.

(e) Evidence that the $500,000 initial capitalization required by section 11(b)(3) of the Tax Law is available must be submitted at the time of application, or the application shall be deemed not to have been filed. Any application that is deemed not filed by operation of this subdivision must be resubmitted in its entirety, together with the filing fee of $500, and the time for review and approval for certification shall not begin until such resubmission is made with apropriate evidence that the $500,000 initial capitalization is available.

400.4 Tax credits.

(a) The aggregate maximum amount of tax credits permitted under Section 1511(k) of the Tax Law shall be $100 million ($50 million scheduled for utilization beginning in 1999 and $50 million scheduled for utilization beginning in 2000).

(1) The $50 million tax credits scheduled for utilization beginning in 1999 may be allocated among and vested in certified investors beginning in 1998 as provided in section 400.5 of this Part.

(2) The $50 million tax credits scheduled for utilization beginning in 2000 may be allocated among and vested in certified investors beginning on June 15, 1998, as provided in section 400.5 of this Part. A separate request for allocation of such tax credits must be submitted by the certified capital company. Such request may be submitted on or after June 1, 1998.

(3) Any portion of the $50 million tax credits scheduled for utilization beginning in 1999 which remains unallocated as of year-end 1999 shall be added to the $50 million tax credits scheduled for utilization beginning in 2000.

(b) Any insurance company subject to the tax imposed by article 33 of the Tax Law may make an investment of certified capital (or request an allocation of tax credits for an investment of certified capital) in certified capital companies in an amount not to exceed $10 million in the aggregate for any calendar year; provided, however, that an insurance company may make an investment of certified capital in an amount exceeding $10 million (or request an allocation of tax credits in excess of $10 million) for calendar years 1999 and 2000 only as provided in section 11(i) of the Tax Law.

(c) In the event the requests for allocation of tax credits to be utilized in 1999 by all certified investors in all certified capital companies exceeds $50 million, tax credits to be utilized in 1999 shall be allocated among certified investors in certified capital companies in the manner provided in section 400.5(e) of this Part. In the event the requests for allocation of tax credits to be utilized in 2000 by all certified investors in all certified capital companies exceeds $50 million, tax credits to be utilized in 2000 shall be allocated among certified investors in certified capital companies in the manner provided in section 400.5(e) of this Part.

400.5 Receipt and allocation of certified investments.

(a) After certification pursuant to section 11(b)(7) of the Tax Law, the certified capital company may receive an investment of certified capital or an irrevocable funding commitment subject only to the receipt of an allocation pursuant to section 11(h) of the Tax Law.

(b) Tax credits shall be allocated among certified investors in certified capital companies in the order that the information required pursuant to section 11(c)(6)(A) of the Tax Law is received by the department from certified capital companies, subject to the provisions of subdivision (c) of this section. Each filing by a certified capital company required by section 11(c)(6)(A) for an allocation described in section 11(h) shall be stamped as to date of receipt. All complete filings made on the same day shall be treated as having been made contemporaneously.

(c) Allocation requests by certified capital companies on behalf of their certified investors as specified in section 11(c)(6)(A) which are received by the department on or before May 1, 1998 shall be treated as having been received on May 1, 1998 for tax credits to be utilized in 1999 and, if satisfactory, shall be given equal priority for allocation.

(d) For purposes of section 11(h) of the Tax Law and this Part, an irrevocable funding commitment subject only to the receipt of an allocation will be deemed to constitute "an investment of certified capital" if a certified investor prepares and forwards to a certified capital company for filing with the department the information required by section 11(c)(6)(A) of the Tax Law, including an affidavit of the certified investor pursuant to which such investor shall become legally bound to transfer funds in the amount allocated up to the maximum investment set forth in its submission made pursuant to section 11(c)(6)(A) within five business days after the date of transmittal of notice of an allocation by the superintendent. The certified capital company shall, upon receipt of an investment of certified capital in cash pursuant to such allocation, submit to the department, no later than one business day thereafter, evidence acceptable to the department that the cash was received. Such evidence may, in the case of wire transfer, be a certification from the financial institution that administered the transfer certifying that such transfer was completed. If the department has not received the evidence as required that the funds have been received within the five day period, the allocation shall expire to the extent that funds are not received. In the event that the allocation has expired as a result of the department not receiving evidence that funds have been received by a certified capital company within the five-day period, then the allocation of tax credits shall be redistributed to other certified investors proportionately.

(e) In the event that, on the same date, the department receives from two or more certified capital companies, on behalf of their respective certified investors, the documentation specified in section 11(c)(6)(A) requesting an allocation of tax credits, and the amount of such investments of certified capital in all certified capital companies results in a request for allocation of credits that exceeds in the aggregate the available tax credits as provided in section 400.4(a) of this Part, the amount of tax credits approved shall be allocated among such certified investors in proportion to the amounts of tax credits requested. The aggregate amount of tax credits requested by a certified capital company and its affiliate or affiliates shall not exceed the aggregate tax credits available for such year, and any aggregate amount of tax credits requested by such certified capital company and its affiliate or affiliates in excess of the aggregate limit available for such year shall be excluded in calculating the proportion of tax credits allocated to certified investors in such certified capital companies. Once the proportions are established, an amount up to $50 million shall be allocated to respective certified investors in such certified capital companies for tax credits to be utilized beginning in 1999. Once proportions for the year 2000 are established, the amount of tax credits available as described in section 400.4(a)(2) and (3) of this Part shall be allocated to respective certified investors in such certified capital companies for tax credits to be utilized beginning in 2000.

(f) In the event a certified investor makes an investment of certified capital in a certified capital company and such certified capital is not eligible for tax credits due to the limitations of section 11(h), the certified investor may (i) withdraw such certified capital to the extent that the cash invested in the certified capital company exceeds the amount eligible for tax credits or (ii) reduce its irrevocable funding commitment by the amount which is not eligible for tax credits, whichever is applicable.

400.6 Qualified investment levels.

(a) A certified capital company, in order to continue its certification pursuant to section 11(c) of the Tax Law, shall abide by the investment schedule contained in section 11(c)(1). In the event that the certified capital company fails to abide by the investment schedule contained in section 11(c)(1), the certified capital company shall be subject to decertification and the certified investor shall, pursuant to section 1511(k)(5) of the Tax Law, be subject to disallowance and recapture of the credit allowed under section 1511(k)(1). If a certified capital company's certification is revoked on the grounds set forth in section 11(f) of the Tax Law, there shall be disallowance of one hundred percent of the credit allowed under section 1511(k)(1) of the Tax Law and the recapture of any portion of such credit that was previously taken.

(b) Once a certified capital company has attained the investment level required by section 11(e)(4), the certified capital company shall file with the superintendent an audited financial statement, within ninety days of the close of the fiscal year in which it has met such investment level, which shall contain information sufficient to enable the superintendent to verify attainment of such investment level. The superintendent shall conduct a review of the certified capital company, at its expense, to verify attainment of such investment level. Upon the superintendent's determination that such investment level has been met and the certified capital company has met all the other requirements under section 11(e), the certified capital company shall no longer be subject to regulation by the superintendent and shall no longer be subject to the requirements of section 11(c) of the Tax Law. The certified capital company shall remain subject to section 400.10 of this Part.

400.7 Limitations on investments in certified capital companies by insurers.

Any investment of certified capital by an insurer in a certified capital company shall be subject to those provisions of article 14 of the Insurance Law which are applicable to the particular type of insurer making the investment.

400.8 Cost of annual review.

The expense of each annual review required pursuant to section 11(e) of the Tax Law shall be borne and paid by the certified capital company. The cost of the annual review shall consist of all actual expenses incurred, including reimbursement for the compensation paid for the services of the persons employed or contracted by the superintendent to make such review.

400.9 Annual certification fee.

On or before April first of each year, each certified capital company shall pay an annual, non-refundable certification fee of $500 to the superintendent, provided that no such fee shall be required within six months of the initial certification date of a certified capital company.

400.10 Reports to the Governor and Legislature.

In preparation for the report which the superintendent is required to make beginning in the year 2000, pursuant to section 11(j) of the Tax Law, to the Governor, the Temporary President of the Senate, and the Speaker of the Assembly, the following information shall be maintained on a calendar year basis in a readily accessible form by the certified capital company and shall be reported to the superintendent upon request, in the form specified by the superintendent:

(a) whether the certified capital company is holding certified capital;

(b) the amount of certified capital invested in the certified capital company;

(c) the cumulative amount that the certified capital company has invested

as of January first of the year 2000 and the cumulative total each

year thereafter;

(d) the total amount of tax credits granted under section 11 each year that

credits have been awarded under section 11 and section

1511(k) of the Tax Law;

(e) the performance of the certified capital company with regard to the

requirements for recertification set forth in section 11(c);

(f) the classification of companies in which the certified capital company has

invested according to industrial sector and size of company; and

(g) the total number of jobs created by investments made by the certified

capital company using certified capital.

400.11 Exception from disclosure.

(a) Documents and other materials submitted by certified capital companies or by businesses for purposes of the continuance of certification shall not be public records if such records are determined by the superintendent to be trade or business secrets and shall be maintained in a confidential manner by the superintendent.

(b) If a certified capital company or any other business submitting information under this Part deems any information to be trade or business secrets or which if disclosed would cause substantial injury to the competitive position of the certified capital company or the other business, it may, at the time the information is submitted to the department, request that the department except such information from disclosure. Such request shall be determined in accordance with the procedures set forth in section 89(5) of the Public Officers Law and Part 241 of this Title.

 

I, Neil D. Levin, Superintendent of Insurance of the State of New York, do hereby certify that the foregoing is the new 11 NYCRR 400 (Regulation 156) promulgated by me on October 9, 1998, pursuant to the authority granted by Sections 201, 301 and Article 14 of the Insurance Law, Sections 11 and 1511 of the Tax Law, Chapter 389 of the Laws of 1997, and Section 89 of the Public Officers Law, to take effect upon publication in the State Register.

Pursuant to the provisions of the State Administrative Procedure Act, prior notice of the proposed new regulation was published in the State Register on June 3, 1998. No other publication or prior notice is required by statute.

 

________________________
Neil D. Levin
Superintendent of Insurance

October 9, 1998