HOUSE BILL NO. 1845 103RD GENERAL ASSEMBLY
INTRODUCED BY REPRESENTATIVE GALLICK.
5418H.01I JOSEPH ENGLER, Chief Clerk
AN ACT To amend chapter 348, RSMo, by adding thereto two new sections relating to tax credits to qualified businesses.
Be it enacted by the General Assembly of the state of Missouri, as follows:
Section A. Chapter 348, RSMo, is amended by adding thereto two new sections, to be 2 known as sections 348.273 and 348.274, to read as follows: 348.273. 1. This section and section 348.274 shall be known and may be cited as 2 the "Missouri Angel Investment Incentive Act". 3 2. As used in this section and section 348.274, the following terms mean: 4 (1) "Cash investment", any moneys or money-equivalent contribution in 5 consideration of qualified securities; 6 (2) "Department", the department of economic development; 7 (3) "Designated geographic regions", the following four regions: 8 (a) Region 1: Counties of Andrew, Bates, Benton, Buchanan, Cass, Clay, Clinton, 9 DeKalb, Gentry, Henry, Holt, Jackson, Johnson, Lafayette, Platte, Ray, and Worth; 10 (b) Region 2: Counties of Franklin, Jefferson, Lincoln, St. Charles, Warren, and 11 St. Louis, and the City of St. Louis; 12 (c) Region 3: Counties geographically north of the Missouri River, excluding any 13 counties in region 1 or region 2; and 14 (d) Region 4: Counties geographically south of the Missouri River, excluding any 15 counties in region 1 or region 2; 16 (4) "Investor", one of the following persons or entities:
EXPLANATION — Matter enclosed in bold-faced brackets [thus] in the above bill is not enacted and is intended to be omitted from the law. Matter in bold-face type in the above bill is proposed language. HB 1845 2
17 (a) A natural person who is an accredited investor as defined under 17 CFR 18 230.501(a)(5) or 230.501(a)(6), as in effect on July 24, 2013; 19 (b) A permitted entity investor who is an accredited investor as defined under 17 20 CFR 230.501(a)(8) as in effect on July 24, 2013; or 21 (c) A natural person or permitted entity investor making an investment who 22 qualifies under the federal Jumpstart Our Business Startups (JOBS) Act, Pub. L. 112- 23 106 as in effect on April 5, 2012. 24 25 The term "investor" shall not include any person who serves as an executive, officer, or 26 employee of the business in which an otherwise qualified cash investment is made, and 27 such person shall not qualify for the issuance of tax credits for such investment. 28 However, an investor who serves solely as a director may qualify for the issuance of tax 29 credits; 30 (5) "MTC", the Missouri technology corporation established under section 31 348.251; 32 (6) "Owner", any natural person who is, directly or indirectly, a partner, 33 stockholder, or member in a permitted entity investor; 34 (7) "Permitted entity investor", any general partnership; limited partnership; 35 corporation that has in effect a valid election to be taxed as an S corporation under the 36 Internal Revenue Code of 1986, as amended; revocable living trust; nonprofit 37 corporation; or limited liability company that has elected to be taxed as a 38 partnership under the Internal Revenue Code of 1986, as amended, and that was 39 established and is operated for the purpose of making investments in other entities; 40 (8) "Qualified knowledge-based company", a company engaged in the research, 41 development, implementation, and commercialization of innovative technologies, 42 products, and services for use in the commercial marketplace; 43 (9) "Qualified Missouri business", a Missouri business that is approved as a 44 qualified knowledge-based company by the MTC and meets at least one of the following 45 criteria: 46 (a) Any partnership, association, limited liability company, or corporation 47 domiciled in Missouri; or 48 (b) Any limited liability company or corporation that is domiciled outside the 49 state of Missouri but has its business operations located primarily in Missouri or does 50 substantially all of such business’s production in Missouri; 51 (10) "Qualified securities", a cash investment through any form or combination 52 of forms of financial assistance as provided under this subdivision. Such forms of 53 financial assistance include, but are not limited to: HB 1845 3
54 (a) Any form of equity, such as: 55 a. A general or limited partnership interest; 56 b. Common stock; 57 c. Simple agreement for future equity (SAFE); or 58 d. Preferred stock, without regard to voting rights or seniority position and 59 regardless of whether convertible into common stock; and 60 (b) Any debt instrument subordinate to the general creditors of the qualified 61 Missouri business debtor that requires no payment from the qualified Missouri business 62 debtor and that shall convert to some form of equity prior to, or in conjunction with, the 63 qualified Missouri business raising any additional funds; 64 (11) "Rural county", any county in the state of Missouri with fewer than one 65 hundred thousand inhabitants, and such term shall be deemed to include both the farm 66 and nonfarm population thereof. The number of inhabitants specified in this 67 subdivision shall be increased by six percent every ten years after each decennial 68 census beginning in 2030; 69 (12) "Tax credit", a credit against the tax otherwise due under chapter 143, 70 excluding withholding tax imposed by sections 143.191 to 143.265. 71 3. (1) For all tax years beginning on or after January 1, 2027, a tax credit shall 72 be allowed for an investor's cash investment in the qualified securities of a qualified 73 Missouri business. The credit shall be in a total amount equal to forty percent of such 74 investor's cash investment in any qualified Missouri business, subject to the limitations 75 set forth in this subsection. The credit shall be in a total amount equal to fifty percent 76 where the investor's cash investment is in the qualified securities of a qualified Missouri 77 business that is headquartered in a rural county. If the amount of the credit allowed by 78 this section exceeds the investor's tax liability in any one tax year, the remaining portion 79 of the credit may be carried forward five years or until the total amount of the credit is 80 used, whichever occurs first. If the investor is a permitted entity investor, the credit 81 provided by this section shall be claimed by the permitted entity investor in proportion 82 to such owner's equity investment in the permitted entity investor. 83 (2) A cash investment in a qualified security shall be deemed to have been made 84 on the date of acquisition of the qualified security, as such date is determined in 85 accordance with the provisions of the Internal Revenue Code of 1986, as amended. 86 (3) The department and the MTC shall not allow tax credits of more than 87 seventy-five thousand dollars for a single qualified Missouri business per investor who is 88 a natural person or a permitted entity investor and shall not allow a total of three 89 hundred thousand dollars in tax credits for a single tax year per investor who is a 90 natural person or a permitted entity investor. No tax credit authorized by this section or HB 1845 4
91 section 348.274 shall be allowed for any cash investments in qualified securities made in 92 any year after December 31, 2033. The total amount of tax credits that may be allowed 93 under this section shall not exceed six million dollars during either calendar year 2027 94 or 2028. Beginning in calendar year 2029, the total amount of tax credits allowed under 95 this section shall be annually increased by twenty percent of the total amount of tax 96 credits allowed in the immediately preceding calendar year, so long as the total amount 97 of tax credits allowed in the immediately preceding calendar year was issued during 98 such calendar year. For each successive year thereafter, if the total amount of tax 99 credits allowed in the immediately preceding calendar year under this section is issued, 100 the total amount of tax credits shall be increased by an additional twenty percent. Such 101 increase of twenty percent of tax credits allowed shall continue, so long as the total 102 amount of tax credits allowed in the immediately preceding calendar year was 103 completely issued. The balance of unissued tax credits may be carried over for issuance 104 in future years before December 31, 2035. The balance of unissued tax credits carried 105 over, if any, shall not be used in the calculation of the total amount of tax credits allowed 106 in a given calendar year. 107 (4) At the beginning of each calendar year, the MTC shall equally designate the 108 total amount of tax credits available during the first six months of that calendar year to 109 each designated geographic region. As soon as practicable at the end of the first six 110 months of that calendar year, the MTC shall prepare and issue a report to the director 111 of the department designating all tax credit awards for that year to date, so that the 112 department may issue such tax credits in accordance with the provisions of this section 113 and section 348.274. 114 (5) During the last six months of the calendar year, any unissued tax credits 115 previously allocated to any designated geographic region may be awarded at the 116 discretion of the MTC to a qualified Missouri business in any designated geographic 117 region throughout the state. 118 4. (1) Before an investor is entitled to receive tax credits under this section and 119 section 348.274, such investor shall have made a cash investment in a qualified security 120 of a qualified Missouri business. The business shall have been approved as a qualified 121 Missouri business before the date on which the cash investment was made. To be 122 designated as a qualified Missouri business, a business shall apply to the MTC. 123 (2) The application by a business shall be in the form and substance required by 124 the MTC in coordination with the department by and through its service on the MTC 125 board of directors but shall include at least the following: 126 (a) The name of the business and certified copies of the organizational 127 documents of the business; HB 1845 5
128 (b) A business plan, including a description of the business and the management, 129 product, market, and financial plan of the business; 130 (c) A statement of the potential economic impact of the business, including the 131 number, location, and types of jobs expected to be created; 132 (d) A description of the qualified securities to be issued, the consideration to be 133 paid for the qualified securities, and the amount of any tax credits requested; 134 (e) A statement of the amount, timing, and projected use of the proceeds to be 135 raised from the proposed sale of qualified securities; and 136 (f) Such other information as may be reasonably requested. 137 (3) The designation of a business as a qualified Missouri business shall be made 138 by the MTC, and each qualified Missouri business shall annually apply to renew such 139 designation, to be approved by the MTC. A business shall be so designated if the MTC 140 determines, based upon the application submitted by the business and any additional 141 information provided in connection with such application or as reasonably requested by 142 the MTC, that such business meets established criteria, including at least the following: 143 (a) The business shall not have had annual gross revenues of more than five 144 million dollars in the most recent tax year of the business; 145 (b) Businesses that are not bioscience businesses shall have been in operation for 146 less than five years, and bioscience businesses shall have been in operation for less than 147 ten years; 148 (c) The ability of investors in the business to receive tax credits for cash 149 investments in qualified securities of the business is beneficial to advancing the goals of 150 this section and section 348.274; 151 (d) The business shall not have ownership interests including, but not limited to, 152 common or preferred shares of stock that can be traded via a public stock exchange 153 before the date that a qualifying investment is made; 154 (e) The business shall not be engaged primarily in any one or more of the 155 following enterprises: 156 a. The business of banking, savings and loan or lending institutions, credit or 157 finance, or financial brokerage or investments; 158 b. The provision of professional services, such as legal, accounting, or 159 engineering services; however, contract research or manufacturing organizations, 160 sometimes referred to as CROs or CMOs, shall not be subject to this exclusion; 161 c. Governmental, charitable, religious, or trade organizations; 162 d. The ownership, development, brokerage, sales, or leasing of real estate; 163 e. Insurance; 164 f. Construction, construction management, or contracting; HB 1845 6
165 g. Business consulting or brokerage; 166 h. Any business engaged primarily as a passive business, having irregular or 167 noncontiguous operations, or deriving substantially all of the income of the business 168 from passive investments that generate interest, dividends, royalties, or capital gains or 169 any business arrangements the effect of which is to immunize an investor from risk of 170 loss; 171 i. Any activity that is in violation of the law; 172 j. Any business raising moneys primarily to purchase real estate, land, or 173 fixtures; and 174 k. Any gambling-related business; 175 (f) The business has a reasonable chance of success; 176 (g) The business has the reasonable potential to create measurable employment 177 within the region, this state, or both; 178 (h) The business is based on an innovative technology, product, or service 179 designed to be used in the commercial marketplace; 180 (i) The existing owners of the business and other founders have made or are 181 committed to making a substantial financial or time commitment to the business; 182 (j) The securities to be issued and purchased are qualified securities; 183 (k) The business has the reasonable potential to address needs and opportunities 184 specific to the region, this state, or both; 185 (l) The business has made binding commitments to the MTC for adequate 186 reporting of financial data, including a requirement for an annual report or, if required, 187 an annual audit of the financial and operational records of the business; the right of 188 access to the financial records of the business; the right of the department and the MTC 189 to record and publish normal and customary data and information related to the 190 issuance of tax credits that are not otherwise determined to be trade or business secrets; 191 and other such protections as may be in the best interest of Missouri taxpayers to 192 achieve the goals of this section and section 348.274; and 193 (m) The business shall satisfy all other requirements of this section and section 194 348.274. 195 (4) A qualified Missouri business shall have the burden of proof to demonstrate 196 the qualifications of the business under this section. 197 (5) The MTC shall establish an application fee for qualified Missouri businesses 198 and investors or transferees. This fee shall be utilized by MTC to administer this act, 199 issue the tax credits, and review the applications. 348.274. 1. (1) The MTC is authorized to allocate tax credits to qualified 2 Missouri businesses, and the department is authorized to issue tax credits to investors in HB 1845 7
3 such qualified Missouri businesses. Such tax credits shall be allocated to those qualified 4 Missouri businesses that, as determined by the MTC, are most likely to provide the 5 greatest economic benefit to the region or the state, or both. The MTC may allocate, 6 and the department may issue, whole or partial tax credits in accordance with the report 7 issued to the director of the department based on the MTC's assessment of the qualified 8 Missouri businesses. The MTC may consider numerous factors in such assessment 9 including, but not limited to, the quality and experience of the management team, the 10 size of the estimated market opportunity, the risk from current or future competition, 11 the ability to defend intellectual property, the quality and utility of the business model, 12 and the quality and reasonableness of financial projections for the business. 13 (2) Each qualified Missouri business for which the MTC has allocated tax credits 14 such that the department can issue tax credits to the investors of such qualified Missouri 15 business shall submit to the MTC a report before such tax credits are issued. Such 16 report shall include the following: 17 (a) The name, address, and taxpayer identification number of each investor who 18 has made cash investment in the qualified securities of the qualified Missouri business; 19 (b) Proof of such investment, including copies of the securities' purchase 20 agreements and canceled checks or wire-transfer receipts; and 21 (c) Such other information as may be reasonably required under this section and 22 section 348.273 or reasonably requested by the department or the MTC. 23 2. (1) The state of Missouri, the department, or the MTC shall not be held liable 24 for any damages to any investor that makes an investment in any qualified security of a 25 qualified Missouri business, any business that applies to be designated as a qualified 26 Missouri business and is denied, or any investor that makes an investment in a business 27 that applies to be designated as a qualified Missouri business and is denied. 28 (2) Each qualified Missouri business shall have the obligation to notify the MTC, 29 which shall notify the director of the department, of any changes in the qualifications of 30 the business or in the eligibility of investors to claim a tax credit for cash investment in a 31 qualified security. 32 (3) The director of the department, in cooperation with the MTC, shall provide 33 the information specified under subdivision (3) of subsection 4 of this section to the 34 director of the department of revenue on an annual basis. The MTC shall conduct an 35 annual review of the activities undertaken under this section and section 348.273 to 36 ensure that tax credits issued