S T A T E   O F   N E W   Y O R K
________________________________________________________________________

                                  5949

                       2009-2010 Regular Sessions

                          I N  A S S E M B L Y

                            February 23, 2009
                               ___________

Introduced by M. of A. ESPAILLAT, TOWNS, SCHROEDER -- Multi-Sponsored by
  --  M.  of  A. ALFANO, BARRA, SWEENEY -- read once and referred to the
  Committee on Ways and Means

AN ACT to amend the tax law, in relation to the creation of a local seed
  capital fund investment credit

  THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND  ASSEM-
BLY, DO ENACT AS FOLLOWS:

  Section  1.  Short  title. This act shall be known and may be cited as
"NYSEEDS".
  S 2. Legislative  findings  and  intent.  The  legislature  finds  and
declares  that  most  funding  for  technology  development in the phase
between invention and commercialization  comes  from  corporations,  the
federal  government,  and  especially  from  individual, private equity,
"angel" investors, and not  from  traditional  venture  capitalists.  In
general,  funding for early-stage technology development is lagging, and
in New York state, this lag has been  particularly  large.  Markets  for
allocating  risk capital to early stage technology  ventures are notori-
ously inefficient; information on investment opportunities for entrepre-
neurs and investors is difficult to find; the ability for  investors  in
early-stage  technology  ventures  to  fully achieve appropriate returns
from their investments is limited; and many  other  uncertainties  limit
investment  potential.  When these uncertainties are primarily technical
and technological, individual investors have additional difficulties  in
evaluating potential deals. Recently, the problem of finding early-stage
financing  has been exacerbated by the economic downturn and contraction
of all venture capital markets.
  Increasing the amount and availability of seed capital funding in  New
York  state  will  stimulate new growth and economic recovery. To accom-
plish this task, the state needs to assist New  York  entrepreneurs  and
business  angels  by  providing  assistance  to  bring inventions to the
market. The "NYSEEDS" tax credit is designed to encourage the investment

 EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
                      [ ] is old law to be omitted.
                                                           LBD08388-01-9
              

A. 5949                             2

of New York venture funds in start-up New  York  companies  by  bringing
together  entrepreneurs  and  local business angels to grow more jobs in
New York state. It will help angel investors maximize their investments,
increase  early  stage  capital  and investments in new start-ups in the
state, and stimulate the formation of desperately needed seed capital at
the crucial early phase of business development. It  is  essential  that
New  York  state  act  to provide all necessary support to growing busi-
nesses in the "new economy".
  S 3. The tax law is amended by adding a new section 11-a  to  read  as
follows:
  S  11-A. CERTIFIED SEED CAPITAL FUND. (A) DEFINITIONS. FOR PURPOSES OF
THIS SECTION THE FOLLOWING TERMS SHALL MEAN:
  (1) "INVESTOR" - AN INDIVIDUAL WHO CONTRIBUTES  TO  A  CERTIFIED  SEED
CAPITAL  FUND  AND IS ELIGIBLE FOR A TAX CREDIT UNDER SUBSECTION (QQ) OF
SECTION SIX HUNDRED SIX OF THIS CHAPTER. "INVESTOR" DOES NOT  INCLUDE  A
PERSON  WHO  IS A CURRENT OR PREVIOUS OWNER, MEMBER, OR SHAREHOLDER IN A
QUALIFIED BUSINESS.
  (2) "CERTIFIED SEED CAPITAL" - AN INVESTMENT OF CASH BY AN INVESTOR IN
A CERTIFIED SEED CAPITAL FUND WHICH FULLY FUNDS THE  PURCHASE  PRICE  OF
EITHER OR BOTH ITS EQUITY INTEREST IN THE CERTIFIED SEED CAPITAL FUND OR
A QUALIFIED DEBT INSTRUMENT ISSUED BY THE CERTIFIED SEED CAPITAL FUND.
  (3)  "CERTIFIED SEED CAPITAL FUND" - A PARTNERSHIP, CORPORATION, TRUST
OR LIMITED LIABILITY COMPANY, ORGANIZED ON A FOR-PROFIT  BASIS  THAT  IS
LOCATED, HEADQUARTERED AND LICENSED OR REGISTERED TO CONDUCT BUSINESS IN
NEW YORK STATE, THAT HAS AS ITS PRIMARY BUSINESS ACTIVITY THE INVESTMENT
OF CASH IN QUALIFIED BUSINESSES AND THAT IS CERTIFIED BY THE COMPTROLLER
AS MEETING THE CRITERIA SET FORTH IN SUBDIVISION (B) OF THIS SECTION.
  (4)  "QUALIFIED  BUSINESS" - AN INDEPENDENTLY OWNED AND OPERATED BUSI-
NESS THAT MEETS ALL OF THE FOLLOWING CONDITIONS AS OF THE  TIME  OF  THE
FIRST INVESTMENT IN THE BUSINESS:
  (A)  IT IS HEADQUARTERED IN NEW YORK STATE, AND ITS PRINCIPAL BUSINESS
OPERATIONS ARE LOCATED IN NEW YORK STATE, AND THE  QUALIFIED  INVESTMENT
IT  RECEIVES  IS  USED  SOLELY TO SUPPORT ITS BUSINESS OPERATIONS IN THE
STATE, EXCEPT FOR ADVERTISING, PROMOTIONS AND SALES PURPOSES.  IN  CASES
WHERE  THE QUALIFIED INVESTMENT IS MADE IN A START-UP COMPANY SUCH CAPI-
TAL MUST BE USED SOLELY TO ESTABLISH AND SUPPORT ITS BUSINESS OPERATIONS
IN  NEW  YORK  STATE,  EXCEPT  FOR  ADVERTISING,  PROMOTIONS  AND  SALES
PURPOSES.
  (B)  IT  HAS EITHER (I) NO MORE THAN TWENTY EMPLOYEES, AT LEAST EIGHTY
PERCENT OF WHOM ARE EMPLOYED IN NEW  YORK  STATE,  OR  (II)  DURING  THE
FISCAL YEAR IMMEDIATELY PRECEDING THE QUALIFIED INVESTMENT TOGETHER WITH
ITS AFFILIATES, GROSS REVENUES OF NO MORE THAN TWO MILLION DOLLARS, ON A
CONSOLIDATED  BASIS  AS DETERMINED IN ACCORDANCE WITH GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES.
  (C) IT IS INVOLVED IN COMMERCE FOR THE PURPOSE OF DEVELOPING AND MANU-
FACTURING PRODUCTS AND SYSTEMS, INCLUDING BUT NOT LIMITED TO HIGH  TECH-
NOLOGY  PRODUCTS  AND  SYSTEMS  SUCH  AS  COMPUTERS,  COMPUTER SOFTWARE,
MEDICAL  EQUIPMENT,  BIOTECHNOLOGY,  TELECOMMUNICATIONS  EQUIPMENT   AND
PRODUCTS,  PROCESSING  OR  ASSEMBLING  ALL TYPES OF PRODUCTS, CONDUCTING
RESEARCH AND DEVELOPMENT ON ALL TYPES OF PRODUCTS OR PROVIDING SERVICES,
BUT EXCLUDING REAL ESTATE, REAL ESTATE DEVELOPMENT, INSURANCE AND  BUSI-
NESSES  PREDOMINANTLY  ENGAGED  IN  PROFESSIONAL  SERVICES  PROVIDED  BY
ACCOUNTANTS, LAWYERS OR PHYSICIANS.
  (D) FOR PURPOSES OF THIS PARAGRAPH, THE TERM "INDEPENDENTLY OWNED  AND
OPERATED BUSINESS" MEANS (I) IN THE CASE OF A CORPORATION, A CORPORATION
WHERE  NO MORE THAN FIFTY PERCENT OF THE VOTING STOCK OF THE CORPORATION

A. 5949                             3

IS OWNED OR CONTROLLED, DIRECTLY OR INDIRECTLY, BY A SINGLE CORPORATION,
A SINGLE PARTNERSHIP OR A SINGLE LIMITED LIABILITY COMPANY, AND (II)  IN
THE  CASE  OF A PARTNERSHIP, ASSOCIATION, OR OTHER ENTITY, WHERE NO MORE
THAN  FIFTY PERCENT OF THE CAPITAL, PROFITS OR OTHER BENEFICIAL INTEREST
IN SUCH PARTNERSHIP, ASSOCIATION OR OTHER ENTITY IS OWNED OR CONTROLLED,
DIRECTLY OR INDIRECTLY, BY A SINGLE CORPORATION, A SINGLE PARTNERSHIP OR
A SINGLE LIMITED LIABILITY COMPANY.
  (5) "QUALIFIED INVESTMENT" - THE INVESTMENT OF  CASH  BY  A  CERTIFIED
SEED  CAPITAL FUND IN A QUALIFIED BUSINESS FOR THE PURCHASE OF ANY DEBT,
EQUITY OR HYBRID SECURITY,  OF  ANY  NATURE  AND  DESCRIPTION  WHATEVER,
INCLUDING A DEBT INSTRUMENT OR SECURITY WHICH HAS THE CHARACTERISTICS OF
DEBT  BUT  WHICH  PROVIDES  FOR CONVERSION INTO EQUITY OR EQUITY PARTIC-
IPATION INSTRUMENTS SUCH AS OPTIONS OR WARRANTS.
  (6) "COMPTROLLER" - THE COMPTROLLER OF THE STATE OF NEW YORK.
  (B) CERTIFICATION OF A SEED CAPITAL FUND. (1)  THE  COMPTROLLER  SHALL
DESIGNATE AND CERTIFY THROUGH A REQUEST FOR PROPOSALS UP TO TEN QUALIFY-
ING  SEED  CAPITAL  FUNDS  AND TO THE EXTENT POSSIBLE CERTIFY QUALIFYING
FUNDS TO REPRESENT THE DIFFERENT REGIONS OF THE STATE.  THE  COMPTROLLER
SHALL  AT  HIS  OR  HER  DISCRETION  SELECT  AN  APPLICANT BASED ON PAST
PERFORMANCES OF THE APPLICANT AS A VENTURE CAPITALIST.
  (2) THE COMPTROLLER SHALL ESTABLISH BY RULE OR REGULATION  THE  PROCE-
DURES FOR MAKING AN APPLICATION TO BECOME A CERTIFIED SEED CAPITAL FUND.
SUCH  APPLICATION SHALL INCLUDE A STATEMENT OF THE ANNUAL MANAGEMENT FEE
THAT THE APPLICANT INTENDS TO CHARGE, SUCH  FEE  IN  AN  AMOUNT  NOT  TO
EXCEED  TWO  AND  A  HALF  PERCENT  OF THE CERTIFIED SEED CAPITAL OF THE
CERTIFIED SEED CAPITAL FUND.
  (3) THE COMPTROLLER MAY CERTIFY PARTNERSHIPS, CORPORATIONS, TRUSTS  OR
LIMITED  LIABILITY  COMPANIES,  ORGANIZED  ON  A FOR-PROFIT BASIS, WHICH
SUBMIT AN APPLICATION  TO BE DESIGNATED AS A CERTIFIED SEED CAPITAL FUND
IF SUCH APPLICANT IS LOCATED, HEADQUARTERED AND LICENSED  OR  REGISTERED
TO  CONDUCT  BUSINESS  IN  NEW  YORK  STATE, HAS AS ITS PRIMARY BUSINESS
ACTIVITY THE INVESTMENT OF CASH IN QUALIFIED BUSINESSES  AND  MEETS  THE
OTHER CRITERIA SET FORTH IN THIS SECTION.
  (4)  A CERTIFIED SEED CAPITAL FUND INITIAL CAPITALIZATION, AT THE TIME
OF SEEKING CERTIFICATION, MUST BE FIVE HUNDRED THOUSAND DOLLARS OR MORE.
  (5) IN ORDER TO RECEIVE CERTIFICATION AND  TO  BEGIN  OPERATION  AS  A
CERTIFIED  SEED  CAPITAL FUND, EACH FUND MUST PROVIDE TO THE COMPTROLLER
CAPITAL  COMMITMENTS  FROM  INVESTORS  TOTALING  AT  LEAST  TWO  MILLION
DOLLARS.
  (6)  A  CERTIFIED SEED CAPITAL FUND SHALL HAVE NO FEWER THAN TEN INDI-
VIDUAL INVESTORS WHO ARE NOT AFFILIATES, WITH  NO  SINGLE  INVESTOR  AND
AFFILIATES  OF  THAT INVESTOR TOGETHER OWNING A TOTAL OF MORE THAN TWEN-
TY-FIVE PERCENT OF THE OWNERSHIP INTERESTS OUTSTANDING IN THE FUND.
  (7) THE COMPTROLLER SHALL REVIEW THE ORGANIZATIONAL DOCUMENTS OF  EACH
APPLICANT  FOR  CERTIFICATION AND THE BUSINESS HISTORY OF THE APPLICANT,
DETERMINE THAT THE APPLICANT'S CASH,  MARKETABLE  SECURITIES  AND  OTHER
LIQUID  ASSETS ARE AT LEAST FIVE HUNDRED THOUSAND DOLLARS, AND DETERMINE
THAT THE OFFICERS AND THE BOARD OF DIRECTORS,  GENERAL  PARTNERS,  TRUS-
TEES, MANAGERS, OR MEMBERS ARE TRUSTWORTHY AND ARE THOROUGHLY ACQUAINTED
WITH THE REQUIREMENTS OF THIS SUBDIVISION.
  (8)  THE  COMPTROLLER SHALL VERIFY THAT AT LEAST TWO PRINCIPALS OF THE
CERTIFIED SEED CAPITAL COMPANY OR ANY MANAGER OF THE CERTIFIED SEED FUND
EACH HAVE NO LESS THAN FIVE YEARS OF EXPERIENCE IN THE  VENTURE  CAPITAL
OR A VENTURE CAPITAL-RELATED INDUSTRY.
  (9)  ANY  OFFERING  MATERIAL  INVOLVING  THE SALE OF SECURITIES OF THE
CERTIFIED SEED CAPITAL FUND SHALL INCLUDE THE FOLLOWING STATEMENT:

A. 5949                             4

  "AUTHORIZING THE FORMATION OF A CERTIFIED SEED FUND DOES  NOT  CONSTI-
TUTE  THE  ENDORSEMENT OF THE STATE OF NEW YORK AS TO EITHER THE QUALITY
OF MANAGEMENT OR THE POTENTIAL FOR EARNINGS  OF  SUCH  COMPANY  AND  THE
STATE  OF  NEW  YORK  IS NOT LIABLE FOR DAMAGES OR LOSSES TO A CERTIFIED
INVESTOR IN THE COMPANY. USE OF THE WORD 'CERTIFIED' IN AN OFFERING DOES
NOT  CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE INVESTMENT BY THE
STATE OF NEW YORK. INVESTMENTS IN  A  PROSPECTIVE  CERTIFIED  SEED  FUND
PRIOR  TO THE TIME SUCH COMPANY IS CERTIFIED WITH RESPECT TO A CERTIFIED
SEED CAPITAL COMPANY PROGRAM ARE NOT ELIGIBLE FOR TAX  CREDITS.  IN  THE
EVENT  CERTAIN STATUTORY PROVISIONS (AS SPECIFIED IN SECTION 11-A OF THE
TAX LAW) ARE VIOLATED, THE STATE OF NEW YORK MAY REQUIRE  FORFEITURE  OF
UNUSED TAX CREDITS AND REPAYMENT OF USED TAX CREDITS."
  (10) WITHIN SIXTY DAYS OF APPLICATION, THE COMPTROLLER SHALL ISSUE THE
CERTIFICATION  OR  SHALL  REFUSE  THE  CERTIFICATION  AND COMMUNICATE IN
DETAIL  TO  THE  APPLICANT  THE  GROUNDS  FOR  THE  REFUSAL,   INCLUDING
SUGGESTIONS FOR THE REMOVAL OF THOSE GROUNDS.
  (C)  REQUIREMENTS FOR CONTINUANCE OF CERTIFICATION. (1) TO CONTINUE TO
BE CERTIFIED, A CERTIFIED SEED CAPITAL FUND MUST PROVIDE  TO  THE  COMP-
TROLLER  ANNUAL  AUDITED  FINANCIAL  STATEMENTS, WHICH SHALL INCLUDE THE
OPINION OF AN INDEPENDENT CERTIFIED  PUBLIC  ACCOUNTANT,  WITHIN  NINETY
DAYS OF THE CLOSE OF ITS FISCAL YEAR.
  (2) A CERTIFIED SEED CAPITAL FUND, AT LEAST FIFTEEN WORKING DAYS PRIOR
TO MAKING A PROPOSED INVESTMENT IN A SPECIFIC BUSINESS, SHALL CERTIFY IN
WRITING  TO  THE  COMPTROLLER  THAT THE BUSINESS IN WHICH IT PROPOSES TO
INVEST MEETS THE DEFINITION OF A QUALIFIED  BUSINESS  AS  SET  FORTH  IN
PARAGRAPH  FOUR  OF SUBDIVISION (A) OF THIS SECTION OR, IN THE CASE OF A
FOLLOW-ON INVESTMENT, THAT SUCH BUSINESS CONTINUES TO MEET THE  REQUIRE-
MENTS  SET  FORTH  IN PARAGRAPH THREE OF THIS SUBDIVISION, AND IN EITHER
CASE, AN EXPLANATION OF ITS DETERMINATION THAT THE BUSINESS  MEETS  SUCH
REQUIREMENTS. THE CERTIFICATION TO THE COMPTROLLER SHALL INCLUDE A SWORN
STATEMENT  FROM  THE  BUSINESS  IN WHICH THE CERTIFIED SEED CAPITAL FUND
PROPOSES TO INVEST, WHICH STATEMENT SHALL EVIDENCE THE INTENTION OF  THE
BUSINESS TO MAINTAIN ITS HEADQUARTERS IN NEW YORK AND CONDUCT ITS PRIMA-
RY BUSINESS OPERATIONS IN THE STATE OF NEW YORK AFTER THE RECEIPT OF THE
INVESTMENT BY THE CERTIFIED SEED CAPITAL FUND. IF THE COMPTROLLER DETER-
MINES  THAT  THE  BUSINESS  DOES  NOT MEET THE DEFINITION OF A QUALIFIED
BUSINESS, OR IN THE CASE OF A FOLLOW-ON INVESTMENT, THAT  SUCH  BUSINESS
DOES  NOT  MEET  THE  REQUIREMENTS  SET FORTH IN PARAGRAPH THREE OF THIS
SUBDIVISION, THEN THE COMPTROLLER SHALL, WITHIN THE FIFTEEN WORKING DAYS
PERIOD PRIOR TO THE MAKING OF THE PROPOSED INVESTMENT, NOTIFY THE CERTI-
FIED SEED CAPITAL FUND OF ITS DETERMINATION AND PROVIDE  AN  EXPLANATION
THEREOF.
  (3)  ANY  BUSINESS  WHICH IS CLASSIFIED AS A QUALIFIED BUSINESS AT THE
TIME OF THE FIRST INVESTMENT IN SUCH BUSINESS BY A CERTIFIED SEED  CAPI-
TAL FUND SHALL REMAIN CLASSIFIED AS A QUALIFIED BUSINESS AND MAY RECEIVE
FOLLOW-ON  INVESTMENTS  FROM  ANY  CERTIFIED SEED CAPITAL FUND, AND SUCH
FOLLOW-ON INVESTMENTS SHALL BE QUALIFIED INVESTMENTS  EVEN  THOUGH  SUCH
BUSINESS MAY NOT MEET THE DEFINITION OF A QUALIFIED BUSINESS AT THE TIME
OF  SUCH  FOLLOW-ON  INVESTMENTS,  PROVIDED, HOWEVER, THAT SUCH BUSINESS
CONTINUES TO MEET THE REQUIREMENTS SET FORTH IN SUBPARAGRAPH (A) OR  (C)
OF  PARAGRAPH FOUR OF SUBDIVISION (A) OF THIS SECTION, AND SUCH BUSINESS
REAFFIRMS ITS INTENTION TO MAINTAIN ITS HEADQUARTERS IN NEW  YORK  STATE
AND CONDUCT ITS PRIMARY BUSINESS OPERATIONS IN THE STATE OF NEW YORK.
  (4)  DOCUMENTS AND OTHER MATERIALS SUBMITTED BY CERTIFIED SEED CAPITAL
FUND OR BY BUSINESSES FOR PURPOSES OF THE CONTINUANCE  OF  CERTIFICATION
SHALL  NOT BE PUBLIC RECORDS IF SUCH RECORDS ARE DETERMINED BY THE COMP-

A. 5949                             5

TROLLER TO BE TRADE OR BUSINESS SECRETS AND SHALL  BE  MAINTAINED  IN  A
CONFIDENTIAL MANNER BY THE COMPTROLLER.
  (5) EACH CERTIFIED SEED CAPITAL FUND SHALL REPORT THE FOLLOWING TO THE
COMPTROLLER:
  (A) AS SOON AS PRACTICABLE AFTER THE RECEIPT OF CERTIFIED SEED CAPITAL
OR  AN  IRREVOCABLE FUNDING COMMITMENT SUBJECT ONLY TO THE RECEIPT OF AN
ALLOCATION PURSUANT TO SUBDIVISION (G) OF THIS SECTION, (I) THE NAME  OF
EACH  CERTIFIED  INVESTOR FROM WHICH THE CERTIFIED CAPITAL WAS RECEIVED,
INCLUDING SUCH CERTIFIED INVESTOR'S TAX IDENTIFICATION NUMBER; (II)  THE
AMOUNT  OF  EACH CERTIFIED INVESTOR'S INVESTMENT OF CERTIFIED SEED CAPI-
TAL; AND (III)  THE  DATE  ON  WHICH  THE  CERTIFIED  SEED  CAPITAL  WAS
RECEIVED.
  (B)  ON  AN  ANNUAL  BASIS,  ON OR BEFORE JANUARY THIRTY-FIRST OF EACH
YEAR, (I) THE AMOUNT OF THE CERTIFIED SEED CAPITAL FUND'S CERTIFIED SEED
CAPITAL AT THE END OF THE IMMEDIATELY PRECEDING YEAR; AND (II) ALL QUAL-
IFIED INVESTMENTS THAT THE CERTIFIED CAPITAL  COMPANY  MADE  DURING  THE
PREVIOUS CALENDAR YEAR, INCLUDING THE NUMBER OF EMPLOYEES OF EACH QUALI-
FIED  BUSINESS  IN  WHICH  IT  HAS  MADE INVESTMENTS AT THE TIME OF SUCH
INVESTMENT AND AS OF DECEMBER FIRST OF THE PRECEDING CALENDAR YEAR.
  (C) EACH CERTIFIED SEED CAPITAL FUND SHALL PROVIDE TO THE  COMPTROLLER
ANNUAL  AUDITED FINANCIAL STATEMENTS, WHICH SHALL INCLUDE THE OPINION OF
AN INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT, WITHIN NINETY  DAYS  OF  THE
CLOSE OF ITS FISCAL YEAR.
  (D) ON OR BEFORE APRIL FIRST OF EACH YEAR, EACH CERTIFIED SEED CAPITAL
FUND  SHALL  PAY  AN  ANNUAL,  NON-REFUNDABLE  CERTIFICATION  FEE OF ONE
HUNDRED DOLLARS TO THE COMPTROLLER; PROVIDED THAT NO SUCH FEE  SHALL  BE
REQUIRED WITHIN SIX MONTHS OF THE INITIAL CERTIFICATION DATE OF A CERTI-
FIED SEED CAPITAL FUND.
  (6) THE COMPTROLLER SHALL ANNUALLY, BY MARCH FIRST, PREPARE AND SUBMIT
TO  THE  COMMISSIONER A LIST OF PERSONS WHO MAY CLAIM THE TAX CREDIT FOR
THE PREVIOUS TAXABLE YEAR AND ANY OTHER INFORMATION  NECESSARY  FOR  THE
DEPARTMENT TO DETERMINE ELIGIBILITY FOR SUCH TAX CREDIT.
  (D)  RELOCATION.    IN  THE EVENT THAT A BUSINESS IN WHICH A QUALIFIED
INVESTMENT IS MADE RELOCATES ITS PRINCIPAL BUSINESS OPERATIONS TO ANOTH-
ER STATE DURING SUCH INVESTMENT, OR WITHIN THREE MONTHS AFTER THE TERMI-
NATION OF SUCH INVESTMENT, THE CUMULATIVE AMOUNT OF QUALIFIED INVESTMENT
SHALL BE REDUCED BY THE AMOUNT OF SUCH  QUALIFIED  INVESTMENT,  FOR  THE
PURPOSES OF THIS SUBDIVISION ONLY, UNLESS (A) THE CERTIFIED SEED CAPITAL
FUND  INVESTS  AN  AMOUNT  AT LEAST EQUAL TO THE INVESTMENT OF CERTIFIED
SEED CAPITAL IN THE RELOCATED BUSINESS IN A QUALIFIED  BUSINESS  LOCATED
IN  NEW YORK STATE WITHIN SIX MONTHS OF THE RELOCATION OR (B) UNLESS THE
BUSINESS DEMONSTRATES THAT IT HAS RETURNED ITS PRINCIPAL BUSINESS  OPER-
ATIONS TO NEW YORK STATE WITHIN THREE MONTHS OF SUCH RELOCATION. A BUSI-
NESS SHALL BE DEEMED TO HAVE RELOCATED ITS PRINCIPAL BUSINESS OPERATIONS
OUTSIDE  NEW  YORK  STATE  IF  THE  PRIMARY WORKPLACE OF MORE THAN FIFTY
PERCENT OF THE EMPLOYEES OF SUCH BUSINESS WITHIN THE STATE IS  RELOCATED
TO ANOTHER STATE.
  (E)  DECERTIFICATION.  (1)  THE  COMPTROLLER  SHALL  CONDUCT AN ANNUAL
REVIEW OF EACH CERTIFIED SEED CAPITAL FUND TO DETERMINE IF THE CERTIFIED
SEED CAPITAL FUND IS ABIDING BY THE REQUIREMENTS  OF  CERTIFICATION,  TO
ADVISE  THE  CERTIFIED SEED CAPITAL FUND AS TO THE ELIGIBILITY STATUS OF
ITS QUALIFIED INVESTMENTS, AND TO ENSURE THAT  NO  INVESTMENT  HAS  BEEN
MADE  IN  VIOLATION  OF  THIS SUBDIVISION. THE COST OF THE ANNUAL REVIEW
SHALL BE PAID BY EACH CERTIFIED SEED CAPITAL FUND ACCORDING TO A REASON-
ABLE FEE SCHEDULE ADOPTED BY THE COMPTROLLER.

A. 5949                             6

  (2) ANY MATERIAL VIOLATION OF SUBDIVISION (C)  OF  THIS  SECTION  WITH
RESPECT TO A PARTICULAR CERTIFIED SEED CAPITAL FUND SHALL BE GROUNDS FOR
DECERTIFICATION  OF THE CERTIFIED SEED CAPITAL FUND WITH RESPECT TO SUCH
PROGRAM. IF THE COMPTROLLER DETERMINES THAT  A  CERTIFIED  SEED  CAPITAL
FUND  IS  NOT  IN COMPLIANCE WITH THE REQUIREMENTS OF SUBDIVISION (C) OF
THIS SECTION WITH RESPECT TO A PARTICULAR CERTIFIED  SEED  CAPITAL  FUND
PROGRAM,  IT SHALL, BY WRITTEN NOTICE, INFORM THE OFFICERS OF THE CERTI-
FIED SEED CAPITAL FUND THAT THE CERTIFIED  SEED  CAPITAL  FUND  WILL  BE
SUBJECT  TO  DECERTIFICATION WITH RESPECT TO SUCH PROGRAM IN ONE HUNDRED
TWENTY DAYS FROM THE DATE OF MAILING OF THE NOTICE, UNLESS THE DEFICIEN-
CIES ARE CORRECTED AND THE CERTIFIED  SEED  CAPITAL  FUND  IS  AGAIN  IN
COMPLIANCE  WITH  ALL  REQUIREMENTS  FOR CERTIFICATION, AND SHALL SEND A
COPY OF SUCH NOTICE TO THE COMMISSIONER.
  (3) AT THE END OF THE ONE HUNDRED TWENTY  DAY  GRACE  PERIOD,  IF  THE
CERTIFIED  SEED CAPITAL FUND IS STILL NOT IN COMPLIANCE WITH SUBDIVISION
(C) OF THIS SECTION WITH RESPECT TO  THE  CERTIFIED  SEED  CAPITAL  FUND
PROGRAM,  THE  COMPTROLLER SHALL SEND A NOTICE OF DECERTIFICATION TO THE
CERTIFIED SEED CAPITAL FUND WITH RESPECT TO  SUCH  PROGRAM  AND  TO  ALL
OTHER APPROPRIATE STATE AGENCIES.
  (4)  ONCE A CERTIFIED SEED CAPITAL FUND HAS INVESTED AN AMOUNT CUMULA-
TIVELY EQUAL TO ONE HUNDRED PERCENT OF ITS CERTIFIED SEED  CAPITAL  WITH
RESPECT  TO THE CERTIFIED SEED CAPITAL FUND PROGRAM IN QUALIFIED INVEST-
MENTS AND HAS MET ALL OTHER REQUIREMENTS  UNDER  THIS  SUBDIVISION,  THE
CERTIFIED  SEED CAPITAL FUND SHALL NO LONGER BE SUBJECT TO REGULATION BY
THE COMPTROLLER AND SHALL NO LONGER BE SUBJECT TO  THE  REQUIREMENTS  OF
SUBDIVISION (C) OF THIS SECTION WITH RESPECT TO SUCH PROGRAM.
  (5)  THE COMPTROLLER SHALL SEND WRITTEN NOTICE OF SUCH DECERTIFICATION
TO THE ADDRESS OF EACH CERTIFIED INVESTOR  WHOSE  TAX  CREDIT  HAS  BEEN
SUBJECT  TO RECAPTURE OR FORFEITURE, USING THE ADDRESS SHOWN ON THE LAST
FILING SUBMITTED TO THE COMPTROLLER AND SHALL FORWARD  A  COPY  OF  SUCH
NOTICE TO THE COMMISSIONER.
  (F)  REVOCATION  OF  CERTIFICATION.  THE  COMPTROLLER  MAY  REVOKE THE
CERTIFICATION OF A CERTIFIED SEED CAPITAL FUND IF ANY MATERIAL REPRESEN-
TATION TO THE COMPTROLLER IN CONNECTION  WITH  THE  APPLICATION  PROCESS
PROVES  TO  HAVE  BEEN  FALSELY  MADE  OR  IF THE APPLICATION MATERIALLY
VIOLATES ANY REQUIREMENT ESTABLISHED BY THE COMPTROLLER PURSUANT TO THIS
SUBDIVISION.
  (G) MAXIMUM PERMITTED INVESTMENTS AND CREDITS. THE AGGREGATE AMOUNT OF
TAX CREDIT WHICH TAXPAYERS MAY BE  ALLOCATED  FOR  THEIR  INVESTMENT  OF
CERTIFIED  SEED CAPITAL PURSUANT TO THIS SUBDIVISION AND SUBSECTION (QQ)
OF SECTION SIX HUNDRED SIX OF THIS CHAPTER MAY  NOT  EXCEED  TWENTY-FIVE
MILLION  DOLLARS.  EACH  CERTIFIED  SEED CAPITAL FUND SHALL BE INITIALLY
AUTHORIZED TO RECEIVE UP TO TEN MILLION DOLLARS IN CERTIFIED SEED  CAPI-
TAL TO WHICH SUCH TAX CREDITS SHALL APPLY, AND SHALL REPORT TO THE COMP-
TROLLER,  PURSUANT  TO SUBPARAGRAPH (A) OF PARAGRAPH FIVE OF SUBDIVISION
(C) OF THIS SECTION, AN AMOUNT NO GREATER THAN TEN MILLION  DOLLARS  FOR
THE PURPOSE OF DETERMINING SUCH TAX CREDITS FOR INVESTORS IN A CERTIFIED
SEED CAPITAL FUND. THE TOTAL AMOUNT OF INVESTMENTS BY ANY ONE INDIVIDUAL
INVESTOR  IN  A  CERTIFIED SEED CAPITAL FUND THAT IS ELIGIBLE TO RECEIVE
SUCH TAX CREDIT SHALL NOT EXCEED TWO HUNDRED FIFTY THOUSAND DOLLARS  PER
INVESTOR.
  (H)  IF  FEWER  THAN TEN CERTIFIED SEED CAPITAL FUNDS ARE CERTIFIED BY
THE COMPTROLLER BY JANUARY FIRST, TWO THOUSAND TEN THE COMPTROLLER  MAY,
AT  HIS  DISCRETION, ALLOCATE ANY REMAINING TAX CREDITS AUTHORIZED UNDER
THIS SUBDIVISION TO EXISTING CERTIFIED SEED CAPITAL  FUNDS  BASED  ON  A

A. 5949                             7

DEMONSTRATED  NEED  FOR  VENTURE CAPITAL IN THE REGIONS SERVED BY A SEED
CAPITAL FUND REQUESTING SUCH ADDITIONAL ALLOCATION.
  (I)  REPORTS. THE COMPTROLLER SHALL REPORT TO THE GOVERNOR, THE TEMPO-
RARY PRESIDENT OF THE SENATE,  THE  SPEAKER  OF  THE  ASSEMBLY  AND  THE
COMMISSIONER,  OR  BEFORE  JUNE FIRST OF EACH YEAR BEGINNING IN THE YEAR
TWO THOUSAND SEVEN, THE NUMBER OF CERTIFIED SEED CAPITAL  FUNDS  HOLDING
CERTIFIED SEED CAPITAL; THE AMOUNT OF CERTIFIED SEED CAPITAL INVESTED IN
EACH CERTIFIED SEED CAPITAL FUND; THE CUMULATIVE AMOUNT THAT EACH CERTI-
FIED  SEED CAPITAL FUND HAS INVESTED AS OF JANUARY FIRST OF THE YEAR TWO
THOUSAND ELEVEN, AND THE CUMULATIVE  TOTAL  EACH  YEAR  THEREAFTER;  THE
TOTAL  AMOUNT  OF  TAX CREDITS GRANTED UNDER THIS SECTION EACH YEAR THAT
CREDITS HAVE BEEN AWARDED UNDER THIS  SECTION  AND  SUBSECTION  (QQ)  OF
SECTION  SIX HUNDRED SIX OF THIS CHAPTER; THE PERFORMANCE OF EACH CERTI-
FIED CAPITAL FUND WITH REGARD TO THE  REQUIREMENTS  FOR  RECERTIFICATION
SET  FORTH  IN  SUBDIVISION  (C)  OF THIS SECTION; THE CLASSIFICATION OF
COMPANIES IN WHICH EACH CERTIFIED SEED CAPITAL FUND HAS INVESTED ACCORD-
ING TO INDUSTRIAL SECTOR AND SIZE OF COMPANY; AND THE  TOTAL  NUMBER  OF
JOBS  CREATED  BY  INVESTMENTS  MADE BY EACH CERTIFIED SEED CAPITAL FUND
USING CERTIFIED SEED CAPITAL.
  (J) RULES AND REGULATIONS. THE COMPTROLLER IN  CONSULTATION  WITH  THE
COMMISSIONER  SHALL  PRESCRIBE  SUCH  RULES AND REGULATIONS AS HE OR SHE
SHALL DEEM NECESSARY IN  ORDER  TO  IMPLEMENT  THE  PROVISIONS  OF  THIS
SECTION  WITHIN  ONE  HUNDRED  TWENTY DAYS OF THE EFFECTIVE DATE OF THIS
SECTION.
  S 4. Section 606 of the tax law is amended by adding a new  subsection
(qq) to read as follows:
  (QQ)  CREDIT FOR CERTAIN INVESTMENTS IN A CERTIFIED SEED CAPITAL FUND.
(1) A TAXPAYER SHALL BE ALLOWED A CREDIT, TO BE COMPUTED AS  HEREINAFTER
PROVIDED,  AGAINST  THE  TAX  IMPOSED BY THIS ARTICLE. THE AMOUNT OF THE
CREDIT SHALL BE EQUAL TO TWENTY-FIVE PERCENT OF AN INVESTMENT OF  CERTI-
FIED  SEED  CAPITAL IN A CERTIFIED SEED CAPITAL FUND PROGRAM MADE BY THE
TAXPAYER PURSUANT TO SECTION ELEVEN-A OF THIS CHAPTER.
  (2) TWENTY PERCENT OF SUCH CREDIT SHALL BE ALLOWED IN THE TAXABLE YEAR
TO WHICH SUCH INVESTMENT IS ALLOCATED PURSUANT  TO  SUBDIVISION  (G)  OF
SECTION ELEVEN-A OF THIS CHAPTER AND IN EACH OF THE FOUR FOLLOWING TAXA-
BLE  YEARS, ALTHOUGH SUCH CREDITS SHALL NOT BE FIRST ALLOWED OR INCURRED
FOR STATE TAX PURPOSES, UNTIL, AT THE EARLIEST, THE TAX  YEAR  BEGINNING
IN  TWO  THOUSAND NINE.   IN ADDITION, IN ANY TAXABLE YEAR SUBSEQUENT TO
THE TAXABLE YEAR FOR WHICH SUCH INVESTMENT IS SO ALLOCATED,  ANY  AMOUNT
CARRIED  FORWARD UNDER PARAGRAPH THREE OF THIS SUBSECTION MAY BE CARRIED
FORWARD INDEFINITELY UNTIL SUCH CREDITS ARE UTILIZED.
  (3) IF THE AMOUNT OF CREDIT ALLOWED  UNDER  THIS  SUBSECTION  FOR  ANY
TAXPAYER  SHALL  EXCEED THE TAXPAYER'S TAX FOR SUCH YEAR, THE EXCESS MAY
BE CARRIED OVER TO THE FOLLOWING YEAR OR YEARS AND MAY BE DEDUCTED  FROM
THE TAXPAYER'S TAX FOR SUCH YEAR OR YEARS.
  (4)  DECERTIFICATION OF A CERTIFIED SEED CAPITAL FUND FROM A CERTIFIED
SEED CAPITAL FUND PROGRAM SHALL CAUSE THE DISALLOWANCE AND THE RECAPTURE
OF THE CREDIT ALLOWED UNDER PARAGRAPH ONE OF THIS SUBSECTION.
  (5) NO CREDIT SHALL BE ALLOWED IN ANY TAX YEAR IN WHICH  THE  TAXPAYER
SHALL,  INDIVIDUALLY  OR  WITH  OR  THROUGH ONE OR MORE AFFILIATES, BE A
MANAGING GENERAL PARTNER OF OR UNDERWRITE OR CONTROL  THE  DIRECTION  OF
INVESTMENTS  OF  A  CERTIFIED SEED CAPITAL FUND FOR WHICH THE CREDIT WAS
ALLOWED UNDER PARAGRAPH ONE OF THIS SUBSECTION. THIS PROVISION SHALL NOT
PRECLUDE A CERTIFIED INVESTOR FROM EXERCISING HIS OR  HER  LEGAL  RIGHTS
AND  REMEDIES  (WHICH MAY INCLUDE INTERIM MANAGEMENT OF A CERTIFIED SEED
CAPITAL FUND) IN THE EVENT THAT A CERTIFIED  SEED  CAPITAL  FUND  IS  IN

A. 5949                             8

DEFAULT  OF  ITS STATUTORY OBLIGATIONS OR ITS CONTRACTUAL OBLIGATIONS TO
SUCH CERTIFIED INVESTOR. FOR PURPOSES OF THIS PARAGRAPH, AFFILIATE SHALL
MEAN A BUSINESS ENTITY IN WHICH  THE  TAXPAYER  HOLDS  AT  LEAST  A  TEN
PERCENT BENEFICIAL INTEREST.
  S 5. This act shall take effect immediately.