AN ACT relating to economic development incentives.

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AN ACT relating to economic development incentives. 1
Be it enacted by the General Assembly of the Commonwealth of Kentucky: 2
Section 1. KRS 141.396 is amended to read as follows: 3
(1) As used in this section: 4
(a) "Authority" has the same meaning as in KRS 154.20-230; 5
(b) "Qualified investor" has the same meaning as in KRS 154.20-230; 6
(c) "Qualified small business" has the same meaning as in KRS 154.20-230; and 7
(d) "Taxpayer" means an individual subject to the tax imposed by KRS 141.020, 8
who has either: 9
1. Received a credit from the authority pursuant to KRS 154.20-236; or 10
2. Received a cre dit through a valid transfer allowed under this section 11
from a qualified investor that was originally awarded the credit. 12
(2) For taxable years beginning on or after January 1, 2015, there is hereby created the 13
angel investor tax credit. The credit shall b e nonrefundable, and shall apply against 14
the tax imposed by KRS 141.020. The ordering of the credit shall be as provided in 15
KRS 141.0205. 16
(3) A qualified investor may seek a credit by applying to the authority pursuant to KRS 17
154.20-236. 18
(4) The maximum am ount of credit that may be claimed by a taxpayer in any taxable 19
year shall not exceed fifty percent (50%) of the total amount of credit awarded or 20
transferred to the taxpayer. 21
(5) Any amount of credit that a taxpayer is unable to utilize during a taxable y ear may 22
be carried forward for use in a succeeding taxable year for a period not to exceed 23
fifteen (15) years. Any amount of credit not used within fifteen (15) years shall be 24
lost. No amount of credit may be carried back by any taxpayer. 25
(6) The credit shall not apply to any liability a taxpayer may have for interest, penalties, 26
past due taxes, or any other additions to the taxpayer's tax liability. The holder of 27
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the credit shall assume any and all liabilities and responsibilities of the credit. 1
(7) A credit may be transferred by a qualified investor to any individual taxpayer. A 2
qualified investor making a transfer shall give written notice to the department and 3
shall provide any other information required by the department, in the manner 4
prescribed by the department. Any transferred credit shall be subject to the original 5
timeframes and requirements established by this section and KRS 154.20 -230 to 6
154.20-240 as if held by the qualified investor. 7
(8) To receive the credit, a taxpayer shall claim the credit on his or her return in the 8
manner prescribed by the department. 9
(9) The department shall recapture any portion, or the full amount, of a credit upon 10
notification from the authority that a recapture is required pursuant to KRS 154.20 -11
240. 12
(10) In order for the General Assembly to evaluate the fulfillment of the purposes stated 13
in KRS 154.20 -232, the department and the Cabinet for Economic Development 14
shall work jointly to submit the following information to the Interim Joint 15
Committee on Appropriations and Revenue on or before May 1, 2019, and each 16
May 1 thereafter, related to each taxable year that an angel investor credit is 17
claimed on a return: 18
(a) The number of qualified small businesses certified by the authority; 19
(b) The demographics of each qualified small business, including: 20
1. The net worth of the qualified small business; 21
2. The qualified activity the qualified small business is actively and 22
principally engaged in within the Commonwealth; 23
3. The number of employees of the qualified small business; 24
4. The location of the assets and operations [assets, operations, and 25
employees] of the qualified small business; and 26
5. The aggregate amount of qualified investments received by the qualified 27
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small business; 1
(c) A list detailing each qualified investor ce rtified by the authority, the amount 2
of investment made by each qualified investor, the date each qualified 3
investment is made by the qualified investor, and the amount of tax credit 4
awarded each investor; 5
(d) By taxable year, the amount of tax credit clai med by each investor and the 6
amount of credit available to be claimed in future taxable years; 7
(e) The number of qualified small businesses that are active, inactive, or closed 8
that have received qualified investments; 9
(f) The number of qualified small bus inesses that have established a location in 10
the Commonwealth and the number that have expanded operations, the 11
number and location of each new job created, a description of each 12
development of new products and technologies in the Commonwealth, and the 13
field of operation for that growth, including knowledge -based, high -tech, or 14
research and development; and 15
(g) The total amount of tax credit awarded for each fiscal year. 16
(11) If either the department or the Cabinet for Economic Development does not 17
currently have the data to fulfill the reporting requirement of subsection (10) of this 18
section, the department and the cabinet shall work jointly to obtain the data in an 19
expedient manner to provide the report on or before the May 1, 2019, report date. 20
Section 2. KRS 154.20-234 is amended to read as follows: 21
(1) The requirements for small businesses, investors, and investments to be qualified 22
for participation in the Angel Investor Program are as follows: 23
(a) To be certified as a qualified small business, the business shall demonstrate to 24
the authority that it is an entity which, at the time the small business requests 25
certification: 26
1. Has a net worth of ten million dollars ($10,000,000) or less or net 27
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income after federal income taxes for each of the two (2) preceding 1
fiscal years of three million dollars ($3,000,000) or less; 2
2 Is actively and principally engaged in a qualified activity within the 3
Commonwealth, or will be actively and principally engaged in a 4
qualified activity within the Commonwealth after the receipt of a 5
qualified investment by a qualified investor; 6
3. Has no more than one hundred (100) full-time employees; 7
4. Has more than fifty percent (50%) of its assets and operations [assets, 8
operations, and employees] located in the Commonwealth; and 9
5. Has at no time received an aggregate amount of qualif ied investments 10
that has allowed qualified investors to receive more than one million 11
dollars ($1,000,000) in angel investor credits; 12
(b) To be certified as a qualified investor, an individual investor shall demonstrate 13
to the authority that he or she: 14
1. Is an individual natural person who may utilize a single -member limited 15
liability company to make the investment as long as the individual 16
natural person is the owner and the limited liability company is a 17
disregarded entity; 18
2. Qualifies as an accredited investor pursuant to Regulation D of the 19
United States Securities and Exchange Commission, 17 C.F.R. sec. 20
230.501, in effect as of the date the individual investor requests 21
certification; 22
3. Does not hold in excess of twenty percent (20%) ownership interes t in, 23
and is not employed by, the qualified small business prior to making the 24
qualified investment in that qualified small business; 25
4. Is not closely related to an individual who holds in excess of twenty 26
percent (20%) ownership interest in, or who is em ployed by, the 27
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qualified small business prior to making the qualified investment in that 1
qualified small business. For purposes of this subparagraph, "closely 2
related" means any of the following in relation to the owner or owners 3
or spouse of the owner or owners: 4
a. Parents or grandparents; 5
b. Children or their spouses; or 6
c. Siblings or their spouses; and 7
5. Seeks a financial return from the investment made in the qualified small 8
business; and 9
(c) To be certified as a qualified investment, the investment shall: 10
1. Be a cash investment of at least ten thousand dollars ($10,000), in a 11
qualified small business by a qualified investor; and 12
2. Be offered and executed in compliance with applicable state and federal 13
securities laws and regulations. 14
(2) In consideration for the qualified investment, the qualified investor shall receive an 15
equity interest, or a near equity interest, such as a simple agreement for future 16
equity, or "SAFE agreement", or a convertible debt instrument in the qualified 17
small business. 18
(3) The authority may establish additional requirements and guidelines for the efficient 19
implementation and administration of the Kentucky Angel Investment Act and to 20
carry out its purposes. 21
Section 3. KRS 154.20-240 is amended to read as follows: 22
(1) On or before February 1 of the calendar year succeeding the year in which a credit 23
was awarded, and continuing for four (4) years thereafter, a qualified small business 24
that has received a qualified investment shall file an ann ual report with the 25
authority. 26
(2) (a) This report shall demonstrate that the small business: 27
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1. Continues to have more than fifty percent (50%) of its assets and 1
operations[assets, operations, and employees] in the Commonwealth; 2
2. Has at no time received an aggregate amount of qualified investments 3
that has allowed qualified investors to receive more than one million 4
dollars ($1,000,000) in credits; and 5
3. Continues to be actively and principally engaged in a qualified activity. 6
(b) The report shall also provide additional information related to the success of 7
the small business attributable to the investment, including but not limited to: 8
1. New jobs created; 9
2. Increased sales or other economic activity conducted; 10
3. The degree of other private investment attracted; and 11
4. Any other information requested by the authority. 12
(3) If a qualified small business either: 13
(a) Fails to submit the report mandated by this section in any year; or 14
(b) Fails to meet any of the criteria listed in s ubsection (2)(a) of this section at 15
any time during any year of the reporting period; 16
the authority shall notify the department, which shall recapture any portion, or the 17
full amount, of the credit awarded for qualified investments in that qualified small 18
business from the qualified investor that received the credit award or any taxpayer 19
receiving the credit through a valid transfer. Any amounts collected from the 20
recapture shall be deposited in the general fund. 21
(4) If a qualified small business becomes i nsolvent and ceases operations at any time 22
before the final required annual report is due, it shall file a written report with the 23
authority attesting to that fact and shall thereafter be exempt from the annual report 24
required by this section, and credits awarded and already claimed for qualified 25
investments in that qualified small business shall not be subject to any recapture. 26
Any credits not claimed as of the date the company became insolvent and ceased 27
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operations shall be considered expired and shall not be claimed. 1
Section 4. KRS 154.20-254 is amended to read as follows: 2
As used in KRS 154.20-250 to 154.20-284, unless the context clearly requires otherwise: 3
(1) "Affiliate" means any person or entity who directly or in directly, through one (1) or 4
more intermediaries, controls or is controlled by or is under common control with 5
another person or entity; 6
(2) "Agreement" means an investment fund agreement entered into pursuant to KRS 7
154.20-255(5) by the authority and an i nvestment fund manager on behalf of the 8
investment fund, the investment fund manager, and any investor in the investment 9
fund; 10
(3) "Amended application" means a document submitted by an investment fund 11
manager, in a form acceptable to the authority and on behalf of an investment fund, 12
for the purpose of increasing the aggregate amount of available tax credits; 13
(4) "Applicant" means any person or entity who has not received approval from the 14
authority as an investment fund manager, but who has submitted or w ill submit an 15
application to the authority for approval as an investment fund manager; 16
(5) "Authority" means the Kentucky Economic Development Finance Authority or its 17
designee; 18
(6) "Cash contribution" means an investment of money by an investor in an inve stment 19
fund under the terms of KRS 154.20-250 to 154.20-284; 20
(7) "Committed cash contribution" means a legally binding agreement by an investor to 21
make a cash contribution in an amount set forth in a written agreement between an 22
investor and an investment fund; 23
(8) "Commonwealth" means the Commonwealth of Kentucky; 24
(9) "Credit" means a nonrefundable credit for investors against state tax liability 25
allocated and granted by the authority pursuant to KRS 154.20 -258 for qualified 26
investments made by approved investment funds; 27
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(10) "Entity" means any corporation, limited liability company, business development 1
corporation, partnership, limited partnership, sole proprietorship, association, joint 2
stock company, receivership, trust, professional service organizatio n, or other legal 3
entity through which business is conducted; 4
(11) "Financial institution" means "financial institution" as defined in KRS 136.500(10) 5
and includes savings and loan associations, savings banks, and similar institutions 6
subject to the taxes imposed by KRS 136.290, 136.300, or 136.310; 7
(12) "Insurance company" means any insurance company subject to the taxes imposed 8
by KRS 136.320, 136.330, or 304.3-270; 9
(13) "Investment fund" means any entity that is organized by an investment fund 10
manager in compliance with applicable state and federal securities laws and 11
regulations, and is approved by the authority to make qualified investments 12
pursuant to KRS 154.20-256; 13
(14) "Investment fund manager" means any person or entity that has been approved by 14
the authority to manage one (1) or more investment funds authorized under the 15
provisions of KRS 154.20 -250 to 154.20 -284 and is in compliance with all 16
applicable federal and state regulations; 17
(15) "Investor" means any person or entity, including financial institutions and insurance 18
companies, that is subject to state tax liability and that makes a cash contribution or 19
a committed cash contribution to an investment fund in ac cordance with the 20
provisions of KRS 154.20 -250 to 154.20 -284 and has not been convicted of 21
violating any of Kentucky's tax laws within the past ten (10) years; 22
(16) "Knowledge-based" has the same meaning as in KRS 164.6011; 23
(17) "Nonprofit entity" means an investor that is exempt from federal income tax under 24
Section 501(c) of the Internal Revenue Code of 1986, as amended; 25
(18) "Qualified activity" has the same meaning as in KRS 154.20-230; 26
(19) "Qualified investment" means an investment of at least ten tho usand dollars 27
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($10,000) in a small business by an investment fund, in compliance with applicable 1
state and federal securities laws and regulations, seeking a financial return based 2
upon that consideration. In consideration for the qualified investment, the 3
investment fund shall receive an equity interest in the small business, such as a 4
general or limited partnership interest, common or preferred stock with or without 5
voting rights and without regard to seniority position, forms of subordinate or 6
convertible unsecured debt, or both, with warrants, rights, or other means of equity 7
conversion attached; and 8
(20) "Small business" means any entity which at the time a qualified investment is made 9
by an investment fund: 10
(a) 1. Has a net worth of five million dollar s ($5,000,000) or less or net 11
income after federal income taxes for each of the two (2) preceding 12
fiscal years of three million dollars ($3,000,000) or less; or 13
2. Is a knowledge -based business, as shall be prescribed by the 14
commissioner of the Department of Commercialization and Innovation, 15
and has a net worth of ten million dollars ($10,000,000) or less; 16
(b) Is actively and principally engaged in a qualified activity within the 17
Commonwealth, or will be actively and principally engaged in a qualified 18
activity within the Commonwealth after the receipt of a qualified investment 19
by an investment fund; 20
(c) Has no more than one hundred (100) employees; and 21
(d) Has more than fifty percent (50%) of its assets and operations [assets, 22
operations, and employees] located in Kentucky. 23