Relating to tax credits awarded by the economic development authority for specific capital contributions made to certified rural business growth funds for investment in qualified businesses

This bill relates to tax credits awarded by the economic development authority for specific capital contributions made to certified rural business growth funds for investment in qualified businesses. The bill defines “qualified business” to mean any business within this state that has fewer than 250 employees, including certain subcontractors, and is not located in whole or in part in one or more of the most populous counties in the state. The bill directs the economic development authority (authority) to begin accepting Iowa rural development tax credit program (program) applications beginning January 7, 2025. §681, documentation that establishes that at least one principal of the applicant has been an officer or an employee of the rural business investment company, the small business investment company or an affiliate, for a minimum of four years prior to the date of application, a revenue impact assessment for the applicant’s proposed growth investments as determined by an econometric analysis conducted by a third-party independent econometric firm, the number of jobs created and the number of jobs retained assumed in the revenue impact assessment, a signed affidavit from each investor that states the amount of the credit-eligible capital contribution that the investor has committed to the applicant’s proposed growth fund, and a nonrefundable $5,000 application fee. The bill defines “growth investment” to mean any of the following: capital or equity investments in a qualified business, a loan to a qualified business subject to certain conditions, or a senior secured loan under certain conditions. The bill defines “credit-eligible capital contribution” as an investment of cash by a person in a growth fund that is eligible for a tax credit issued by the authority. The investment must be used to purchase either an equity interest in the growth fund or a debt instrument, at par value or premium, issued by the growth fund that has a maturity date at least six years after the growth fund’s closing date. “Eligible investment authority” is defined in the bill as the amount of investment authority that the authority certifies for a specific growth fund. The bill requires the authority to review each application on a first-come, first-served basis and to make a determination to approve or deny each application within the time frame adopted by rule by the authority. The authority shall not approve more than $45 million in eligible investment authority and not more than $27 million in credit-eligible capital contributions. The authority must reject an application if the applicant fails to submit any of the required information, or if the authority has already approved the maximum eligible investment authority or the maximum credit-eligible capital contributions. If the authority rejects an application, the authority must send a notice of rejection to the applicant, and provide a reason for the rejection. If an application has been rejected because the applicant failed to submit all of the required information, the applicant has days to provide additional information to cure any defects in the application. The authority shall review and reconsider, within the time frame adopted by rule by the authority, any application for which additional information is provided within the business days. If an application is approved by the authority after review and reconsideration, the application shall be considered complete as of its original date of submission. If the authority approves an application, the authority must send a notice to the applicant certifying the applicant as a rural business growth fund, the growth fund’s eligible investment authority, and the required number of jobs created and the required number of jobs retained based on the number submitted in the applicant’s application. Within days of the date the authority sent the notice of certification, the growth fund is required to collect all credit-eligible capital contributions from each investor whose affidavit was included in the growth fund’s application, collect one or more equity investments contributed directly or indirectly by affiliates of the growth fund, including employees and principals of such affiliates, that equal at least percent of the growth fund’s eligible investment authority, and collect one or more investments of cash that when added to the credit-eligible capital contributions and the equity investments equal the growth fund’s eligible investment authority. Within days of the date the authority sent the notice of certification, the growth fund must submit documentation to the authority to prove that the appropriate amounts have been collected by the growth fund, and documentation that identifies all affiliates of the investor that may be eligible to claim a tax credit issued by the authority. If the growth fund fails to comply with the collection and documentation requirements, all eligible investment authority and credit-eligible capital contributions lapse. Eligible investment authority and credit-eligible capital contributions that lapse do not count toward the maximum limits on eligible investment authority and credit-eligible capital contributions and may be awarded by the authority as outlined in the bill. If a growth fund successfully complies with the collection and documentation requirements, the growth fund must enter into an agreement with the authority that specifies the requirements that must be met for successful completion of the program. The agreement must contain, at a minimum, the legal name of the growth fund, the growth fund’s closing date, the growth fund’s eligible investment authority as certified by the authority, each investor of the growth fund and each investor’s credit-eligible capital contribution, the minimum number of jobs that must be created and the minimum number of jobs that must be retained as a result of the growth fund’s growth investments to avoid paying state reimbursement, and a provision related to revocation and recapture of tax credits if the growth fund fails to meet the applicable program investment requirements. After the agreement is executed, the authority must issue a tax credit certificate to each investor whose affidavit was included in the growth fund’s application and whose credit-eligible capital contribution was collected by the growth fund.329. The tax credit allocated to any one investor is equal to the investor’s credit-eligible capital contribution to the growth fund. An investor may use one-third percent of the tax credit in each taxable year beginning in the calendar year following the third, fourth, and fifth anniversaries of the growth fund’s closing date. Any tax credit in excess of the taxpayer’s tax liability for a tax year may be carried forward to the taxpayer’s tax liability for subsequent tax years until the tax credit is depleted. The tax credits are not refundable and cannot be sold, transferred, or allocated by the investor to any person other than an affiliate of the investor. The affiliate must submit the tax credit certificate within days to the department of revenue (department) along with a statement containing the affiliate’s name, tax identification number, address, and any other information required by the department. The department must issue the affiliate a replacement tax credit certificate with the same expiration date that appeared on the original tax credit certificate. The authority shall revoke or recapture a tax credit if, before a growth fund exits the program, the growth fund cannot provide documentation to the authority to substantiate that the growth fund, within months after the growth fund’s closing date, has invested 100 percent of the growth fund’s investment authority in growth investments; that the growth fund, after investing 100 percent of the growth fund’s investment authority in growth investments within months after the growth fund’s closing date, has maintained growth investments equal to 100 percent of its investment authority at all times up to the fifth anniversary after the growth fund’s closing date. The bill specifies that a growth investment is maintained even if it is sold or repaid, as long as the growth fund reinvests an amount equal to the growth investment returned or recovered from the original investment, exclusive of any profits realized, in other growth investments in this state within the consecutive months immediately after the date of the return or recovery of such growth investment. The bill also specifies that amounts received periodically by a growth fund are deemed continuously invested in growth investments if the amounts are reinvested by the growth fund in one or more qualified businesses by the end of the following calendar year. The authority must also revoke or recapture a tax credit if, before a growth fund exits the program, the growth fund makes a growth investment in a qualified business that directly, or indirectly through an affiliate, owns, has the right to acquire an ownership interest in, makes a loan to, or makes an investment in, the growth fund, an affiliate of the growth fund, or an investor in the growth fund. This does not apply to investments in publicly traded securities by a qualified business, or to an owner or an affiliate of the qualified business. Further, a growth fund is not considered an affiliate of a qualified business solely because of its growth investment in the qualified business. The authority is also required to revoke or recapture a tax credit if the growth fund, before it exits the program, makes a distribution or payment that results in the growth fund having less than 100 percent of its initial investment authority invested in growth investments in this state, available for growth investments, or held in cash and marketable securities. A growth fund may count the greater of percent of the growth fund’s eligible investment authority and $5 million, excluding any amounts reinvested in a qualified business, toward the growth fund’s satisfaction of the investment requirements. Before the authority revokes or recaptures a tax credit, the authority must provide notice to the growth fund of the reason for the pending revocation or recapture and the growth fund has days to address any issues identified in the notice. Failure of the growth fund to address any of the issues in the notice results in revocation or recapture of the tax credit. The bill prohibits the authority from revoking or recapturing a tax credit for any action of a growth fund that occurs after the growth fund has exited the program. The bill does not, however, prohibit the authority from revoking a tax credit due to an action of a growth fund that occurs before the growth fund exits the program, even if the growth fund’s action is discovered after the growth fund exits the program. On or after the fifth anniversary of a growth fund’s closing date, the growth fund may apply to the authority to exit the program. A growth fund is eligible to exit the program if a tax credit associated with the growth fund has not been revoked or recaptured. The growth fund’s application must include the state reimbursement calculation. The state reimbursement owed by a rural business growth fund to the authority is calculated as detailed in the bill. Within the time frame adopted by rule by the authority, the authority shall send notice to the growth fund of the authority’s determination regarding the application and confirmation of the state reimbursement owed by the growth fund. If the authority denies the application, the notice must include the reasons for the denial. If the authority approves the application, the growth fund is deemed to have exited the program on the date the notice is sent by the authority to the growth fund. If the growth fund owes the state reimbursement, the growth fund is prohibited from making any distributions to equity holders of the fund until the state reimbursement amount has been remitted to the authority. “Equity holder” is defined in the bill as a person that makes a credit-eligible capital contribution, an equity investment, or a cash investment in a rural business growth fund. The bill specifies that all state reimbursement amounts remitted to the authority shall be deposited in the general fund of the state. Unless a growth fund has exited the program, the growth fund must submit an annual report to the authority that covers the preceding calendar year. The report must include documentation for each of the growth fund’s growth investments and must include financial statements that provide evidence of each growth investment, evidence that the growth fund is in compliance with applicable investment requirements; the name, location, and industry for each qualified business that received a growth investment; evidence that each business met the requirements to be a qualified business at the time the growth investment was made; the number of employees at each qualified business on the date of the growth fund’s initial growth investment; the number of jobs created at each qualified business; the average annual salary for the jobs created; the number of jobs retained at each qualified business; and the average annual salary for the jobs retained. The bill provides that the only remedies for a breach or default of any of the terms of the program by a growth fund are revocation or recapture of tax credits and the state reimbursement as detailed in the bill. The bill requires the authority, in conjunction with the department, to adopt rules as necessary to implement and administer the program.