AN ACT Relating to business development; 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 less than fifty full-time employees or its equivalent.

(7) "Taxpayer" means "taxpayer" as the term is defined in RCW 82.02.010.

(8) "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. (1) A tax credit is allowed against any taxes imposed upon the taxpayer under chapters 48.14, 82.04, and 82.16 RCW equal to forty percent of all amounts that are invested by the taxpayer in a professional investor and that are used as seed capital in accordance with section 6 of this act.

(2) To receive a tax credit under this section, the taxpayer and the professional investor shall jointly submit an application to the department. In the application, the taxpayer and the professional investor shall detail the financial condition of and sources of investment in the enterprise, a business plan showing how the funds will be used and benchmarks for growth, the amount of the investment, and such other information as may be required by the department. All information received by the department under this subsection shall be confidential. The department shall grant the credit when the investment is made if it determines the investment meets the requirements of this chapter. The department shall give notice of action on the tax credit application within thirty days from receipt of an application.

(3) Tax credits approved under subsection (2) of this section may be used by the taxpayer against any taxes imposed upon the taxpayer under chapters 48.14, 82.04, and 82.16 RCW 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.

NEW SECTION. Sec. 6. To qualify for a tax credit under this chapter, funds received by a professional investor shall be invested by the professional investor in an enterprise for use as seed capital. In addition, the following is required:

(1) The investment must be in the form of a qualified security.

(2) The enterprise must have or raise funds for seed capital for which no credit is granted under this chapter in an amount equal to or greater than the amount of the investment.

(3) The investment qualifying under section 5 of this act in any one enterprise must not exceed two hundred thousand dollars during any one year.

(4) The enterprise, through its course of development, must not have 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) The enterprise must not have generated 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 up to a value of one million dollars in gross sales.

(6) The investment in the enterprise must be for a Washington company.

(7) The investment must 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 tax credits granted, types of products invested in, and the location of the enterprise.

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. The total amount of credits allowed under this chapter shall not exceed in the aggregate two million dollars for all taxpayers and all taxable years.

NEW SECTION. Sec. 10. No credit may be granted for investments made after December 31, 1988.

NEW SECTION. Sec. 11. The department shall adopt rules to implement this chapter.

NEW SECTION. Sec. 12. This chapter shall expire January 1, 1992.

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 12 of this act constitute a new chapter in Title 82 RCW.