H.B. 680
GENERAL ASSEMBLY OF NORTH CAROLINA
Apr 26, 2021
SESSION 2021 HOUSE PRINCIPAL CLERK
H D
HOUSE BILL DRH40398-MCf-50
Short Title: Reenact Qualified Business Venture Credit. (Public)
Sponsors: Representative Strickland.
Referred to:
1 A BILL TO BE ENTITLED
2 AN ACT TO REENACT INCOME TAX CREDITS FOR QUALIFIED BUSINESS
3 INVESTMENTS.
4 The General Assembly of North Carolina enacts:
5 SECTION 1. Part 5 of Article 4 of Subchapter I of Chapter 105 of the General
6 Statutes is reenacted as it existed immediately before its repeal and reads as rewritten:
7 "Part 5. Tax Credits for Qualified Business Investments.
8 "§ 105-163.010. Definitions.
9 The following definitions apply in this Part:
10 (1) Affiliate. – An individual or business that controls, is controlled by, or is under
11 common control with another individual or business.
12 (2) Business. – A corporation, partnership, limited liability company, association,
13 or sole proprietorship operated for profit.
14 (3) Control. – A person controls an entity if the person owns, directly or
15 indirectly, more than ten percent (10%) of the voting securities of that entity.
16 As used in this subdivision, the term "voting security" means a security that
17 (i) confers upon the holder the right to vote for the election of members of the
18 board of directors or similar governing body of the business or (ii) is
19 convertible into, or entitles the holder to receive upon its exercise, a security
20 that confers such a right to vote. A general partnership interest is a voting
21 security.
22 (3a) Diversity business. – A qualified business that is one or more of the following
23 determined as of the date the investment is made:
24 a. Headquartered in a development tier one or development tier two area,
25 as those areas are defined in G.S. 143B-437.08.
26 b. Headquartered in a designated qualified opportunity zone under
27 sections 1400Z-1 and 1400Z-2 of the Code.
28 (4) Equity security. – Common stock, preferred stock, or an interest in a
29 partnership, or subordinated debt that is convertible into, or entitles the holder
30 to receive upon its exercise, common stock, preferred stock, or an interest in
31 a partnership.
32 (5) Financial institution. – A business that is (i) a bank holding company, as
33 defined in the Bank Holding Company Act of 1956, 12 U.S.C. §§ 1841, et
34 seq., or its wholly owned subsidiary, (ii) registered as a broker-dealer under
35 the Securities Exchange Act of 1934, 15 U.S.C. §§ 78a, et seq., or its wholly
36 owned subsidiary, (iii) an investment company as defined in the Investment
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1 Company Act of 1940, 15 U.S.C. §§ 80a-1, et seq., whether or not it is required
2 to register under that act, (iv) a small business investment company as defined
3 in the Small Business Investment Act of 1958, 15 U.S.C. §§ 661, et seq., (v)
4 a pension or profit-sharing fund or trust, or (vi) a bank, savings institution,
5 trust company, financial services company, or insurance company. The term
6 does not include, however, a business, other than a small business investment
7 company, whose net worth, when added to the net worth of all of its affiliates,
8 is less than ten million dollars ($10,000,000). The term also does not include
9 a business that does not generally market its services to the public and is
10 controlled by a business that is not a financial institution.
11 (5a) Granting entity. – Any of the following:
12 a. A domestic or foreign corporation that (i) is tax-exempt pursuant to
13 section 501(c)(3) of the Code, (ii) has as its principal purpose the
14 stimulation of the development of the biotechnology industry, and (iii)
15 in furtherance of that purpose has received, or is a successor in interest
16 to an organization that has received, direct appropriations from the
17 State in at least three fiscal years.
18 b. A domestic or foreign corporation that meets the following three
19 conditions:
20 1. It is tax-exempt pursuant to section 501(c)(3) of the Code, is a
21 private foundation pursuant to section 509 of the Code, or is an
22 affiliate of either of the foregoing.
23 2. It has as its principal purpose one of the following: conducting
24 research and development in, or stimulating the development
25 of, electronic, photonic, information, or other technologies,
26 which may include investing in companies that provide
27 research, development, products, or services in these
28 technologies.
29 3. It meets one of the following conditions:
30 I. It received direct appropriations in furtherance of one
31 of these purposes from the State in at least three fiscal
32 years.
33 II. It was organized to perform one of these purposes for
34 an organization that meets condition I of this
35 sub-subdivision.
36 III. It is an affiliate of an entity that meets condition II of
37 this sub-subdivision.
38 c. An institute that (i) is administratively located within a constituent
39 institution of The University of North Carolina, (ii) is financed in part
40 by a domestic or foreign corporation that is tax-exempt pursuant to
41 section 501(c)(3) of the Code, (iii) has as a principal purpose the
42 stimulation of economic development based on the advancement of
43 science, engineering, and technology, and (iv) funds, either directly or
44 in collaboration with other entities, small businesses engaging in
45 developing technology.
46 (6) North Carolina Enterprise Corporation. – A corporation established in
47 accordance with Article 3 of Chapter 53A of the General Statutes or a limited
48 partnership in which a North Carolina Enterprise Corporation is the only
49 general partner.
50 (7) Pass-through entity. – Defined in G.S. 105-228.90.
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1 (7b) Qualified business. – A qualified business venture, a qualified grantee
2 business, or a qualified licensee business.
3 (8) Qualified business venture. – A business that (i) engages primarily in
4 manufacturing, processing, warehousing, wholesaling, research and
5 development, or a service-related industry, and (ii) is registered with the
6 Secretary of State under G.S. 105-163.013.
7 (9) Qualified grantee business. – A business that (i) is registered with the
8 Secretary of State under G.S. 105-163.013, and (ii) has received during the
9 current year or any of the preceding three years a grant, an investment, or other
10 funding from a federal agency under the Small Business Innovation Research
11 Program administered by the United States Small Business Administration or
12 from a granting entity as defined in this section.
13 (9a) Qualified licensee business. – A business that meets all of the following
14 conditions:
15 a. It is registered with the Secretary of State under G.S. 105-163.013.
16 b. During its most recent fiscal year before filing an application for
17 registration under G.S. 105-163.013, it had gross revenues, as
18 determined in accordance with generally accepted accounting
19 principles, of one million dollars ($1,000,000) or less on a
20 consolidated basis.
21 c. It has been certified by a constituent institution of The University of
22 North Carolina or a research university as currently performing under
23 a licensing agreement with the institution or university for the purpose
24 of commercializing technology developed at the institution or
25 university. For the purpose of this section, a research university is an
26 institution of higher education classified as a Doctoral/Research
27 University, Extensive or Intensive, in the most recent edition of "A
28 Classification of Institutions of Higher Education", the official report
29 of The Carnegie Foundation for the Advancement of Teaching.
30 (10) Real estate-related business. – A business that is involved in or related to the
31 brokerage, selling, purchasing, leasing, operating, or managing of hotels,
32 motels, nursing homes or other lodging facilities, golf courses, sports or social
33 clubs, restaurants, storage facilities, or commercial or residential lots or
34 buildings is a real estate-related business, except that a real estate-related
35 business does not include (i) a business that purchases or leases real estate
36 from others for the purpose of providing itself with facilities from which to
37 conduct a business that is not itself a real estate-related business or (ii) a
38 business that is not otherwise a real estate-related business but that leases,
39 subleases, or otherwise provides to one or more other persons a number of
40 square feet of space which in the aggregate does not exceed fifty percent
41 (50%) of the number of square feet of space occupied by the business for its
42 other activities.
43 (10a) Related person. – A person described in one of the relationships set forth in
44 section 267(b) or 707(b) of the Code.
45 (11) Security. – A security as defined in Section 2(1) of the Securities Act of 1933,
46 15 U.S.C. § 77b(1).
47 (12) Selling or leasing at retail. – A business is selling or leasing at retail if the
48 business either (i) sells or leases any product or service of any nature from a
49 store or other location open to the public generally or (ii) sells or leases
50 products or services of any nature by means other than to or through one or
51 more other businesses.
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1 (13) Service-related industry. – A business is engaged in a service-related industry,
2 whether or not it also sells a product, if it provides services to customers or
3 clients and does not as a substantial part of its business engage in a business
4 described in G.S. 105-163.013(b)(4). A business is engaged as a substantial
5 part of its business in an activity described in G.S. 105-163.013(b)(4) if (i) its
6 gross revenues derived from all activities described in that subdivision exceed
7 twenty-five percent (25%) of its gross revenues in any fiscal year or (ii) it is
8 established as one of its primary purposes to engage in any activities described
9 in that subdivision, whether or not its purposes were stated in its articles of
10 incorporation or similar organization documents.
11 (14) Subordinated debt. – Indebtedness that is not secured and is subordinated to
12 all other indebtedness of the issuer issued or to be issued to a financial
13 institution other than a financial institution described in subdivisions (5)(ii)
14 through (5)(v) of this section. Except as provided in G.S. 105-163.014(d1),
15 any portion of indebtedness that matures earlier than five years after its
16 issuance is not subordinated debt.
17 "§ 105-163.011. Tax credits allowed.
18 (a) No Credit for Brokered Investments. – No credit is allowed under this section for a
19 purchase of equity securities or subordinated debt if a broker's fee or commission or other similar
20 remuneration is paid or given directly or indirectly for soliciting the purchase.
21 (b) Individuals. – Subject to the limitations contained in G.S. 105-163.012, an individual
22 who purchases the equity securities or subordinated debt of a qualified business directly from
23 that business is allowed as a credit against the tax imposed by Part 2 of this Article for the taxable
24 year an amount equal to twenty-five percent (25%) of the amount invested. The aggregate amount
25 of credit allowed an individual for one or more investments made in a single taxable year under
26 this Part, whether directly or indirectly as owner of a pass-through entity, may not exceed fifty
27 thousand dollars ($50,000). The credit may not be taken for the year in which the investment is
28 made but may be taken for the taxable year beginning during the calendar year in which the
29 application for the credit becomes effective as provided in subsection (c) of this section.
30 (b1) Pass-Through Entities. – This subsection does not apply to a pass-through entity that
31 has committed capital under management in excess of five million dollars ($5,000,000) or to a
32 pass-through entity that is a qualified business or a North Carolina Enterprise Corporation.
33 Subject to the limitations provided in G.S. 105-163.012, a pass-through entity that purchases the
34 equity securities or subordinated debt of a qualified business directly from the business is eligible
35 for a tax credit equal to twenty-five percent (25%) of the amount invested. The aggregate amount
36 of credit allowed a pass-through entity for one or more investments made in a single taxable year
37 under this Part, whether directly or indirectly as owner of another pass-through entity, may not
38 exceed seven hundred fifty thousand dollars ($750,000). The pass-through entity is not eligible
39 for the credit for the year in which the investment by the pass-through entity is made but is
40 eligible for the credit for the taxable year beginning during the calendar year in which the
41 application for the credit becomes effective as provided in subsection (c) of this section.
42 Each individual who is an owner of a pass-through entity is allowed as a credit against the
43 tax imposed by Part 2 of this Article for the taxable year an amount equal to the owner's allocated
44 share of the credits for which the pass-through entity is eligible under this subsection. The
45 aggregate amount of credit allowed an individual for one or more investments made in a single
46 taxable year under this Part, whether directly or indirectly as owner of a pass-through entity, may
47 not exceed fifty thousand dollars ($50,000).
48 If an owner's share of the pass-through entity's credit is limited due to the maximum allowable
49 credit under this section for a taxable year, the pass-through entity and its owners may not
50 reallocate the unused credit among the other owners.
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1 (b2) Credit Bonus. – The credit allowed under this Part shall be increased by ten percent
2 (10%) of the credit amount if the amount generating the credit is invested in a qualified business
3 that is a diversity business.
4 (c) Applic