As Amended by Senate Committee
[As Amended by House Committee of the
Whole]
Session of 2000
Substitute for HOUSE BILL No. 2688
By Committee on Economic Development
2-8
11 AN ACT
[relating to income taxation;] concerning venture
capital;
12 enacting the Kansas
certified capital formation company act[; provid-
13 ing a credit
therefrom for certain food locker plant expenses].
14
15 Be it enacted by the Legislature of the
State of Kansas:
16 Section
1. This Sections 1 through 9 of
this act shall be known and
17 may be cited as the Kansas certified
capital formation company act. The
18 purpose of this act is to enhance the
development of seed and venture
19 capital in Kansas and to support the
modernization and expansion of the
20 state's economy. As used in this act,
unless the context clearly requires
21 otherwise, the following terms mean:
22 (a) ``Affiliate
of a certified capital formation company'' means:
23 (1) Any person
that directly or indirectly, owns, controls or possesses
24 the power or ability to vote ten percent or
more of the outstanding voting
25 securities or other beneficial ownership
interests of the Kansas certified
26 capital formation company;
27 (2) any person
ten percent or more of whose outstanding voting se-
28 curities or other beneficial ownership
interests are directly or indirectly
29 owned, controlled or possessed with the
power to be voted by the Kansas
30 certified capital formation company;
31 (3) any person
directly or indirectly controlling, controlled by, or un-
32 der common control with the Kansas
certified capital formation company;
33 (4) any
partnership in which the Kansas certified capital formation
34 company is a general partner;
35 (5) any person
who is an officer, director, general partner, managing
36 member, managing director or agent of the
Kansas certified capital for-
37 mation company or an immediate family
member of such person.
38 (b) ``Affiliate
of an investor'' means:
39 (1) Any person
that directly or indirectly, owns, controls or possesses
40 the power or ability to vote ten percent or
more of the outstanding voting
41 securities or other beneficial ownership
interests of the investor;
42 (2) any person
ten percent or more of whose outstanding voting se-
2
1 curities or other beneficial
ownership interests are directly or indirectly
2 owned, controlled or possessed with
the power to be voted by the
3 investor;
4 (3) any
person directly or indirectly controlling, controlled by or un-
5 der common control with the
investor;
6 (4) a
partnership in which the investor is a general partner;
7 (5) any
person who is an officer, director or agent of the investor or
8 an immediate family member of such
officer, director or agent.
9
(c) ``Authorized capital formation company and
authorized
10 CFC'' means a capital formation
company that has been designated
11 by the secretary as having met the
requirements of this act neces-
12 sary to raise capital investments but
that has not yet received the
13 designation as a certified capital
formation company.
14
(c) (d) ``Applicable
percentage'' means one hundred percent.
15
(d) (e) ``CFC'' means
any certified capital formation
company.
16
(e) (f) ``Capital in a
qualified Kansas business'' means any note, stock,
17 partnership or membership interest or other
form of equity investment
18 or hybrid security, of any nature and
description whatsoever, including a
19 debt instrument or security which has the
characteristics of indebtedness
20 but which provides for conversion into
equity or equity participation in-
21 struments such as options or warrants which
are acquired by a CFC as a
22 result of a transfer of cash to a business.
Capital in a qualified Kansas
23 business shall not include secured debt
instruments.
24
(f) (g) ``Certified
capital'' means cash, marketable securities and other
25 assets held by a certified capital
formation company equal to the amount
26 of certified capital investment made by
investors in the certified capital
27 formation company.
28
(g) (h) ``Certified
capital formation company'' means any partnership,
29 corporation, trust or limited liability
company, whether organized on a
30 profit or not for profit basis, that is
domiciled in and qualified to conduct
31 business in Kansas and that has as its
primary business activity, the in-
32 vestment of cash in qualified Kansas
businesses, and which is certified by
33 the secretary as satisfying the criteria of
this act.
34
(h) (i) ``Certified
capital investment'' means an investment of cash by
35 an investor which is certified by the
secretary made in such manner as to
36 acquire a beneficial ownership interest in
a Kansas certified capital for-
37 mation company.
38
(i) (j) ``Commissioner''
means the securities commissioner of Kansas
39 or persons acting under the supervision of
the commissioner.
40
(j) (k) ``In existence''
means the date of the first sale of goods or
41 services by a qualified Kansas business or
a business seeking to be so
42 qualified.
43
(k) (l) ``Investor''
means any person that invests cash. If the investor
3
1 is a natural person, the investor
shall have a net worth of at least
2 $1,000,000 and such net worth shall
be not less than 10 times the amount
3 of the investor's certified
investment in a CFC. The investor's net worth
4 shall not include the value of any
equity in the investor's primary
5 residence.
6
(l) (m) ``Liquidating
distribution'' means any distribution other than
7 a qualified distribution.
8
(m) (n) ``Person'' means
any natural person or any business associa-
9 tion, including but not limited to, a
corporation, limited liability company,
10 general or limited partnership or
trust.
11
(n) (o) ``Qualified
distribution'' means any distribution or payment
12 made by a certified capital formation
company for costs and expenses of
13 forming, syndicating, managing or operating
the certified capital forma-
14 tion company, including an annual
management fee and reasonable and
15 necessary fees in accordance with industry
custom for professional fees
16 including, but not limited to, legal and
accounting fees, relating to op-
17 erating the certified capital formation
company.
18
(o) (p) ``Qualified
Kansas business'' means:
19 (1) A business
that satisfies the requirements of subparagraphs (A)
20 through (F) of this subsection.
21 (A) Such business
is independently owned and operated and has its
22 principal business office located in Kansas
or, in the case of a company
23 domiciled outside the state of Kansas,
which certifies that the company's
24 principal business office will be located
in Kansas within six months fol-
25 lowing the date of the initial
investment.
26 (B) At least
fifty percent of the employees of the business shall be
27 resident in Kansas or, in the case of a
company domiciled outside the
28 state of Kansas, certifies that at least
fifty percent of its employees will
29 be resident in Kansas within six months
following the date of the initial
30 qualified venture capital investment.
31 (C) Such business
is in need of venture capital and cannot obtain
32 conventional financing to fund its further
development and future
33 operations.
34 (D) Such business
shall be engaged in commerce for the purpose of
35 manufacturing, processing or assembling or
distributing products, con-
36 ducting research and development or
providing services in interstate
37 commerce.
38 (E) For
businesses involved in commerce for the purpose of provid-
39 ing services in interstate commerce, that
business must demonstrate that
40 more than fifty percent of its gross
revenues are derived from sales out-
41 side the state of Kansas or provide
reasonable documentation that the
42 company will derive at least fifty percent
of its gross sales outside the
43 state within a three-year period.
4
1 (F) Such
business, at the time of the initial qualified venture capital
2 investment, shall have been in
existence less than five years and shall not
3 have had gross sales in excess of
$1,000,000 in any single fiscal year.
4 (2) Any
business which, subject to paragraph (a)(6) of section 5, is
5 approved as a qualified Kansas
business at the time of the first qualified
6 venture capital investment in such
business by a Kansas certified capital
7 formation company, for a period of
seven years following the date of such
8 first investment, shall continue to
be classified as a qualified Kansas busi-
9 ness and may receive follow-on
investments from any Kansas certified
10 capital formation company, and such
follow-on investments shall consti-
11 tute qualified venture capital investments
even though such business may
12 not meet other qualifications of this
subsection at the time of such follow-
13 on investments. This provision shall
not remove the requirement set
14 forth in paragraph (p)(1)(B) of this
section which states that at least
15 50% of the employees of the business
shall be resident in Kansas.
16 (3) A qualified
Kansas business shall not include:
17 (A) Any
commercial enterprise primarily engaged in the sale at retail
18 of goods or services taxable under the
Kansas retailer's sales tax act; any
19 service provider set forth in K.S.A.
17-2707, and amendments thereto;
20 any bank, savings and loan or lending
institution; any real estate, real
21 estate development or insurance company; or
any commercial enterprise
22 deriving its revenues directly from
noncommercial customers in exchange
23 for personal services;
24 (B) a business
engaged primarily as a passive business, in irregular or
25 noncontinuous operations, or which derives
substantially all of its income
26 from passive investments that generate
interest, dividends, royalties or
27 capital gains;
28 (C) a business
engaged in oil and gas exploration and development;
29 (D) a subsidiary
of a certified capital formation company;
30 (E) another
certified capital formation company;
31 (F) an affiliate
of the certified capital formation company;
32 (G) an investor
of the certified capital formation company or an af-
33 filiate or subsidiary of an investor of the
certified capital formation com-
34 pany unless approved in writing by the
secretary.
35 (p) ``Qualified
venture capital investment'' means the investment of
36 cash by a Kansas certified capital
formation company in such a manner
37 as to acquire capital in a qualified Kansas
business.
38 (q) ``Secretary''
means the secretary of commerce and housing or per-
39 sons under the secretary's direction.
40 (r) ``Tax
credit'' means a credit against the tax imposed by the Kansas
41 income tax act, the premium tax or
privilege fee imposed pursuant to
42 K.S.A. 40-252, and amendments thereto, or
the privilege tax as measured
43 by net income of financial institutions
imposed pursuant to chapter 79,
5
1 article 11 of the Kansas Statutes
Annotated.
2 Sec.
2. (a) Any investor that makes a certified capital investment
shall
3 earn a tax credit against state tax
liability equal to 100% of the amount of
4 such investor's certified capital
investment. The investor, or a person to
5 whom the credits were duly
transferred, shall be entitled to claim not
6 more than 10% of the credit per
taxable year for taxable years com-
7 mencing after taxable year
2001 on and after January 1, 2003. If
the
8 amount of the tax credit allowed
under subsection (a) exceeds the tax
9 liability of the taxpayer for any
taxable year, such excess amount shall be
10 refunded to the taxpayer.
11 (b) No certified
capital investment in a single CFC by any one
person
12 shall be less than $25,000 or more
than $2,000,000; nor shall any one
13 person's combined investment for the
purpose of earning tax credits
14 exceed $5,000,000.
15 (c) The total
amount of tax credits which may be allowed shall not
16 exceed $50,000,000. The total amount of tax
credits which may be allowed
17 under this act shall not exceed $5,000,000
per fiscal year.
18 Sec. 3. (a)
The secretary may authorize and subsequently
certify
19 profit or not-for-profit entities which
submit an application to be desig-
20 nated as a CFC
meet the requirements of this act. The secretary
shall
21 compile a list of every
certified CFC, including the address and tele-
22 phone number of the certified
CFC's principal place of business. The
23 secretary shall publicize the list in order
to inform Kansas companies of
24 the availability of potential investment
capital.
25 (b) The secretary
shall review the organizational documents for each
26 applicant for
certification bauthorization as a
CFC and the business
27 history of the applicant to determine:
28 (1) That at the
time of application for authorization as a CFC,
the
29 applicant owns cash, marketable securities
and other liquid assets valued
30 at no less than $500,000; or
that prior to January 1, 2000, the applicant
31 was designated as an innovation and
commercialization corporation or an
32 affiliate of an
innovation and commercialization corporation created un-
33 der the Kansas technology enterprise
corporation innovation and com-
34 mercialization corporation program;
35 (2) that the
officers and the board of directors, general partners, trus-
36 tees, managing members or managers, as the
case may be, are thoroughly
37 acquainted with the requirements of this
act and acknowledge such by a
38 signed certification.
39 (c) To continue
to be certified, the CFC must own and shall peri-
40 odically demonstrate to the secretary, as
the secretary may require, that
41 the liquid asset base for the certified
capital formation company is at least
42 $500,000 at all times during the CFC's
participation in the program au-
43 thorized by this act and that
such moneys have been used for making
6
1 qualified venture capital
investments.
2 (d) With
respect to any person who submits or has submitted an
3 application to
become for authorization as a CFC, the
commissioner
4 shall investigate to determine and
report to the secretary whether any of
5 the directors, trustees, managers,
officers, general partners, beneficial
6 owners of 10% or more of any class of
equity securities or any promoters
7 employed or otherwise associated with
that person at the time of such
8 application:
9 (1) Has
been affiliated with any company that has filed a registration
10 statement which is subject to a currently
effective stop order entered
11 pursuant to any state law;
12 (2) has been
convicted of any felony or misdemeanor in connection
13 with the purchase or sale of any security
or any felony involving fraud or
14 deceit including, but not limited to,
forgery, embezzlement of money
15 under false pretenses, larceny or
conspiracy to defraud;
16 (3) is currently
subject to any state administrative order or judgment
17 entered by a state securities administrator
or is subject to any state ad-
18 ministrative order or judgment in which
fraud or deceit was found and
19 an order or judgment was entered;
20 (4) is currently
subject to any state administrative order or judgment
21 which prohibits the use of any exemption
from registration in connection
22 with the purchase or sale of
securities;
23 (5) is subject to
any order, judgment or decree of any court of com-
24 petent jurisdiction temporarily or
preliminarily restraining or enjoining,
25 or is subject to any order, judgment or
decree of any court of competent
26 jurisdiction permanently restraining or
enjoining that person from engag-
27 ing in or continuing any conduct or
practice in connection with the pur-
28 chase or sale of any security, rendering
investment advice or involving the
29 making or any false filing with any
state;
30 (6) has been
convicted of or pleaded nolo contendere to any criminal
31 offense other than a misdemeanor involving
motor vehicle violations.
32 (e) The secretary
shall not certify authorize
any CFC if the com-
33 missioner's report includes any affirmative
findings pursuant to subsec-
34 tion (d).
35 (f) The secretary
shall review documentation regarding the qualifi-
36 cations of the persons who will actively
manage the CFC and make a
37 determination as to whether such persons
possessed sufficient knowledge
38 and professional experience in the areas of
investment, venture capital,
39 business management and evaluation,
portfolio management, and such
40 other area of expertise to the degree that
a reasonable person would be
41 confident in such manager's ability to
manage the CFC. No certification
42 certification shall be issued
when it is the opinion of the secretary that
43 such persons do not possess this requisite
degree of knowledge and
7
1 expertise.
2 (g) No
investor shall individually, or collectively with or through
one
3 or more affiliates, by means of
ownership, agreement or otherwise, own,
4 control or possess the power or
ability to cause or direct the making of
5 any qualified venture capital
investments by a CFC.
6 (h) Within
75 days of application a period of
time established by
7 the secretary after receiving
an application for authorization as a
8 CFC, the secretary
shall either issue the certification and notify the
sec-
9 retary of the department
of revenue of such certification or shall refuse
10 the certification
authorization or deny the authorization and com-
11 municate in detail to the applicant the
grounds for the refusal
denial,
12 including any suggestions for the removal
of those grounds.
13 Sec.
4. (a) A CFC shall have a period of 365 days from the date
of
14 receiving certification from the
secretary in which to procure the amount
15 of certified capital investment
required by subsection (b). All certified
16 capital investments in the CFC
shall be received within such 365 day
17 funding period, notwithstanding
the provisions of subsection (c).
18
(b) Before closing its fund of certified capital investment,
and pur-
19 suant to subsection (b) of
section 3, and amendments thereto, a CFC
20 shall raise a minimum aggregate
certified capital investment of no less
21 than $5,000,000. In the case of
a CFC designated prior to January 1,
22 2000, as an innovation and
commercialization corporation or an affiliate
23 of an innovation and
commercialization corporation created under the
24 KTEC innovation and
commercialization corporation program, such min-
25 imum certified capital
investment shall be no less than $1,000,000. Total
26 capital investment deemed
certified for the purpose of earning tax credits
27 shall not exceed $10,000,000 in
a single CFC. No capital investments shall
28 be certified by the secretary
until such time when the minimum cumu-
29 lative investments are met.
Failure of a CFC to raise the minimum cu-
30 mulative investments may result
in the revocation of the certification by
31 the secretary.
32
(c) Once fully capitalized pursuant to the provisions of
subsection (b),
33 a CFC may make application to
the secretary for authorization to seek
34 additional certified capital
investment.
35 Sec.
4. (a) An authorized capital formation company
having
36 been authorized by the secretary
pursuant to section 3, and amend-
37 ments thereto, shall have a period of
not more than 365 days from
38 the date of receiving authorization
in which to procure certified
39 capital investment.
40 (b) In
order to receive certification by the secretary, an au-
41 thorized capital formation company
shall raise a minimum aggre-
42 gate certified capital investment of
no less than $5,000,000. In the
43 case of an authorized capital
formation company formed by an in-
8
1 novation and commercialization
corporation or an affiliate inno-
2 vation and commercialization
corporation created under the KTEC
3 innovation and
commercialization corporation program, such min-
4 imum certified capital
investment shall be no less than $1,000,000.
5
(c) Total capital investment deemed certified for the purpose
of
6 earning tax credits shall not
exceed $10,000,000 in a single capital
7 formation company. In the case
of a capital formation company
8 formed by an innovation and
commercialization corporation or an
9 affiliate innovation and
commercialization corporation created un-
10 der the KTEC innovation and
commercialization corporation pro-
11 gram, such maximum certified capital
investment shall not exceed
12 $1,500,000.
13 (d) A CFC
is hereby authorized to be formed for the purpose of
14 investing exclusively in
nonmetropolitan counties as defined in
15 K.S.A. 74-5093 and amendments
thereto. In the case of a CFC
16 formed for such purposes, the
secretary may enter into an agree-
17 ment with the CFC at the time of
application to establish a lower
18 maximum investment. Upon meeting the
established cumulative
19 maximum, certification may take place
pursuant to subsection (e)
20 of this section.
21 (e) If
during the fund raising period, an authorized capital
for-
22 mation company demonstrates to the
secretary that the maximum
23 cumulative certified capital
investment has been met pursuant to
24 this act, the secretary shall either
designate the capital formation
25 company as a certified capital
formation company and notify the
26 secretary of revenue of such
certification; or shall deny the certifi-
27 cation and notify the capital
formation company of the basis for
28 denial.
29 (f) All
capital investment deemed certified for the purpose of
30 earning tax credits must be certified
by the investor to be new mon-
31 eys in that such moneys were not
being used for seed or venture
32 capital prior to making the
investment in a CFC. Any attempt to
33 transfer funds from an existing
venture capital fund to a CFC for
34 the purposes of earning a tax credit
shall constitute a violation of
35 this act and may lead to
decertification.
36 (g) No
capital investments shall be certified by the secretary
37 until such time when the minimum
cumulative certified capital in-
38 vestments are met.
39 (h) Upon
the end of the fund raising period as established by
40 the secretary, capital formation
companies that have reached the
41 minimum cumulative certified capital
investment requirement but
42 have failed to reach the maximum
cumulative certified capital in-
43 vestment requirements shall be
certified by the secretary in rank
9
1 order based on the amount of
certified capital investment raised by
2 the capital formation company
and the amount of tax credits avail-
3 able for allocation upon the
secretary's satisfaction that all such
4 investment was made pursuant to
this act.
5
(i) The secretary will notify the department of revenue
upon
6 certification of a capital
formation company.
7
(j) Designation as an innovation and commercialization
corpo-
8 ration or an affiliate
innovation and commercialization corporation
9 created under the Kansas
technology enterprise corporation shall
10 not relieve such entity from
compliance with any provisions of this
11 act except where stated
otherwise.
12 Sec. 5. (a)
To continue to be certified, a CFC shall make qualified
13 venture capital investments according to
the following schedule:
14 (1) Within three
years after the date on which a CFC is certified
as
15 a CFC at least 25%
of its certified capital shall be, or have been, used for
16 making qualified venture capital
investments;
17 (2) within four
years after the date on which a CFC is certified as
a
18 CFC at least 40% of
its certified capital shall be, or have been, used for
19 making qualified venture capital
investments;
20 (3) within five
years after the date on which a CFC is certified as
a
21 CFC at least 50% of
its total certified capital shall be, or have been, used
22 for making qualified venture capital
investments;
23 (4) within seven
years after the date on which a CFC is certified
as
24 a CFC at least 70%
of its total certified capital shall be, or have been,
25 used for making qualified venture capital
investments.
26 (5) a CFC shall
not make an investment in an affiliate of the CFC or
27 an affiliate of an investor. For the
purposes of this subsection, if a com-
28 pany is not an affiliate before a CFC
initially invests in the company, it
29 shall not be deemed to be an affiliate if
such CFC provides additional
30 qualified venture capital investment to
such company subsequent to its
31 initial investment. No corporate officer,
employee or shareholder, no lim-
32 ited or general partner or other person
personally affiliated with any CFC
33 shall personally invest in any portfolio
company regardless of whether the
34 portfolio company is affiliated with the
CFC.
35 (6) a CFC, at
least 15 30 working days
prior to making what it de-
36 termines to be any initial qualified
venture capital investment, shall first
37 certify to the secretary that the company
in which it proposes to invest
38 meets the definition of a qualified Kansas
business pursuant to section 1,
39 and amendments thereto. The CFC shall state
the amount of capital it
40 intends to invest and identify the business
in which it intends to make
41 the investment. The CFC shall also provide
to the secretary a written
42 explanation of the basis for its
determination that the business meets the
43 definition of a qualified Kansas business,
if the secretary determines that
10
1 the business does not meet the
definition of a qualified Kansas business,
2 the secretary, within the
15-working-day 30-working-day
period prior
3 to the making of the proposed
investment, shall notify the CFC of the
4 determination and provide the CFC an
explanation thereof. If the sec-
5 retary fails to notify the CFC of the
determination within the 15-working-
6 day
30-working-day period prescribed herein, the business
in which the
7 CFC proposes to invest shall be
deemed to be a qualified Kansas business.
8 If a CFC fails to notify the
secretary prior to making an initial investment
9 in a business, the business in which
the CFC invested shall be deemed
10 not to be a qualified Kansas business even
though the business, at the
11 time of the investment, met the
requirements of section 1, and amend-
12 ments thereto;
13 (7) all certified
capital which is not then required to be invested in
14 qualified venture capital investments or
which has been previously in-
15 vested in qualified venture capital
investments and returned by the com-
16 pany, may be held or invested in such
manner as the CFC, in its discre-
17 tion, deems appropriate. The proceeds of
all certified capital which is
18 returned by
to a CFC after it was originally invested in
qualified venture
19 capital investments, may be invested in
other qualified venture capital
20 investments and shall be credited toward
any requirement in this act with
21 respect to placing certified capital in
qualified venture capital
22 investments.
23 (b) A CFC may
make qualified distributions at any time. In order to
24 lawfully make liquidating distributions, a
CFC must have invested an
25 aggregate amount equal to 100% of its
certified capital in qualified ven-
26 ture capital investments.
27 (c) Liquidating
distributions in excess of the certified capital forma-
28 tion company's original certified capital
and any additional capital contri-
29 butions to the certified capital formation
company shall be subject to audit
30 by a certified public accounting firm
acceptable to the secretary, at the
31 expense of the certified capital formation
company.
32 (d) If at the
time any liquidating distribution is made by a CFC, the
33 aggregate sum of all liquidating
distributions of the CFC exceeds the
34 aggregate sum of the CFC's original
certified capital and any subsequent
35 qualified venture capital contributions to
the CFC, as determined by au-
36 dit, the CFC, prior to any additional
distributions, shall pay to the state
37 treasurer's office
10% 20% of the proportion of
the distribution in excess
38 of such amount.
39 (e) Documents and
other materials submitted by CFC's or by busi-
40 nesses for purposes of authorization
or original certification or the con-
41 tinuance of certification as a CFC shall
not be public records if it is
42 determined by the secretary that disclosure
of such information would
43 compromise trade secrets of qualified
Kansas businesses unless otherwise
11
1 specified in this act.
2 (f) Each
CFC shall report the following to the secretary:
3
(1) As soon as practicable, but in any case no
later than 15 days after
4 the receipt of a certified
capital investment, the name of each investor,
5 the amount of each
investor's certified capital investment and the
date
6 when the certified capital
investment was received;
7
(2) within (1) Within 90 days of
the close of the CFC's fiscal year,
8 annual audited financial statements.
The audit shall address the methods
9 of operation and conduct of business
of the CFC to determine if the CFC
10 is complying with the statutes and program
rules and that the funds re-
11 ceived by the CFC have been invested in
accordance with the time limits
12 provided by this act.
13
(3) at (2) At the end of
each quarter, that no more than 20% of the
14 assets of a CFC shall be invested in a
single qualified Kansas business at
15 any one time unless the CFC can demonstrate
that a greater percentage
16 in a single qualified Kansas business at
any one time is the result of losses
17 suffered by the CFC in other qualified
venture capital investments.
18 (g) Any material
related to the sale of ownership in a CFC or soliciting
19 investment in a CFC shall include the
following statement: ``By author-
20 izing the formation
of or certifying a certified capital
formation com-
21 pany, the State of Kansas does not endorse
the quality of management
22 or the potential for earnings of a
particular company. The use of the word
23 ``certified'' or
``authorized'' in an offering does not constitute a
recom-
24 mendation or endorsement of an investment
by the Kansas Securities
25 Commission or any other State
Official.''
26 (h) The secretary
may establish reasonable initial filing fees for ap-
27 plications for authorization
and certification pursuant to this act and
28 may also establish an annual nonrefundable
fee for CFC's seeking con-
29 tinued certification.
30 Sec. 6. (a)
To ensure that no qualified venture capital investment or
31 investor's certified capital investment has
been made in violation of this
32 act, the secretary shall conduct an annual
review of each CFC to deter-
33 mine if the CFC is complying with the
requirements of certification. The
34 costs of the annual review shall be paid by
each CFC according to a
35 reasonable fee schedule adopted by the
secretary.
36 (b) Any material
violation of this act by a CFC shall be grounds for
37 decertification under this section. If the
secretary determines that a CFC
38 is not in compliance with the requirements
for continuing certification,
39 the secretary, by written notice, shall
inform the officers of the CFC and
40 the board of directors, managers, trustees
or general partners that they
41 shall be decertified within 120 days from
the date of mailing of the notice,
42 unless they correct the deficiencies
detailed in the notice and demon-
43 strate to the secretary's satisfaction that
the CFC is again in compliance
12
1 with the requirements for
certification as determined by the secretary.
2 (c) At the
end of the 120 day grace period, if the CFC is still not in
3 compliance, the secretary may send a
notice of decertification to the CFC
4 and to the secretary of revenue
including a list of the decertified capitol
5 investments by investor and
transferee.
6
(d) Decertification of a CFC prior to the CFC meeting all
require-
7 ments of paragraphs (1) through (4)
of subsection (a) of section 5, and
8 amendments thereto, shall cause the
recapture of all tax credits previously
9 allowed to an investor or transferee
and the forfeiture of all future tax
10 credits to otherwise be claimed by an
investor or transferee with respect
11 to any certified capital investment in the
decertified CFC.
12
(e) Decertification of a CFC after it has met all requirements
of par-
13 agraphs (1) through (4) of subsection (a)
of section 5, and amendments
14 thereto, shall cause the forfeiture of tax
credits commencing with the
15 taxable year of the investor or transferee
in which the decertification arose
16 and for all future taxable years with no
recapture of tax credits allowed
17 to an investor or transferee with respect
to the taxable years which ended
18 before the decertification occurred. Once a
CFC has invested 100% of
19 its certified capital in qualified Kansas
businesses, all future tax credits to
20 be claimed pursuant to this act by
investors or transferees with respect
21 to such CFC shall not be subject to
recapture.
22 Sec. 7. The
secretary shall prepare and submit an annual report to
23 the governor and the legislature no later
than October 1 of each year.
24 Such report shall be presented to the
standing committee on commerce
25 in the senate, standing committee on
economic development in the house
26 of representatives and the joint committee
on economic development.
27 Such report shall include but not be
limited to:
28 (a) The total
dollar amount each CFC received from all investors
29 allowed tax credits and any other investors
and the identity of all investors
30 allowed tax credits;
31 (b) the total
amount invested by each CFC in qualified Kansas busi-
32 nesses, the identity and location of those
businesses, the amount invested
33 in each qualified Kansas business and the
total number of permanent full-
34 time jobs created or retained by each
qualified Kansas business as a result
35 of the investment; and
36 (c) the
cumulative amount of any liquidating disbursements received
37 by the state from the CFC's.
38 Sec. 8. The
secretary may revoke the certification of a CFC if any
39 material representation to the secretary in
connection with the application
40 process proves to have been falsely made or
if the application materially
41 violates any requirement established by the
secretary.
42 Sec. 9. (a)
Any investor that is not subject to taxation under the pro-
43 visions of the Kansas income, privilege or
premium tax that makes a cer-
13
1 tified capital investment shall be
deemed to acquire an interest in the
2 nature of a transferable tax credit
limited to 100% of such investment.
3 The credit established pursuant to
this act may be sold or transferred
4 subject to approval by the secretary.
An investor as described in this sec-
5 tion shall not be allowed a refund
for the interest herein created. Only
6 the full amount of the credit for any
one investment may be transferred,
7 and the credit may be transferred
only one time. Documentation of any
8 credit transfer shall be provided to
the secretary. The secretary shall trans-
9 mit a copy of such documentation to
the secretary of revenue.
10 (b) The
secretary, after consulting with the secretary of revenue,
shall
11 develop such rules and regulations as are
necessary to facilitate the op-
12 eration of the transfer program consistent
with the interest of the state
13 in tracking the transfer of ownership and
the use of tax credits earned by
14 the transferee.
15 (c) Any such sale
or transfer shall not affect the time schedule for
16 taking the tax credit, as provided in this
act. Any tax credits recaptured
17 pursuant to section 6 shall be the
liability of the taxpayer which actually
18 claimed the tax credit. In approving the
sale or transfer of the tax credit
19 pursuant to this section, the secretary may
require the transferor or the
20 transferee or both to execute guarantees or
post bonds with respect to
21 any potential tax credit recapture.
22 (d) Any payment
received for tax credits pursuant to this section is
23 taxable income of the transferor of the
credit and the amount equal to
24 the difference the dollar value of the tax
credit transferred minus the
25 sales price of the tax credit shall be
taxable income of the transferee.
26 (e) The secretary
shall make and promulgate rules and regulations
27 consistent with the provisions of this act
as are necessary or useful to carry
28 out the provisions of this act.
29 (f) Every final
order, decision, license or other official act of the sec-
30 retary pursuant to this act is subject to
review in accordance with the act
31 for judicial review and civil enforcement
of agency actions, K.S.A. 77-601
32 et seq. and amendments thereto.
33 (g) In view of
the objectives of these requirements and the underlying
34 policies of the act, the act is not
available with respect to any transaction
35 or series of transactions that, although in
technical compliance with these
36 rules, is part of a plan or scheme to evade
the requirements of this act or
37 to distort the benefits entitled to be
realized under the act. In such cases,
38 no investor in any CFC shall be entitled to
the benefit of any tax credits
39 provided for hereunder.
40 (h) The offer or
sale of a security by a CFC pursuant to this act shall
41 be subject to the registration requirements
of K.S.A. 17-1254, 17-1255,
42 17-1257, 17-1258, 17-1259 and 17-1260, and
amendments thereto.
43 [Sec. 10. (a) For all
taxable years commencing after December
14
1 31, 1999, there shall be allowed
as a credit against the tax liability
2 of a taxpayer who operates a food
locker plant imposed under the
3 Kansas income tax act, an amount
equal to any expenses paid for
4 improvements in the facilities of
such food locker plant. The credit
5 allowed by this section in any
taxable year to the taxpayer shall not
6 exceed $10,000. If the amount of
such tax credit exceeds the tax-
7 payer's income tax liability for
any such taxable year, such excess
8 amount may be carried over for
deduction from the taxpayer's tax
9 liability in the next succeeding
taxable year or years until the total
10 amount of the tax credit has been
deducted from tax liability.
11 [(b) As used
in this section ``food locker plant'' means a plant
12 which: (1) Is inspected by the Kansas
department of agriculture as
13 provided under the Kansas meat and
poultry inspection act; and
14 [(2) prepares
meat, meat food products, poultry or poultry
15 products which have been inspected and
passed and which are
16 being prepared and sold in normal retail
quantities; or
17 [(3) prepares
such meat, meat products, poultry or poultry
18 products for the owner of such food
locker plant.]
19 Sec. 10.
[11.] This act shall take effect and be in force from
and after
20 its publication in the statute book.