AN ACT Relating to business development; amending RCW 48.14.020; adding a new section to chapter 48.14 RCW; adding a new chapter to Title 82 RCW; and providing an expiration date.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF WASHINGTON:

NEW SECTION. Sec. 1. This chapter may be known and cited as the Washington partnership for innovation act.

NEW SECTION. Sec. 2. The legislature finds that the diversification of the state's economic base and the reduction of unemployment is one of its highest priorities. The state economy is highly susceptible to fluctuations in the United States economy and is experiencing its highest rates of unemployment since the great depression. One of the key avenues to diversify the economy is to assist in the development of businesses and the generation of new products which can be traded outside of the state's borders. Entrepreneurs represent a valuable state resource which, if provided capital and technical assistance, can contribute to long-term job generation. The private sector has substantial expertise to identify emerging companies and potential marketable products. The state finds it a public purpose to work as a partner with private investors to locate and provide financial assistance to worthy entrepreneurs for early state development of new products and companies.

NEW SECTION. Sec. 3. As used in this chapter, the following terms have the meanings indicated unless the context clearly requires otherwise.

(1) "Department" means the department of revenue.

(2) "Enterprise" means a small business that is primarily located and operated in Washington and that is or proposes to be engaged in this state in research and development, in commercial product development, or in manufacturing, technology, or the production of goods and services with high potential for expansion and trade outside the state's borders.

(3) "Professional investor" means any person, partnership, corporation, licensee under the federal small business investment act of 1958 (15 U.S.C. Sec. 661 et seq.), or other entity whose resources are primarily dedicated to investing in product development, managing venture capital funds, and the development of new successful companies and whose net worth exceeds five hundred thousand dollars.

(4) "Qualified security" means any note, stock, treasury stock bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, preorganization certificate or subscription, transferable share, investment contract, certificate of deposit for a security, certificate of interest or participation in a patent or application therefor, or in royalty or other payments under such a patent or application, or, in general, any interest or instrument commonly known as a "security" or any certificate for, receipt for, guarantee of, or option, warrant, or right to subscribe to or purchase any of the foregoing.

(5) "Seed capital" means financing that is provided for the initial development, refinement, testing, marketing, and commercialization of a product, service, or process to an enterprise with a high potential for long-term commercial sales and that is provided before any substantial commercial sales have been made by the enterprise of the product or service being developed.

(6) "Small business" means any business that has fewer than fifty full-time employees or its equivalent.

(7) "Venture capital" means risk money invested in companies with a clear potential for growth in sales.

NEW SECTION. Sec. 4. This chapter shall serve as a resource to worthy entrepreneurs to provide needed seed capital in the early development stages of a product or service. The primary emphasis of this chapter is to generate new, successful commercial products in cases where capital is currently not adequately available. It is the intent of this chapter to provide companies with a source of seed capital which shall be invested for a minimum of five years. This chapter shall encourage the investment in companies and innovators in all of the geographic regions in the state.

NEW SECTION. Sec. 5. A new section is added to chapter 48.14 RCW to read as follows:

(1) Subject to the limitations provided in this section, a tax credit is allowed against any taxes imposed upon any insurer under RCW 48.14.020(1) and (2) equal to the amount that is invested by the insurer in a professional investor and that is used as seed capital in accordance with chapter 84.-- RCW (sections 1 through 4 and 6 through 11 of this act).

(2) The maximum amount of tax credit for taxes owed under RCW 48.14.020(1) and (2) is the difference between the amount of tax owed by the insurer under RCW 48.14.020(1) and (2), including any amount that may be credited pursuant to this section, and the amount of tax that would be owed by the insurer under RCW 48.14.020(1) and (2), including any amount that may be credited pursuant to this section, if the tax rate under that section were one and nine-tenths of the taxable amount.

(3) To receive a tax credit under this section, the insurer and the professional investor shall jointly submit an application to the department of revenue as provided in section 6 of this act. The department of revenue shall grant the credit when the investment is made if it determines the application meets the requirements of section 6 of this act. The department of revenue shall not base its decision to grant or deny an application on the worth of the investment. The department of revenue shall give notice of action on the tax credit application to the insurer and the insurance commissioner within thirty days from receipt of an application.

(4) Tax credits approved under subsection (3) of this section may be used by the insurer against any taxes imposed upon the insurer under RCW 48.14.020(1) and (2) after the date of the investment upon which the credit is based. All of the credit shall be used within three years of the date of the investment, provided that the investment made under this section is still invested in the enterprise.

(5) This section shall expire January 1, 1992.

NEW SECTION. Sec. 6. An application for a tax credit pursuant to section 5 of this act shall be filed with the department by the insurer and the professional investor. The application shall include the following information:

(1) A statement that the investment is in the form of a qualified security;

(2) A statement that the enterprise has or will raise funds for seed capital in an amount equal to or greater than the amount of the investment for which credit is granted under section 5 of this act;

(3) A statement that the investment in any one enterprise does not exceed two hundred thousand dollars during any one year;

(4) A statement that the enterprise, through its course of development, has no access to adequate seed capital by virtue of the early stage of the product, service, or process development and is in need of seed capital to improve the commercial value of the product;

(5) A statement that the enterprise has not generated more than one million dollars in gross commercial sales in the current calendar year or previous calendar years from the product or service in which an investment is sought, excluding sales from prototypes or market testing;

(6) A statement that the investment in the enterprise is for a Washington company;

(7) A statement that the investment will not result in the professional investor acquiring a controlling interest in the enterprise, except upon the occurrence of insolvency, bankruptcy, or dissolution of the enterprise.

NEW SECTION. Sec. 7. The department shall report annually to the governor and legislature on tax credits and seed capital investments made under this chapter including but not limited to the amount of investments made, the amount of tax credits granted, types of products invested in, and the locations of the enterprises.

NEW SECTION. Sec. 8. Decisions on investments in qualified securities shall at all times be within the sole discretion of the professional investor.

NEW SECTION. Sec. 9. No credit may be granted for investments made after December 31, 1988.

NEW SECTION. Sec. 10. The department shall adopt rules to implement this chapter.

NEW SECTION. Sec. 11. This chapter shall expire January 1, 1992.

Sec. 12. Section .14.02, chapter 79, Laws of 1947 as last amended by section 7, chapter 3, Laws of 1983 2nd ex. sess. and RCW 48.14.020 are each amended to read as follows:

(1) Subject to other provisions of this chapter, each authorized insurer except title insurers shall on or before the first day of March of each year pay to the state treasurer through the commissioner's office a tax on premiums. Except as provided in subsection (2) of this section, such tax shall be in the amount of two and ((~~sixteen~~)) five one-hundredths percent of all premiums, excluding amounts returned to or the amount of reductions in premiums allowed to holders of industrial life policies for payment of premiums directly to an office of the insurer, collected or received by the insurer during the preceding calendar year ((~~in the case of foreign and alien insurers, and in the amount of one and sixteen one-hundredths percent of all such premiums in the case of domestic insurers,~~)) for direct insurances, other than ocean marine and foreign trade insurances, after deducting premiums paid to policyholders as returned premiums, upon risks or property resident, situated, or to be performed in this state. For the purposes of this section the consideration received by an insurer for the granting of an annuity shall not be deemed to be a premium.

(2) In the case of insurers which require the payment by their policyholders at the inception of their policies of the entire premium thereon in the form of premiums or premium deposits which are the same in amount, based on the character of the risks, regardless of the length of term for which such policies are written, such tax shall be in the amount of two and ((~~sixteen~~)) five one-hundredths percent of the gross amount of such premiums and premium deposits upon policies on risks resident, located, or to be performed in this state, in force as of the thirty-first day of December next preceding, less the unused or unabsorbed portion of such premiums and premium deposits computed at the average rate thereof actually paid or credited to policyholders or applied in part payment of any renewal premiums or premium deposits on one-year policies expiring during such year.

(3) An additional tax is imposed equal to the rate specified in RCW 82.02.030 multiplied by the taxes payable under subsections (1), (2), and (4) of this section. Until January 1, 1992, the tax credit provided by section 5 of this 1986 act shall not be considered in determining the amount of the additional tax imposed by this subsection. All revenues from this additional tax shall be deposited in the state general fund.

(4) Each authorized insurer shall with respect to all ocean marine and foreign trade insurance contracts written within this state during the preceding calendar year, on or before the first day of March of each year pay to the state treasurer through the commissioner's office a tax of ninety-one one-hundredths of one percent on its gross underwriting profit. Such gross underwriting profit shall be ascertained by deducting from the net premiums (i.e., gross premiums less all return premiums and premiums for reinsurance) on such ocean marine and foreign trade insurance contracts the net losses paid (i.e., gross losses paid less salvage and recoveries on reinsurance ceded) during such calendar year under such contracts. In the case of insurers issuing participating contracts, such gross underwriting profit shall not include, for computation of the tax prescribed by this subsection, the amounts refunded, or paid as participation dividends, by such insurers to the holders of such contracts.

(5) The state does hereby preempt the field of imposing excise or privilege taxes upon insurers or their agents, other than title insurers, and no county, city, town or other municipal subdivision shall have the right to impose any such taxes upon such insurers or their agents.

(6) If an authorized insurer collects or receives any such premiums on account of policies in force in this state which were originally issued by another insurer and which other insurer is not authorized to transact insurance in this state on its own account, such collecting insurer shall be liable for and shall pay the tax on such premiums.

(7) This section shall be effective as to and shall govern the payment of all taxes due for calendar year 1982 and thereafter.

NEW SECTION. Sec. 13. If any provision of this act or its application to any person or circumstance is held invalid, the remainder of the act or the application of the provision to other persons or circumstances is not affected.

NEW SECTION. Sec. 14. Sections 1 through 4 and 6 through 11 of this act constitute a new chapter in Title 82 RCW.