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TITLE 34PUBLIC FINANCE
PART 1COMPTROLLER OF PUBLIC ACCOUNTS
CHAPTER 3TAX ADMINISTRATION
SUBCHAPTER GGINSURANCE TAX
RULE §3.833Certified Capital Companies and Certified Investor Premium Tax Credits

    (F) any other investments approved in advance and in writing by the comptroller.

  (10) If a qualified business moves its principal business operations outside Texas before the 90th day after a CAPCO makes an investment in it, the investment is not considered a qualified investment for the purposes of the percentage requirements in paragraph (4) of this subsection, subsection (i) of this section, and any other applicable provisions in this section.

  (11) Any transfer, sale, acquisition, purchase, assignment, or merger of a CAPCO ownership interest should be pre-approved by the comptroller. In no event shall an owner or any affiliate, having an ownership interest of 10% or greater, of a CAPCO, acquire an ownership interest of 10% or greater in another CAPCO without the written approval of the comptroller. The comptroller may request any information deemed necessary to evaluate changes in CAPCO ownership.

(e) Annual review. Each CAPCO is subject to review as specified in this section to determine compliance with rules and statutes.

  (1) The comptroller shall conduct an annual review of each CAPCO to:

    (A) ensure that the CAPCO continues to satisfy the requirements of this section and Insurance Code, Articles 4.51 - 4.73;

    (B) ensure that the CAPCO has not made any investment in violation of this section and Insurance Code, Articles 4.51 - 4.73; and

    (C) determine the eligibility status of its qualified investments.

  (2) Each CAPCO shall pay the reasonable cost for the annual review to be billed by the comptroller or, if the review is conducted by an independent examiner under the authority of the comptroller, the CAPCO shall reimburse the comptroller.

(f) Decertification. A CAPCO may be decertified for violations of this section or the Insurance Code, and premium tax credits may be recaptured and forfeited to the extent expressly set forth in this section or in the Insurance Code.

  (1) A material violation of Insurance Code, Articles 4.56, 4.58, or 4.59 is grounds for decertification of a CAPCO. The comptroller shall notify the officers of the CAPCO in writing of the violations and that the company may be decertified after 120 days from the date on which the notice is mailed, unless the violations are corrected as determined by the comptroller.

    (A) Violations of Insurance Code, Articles 4.56(a), 4.56(b), 4.56(f) or 4.56(h) shall constitute a material violation of the statutes.

    (B) Two consecutive violations of the requirements of Insurance Code, Article 4.58 or 4.59 shall constitute a material violation of the statute.

    (C) Two or more consecutive instances of a CAPCO failing to pay fees or penalties on a timely basis, two or more consecutive omissions of required information, a misstatements of facts in applications or annual reports, shall constitute material violations of the statutes.

  (2) A hearing is available to a CAPCO that is subject to decertification as provided in Chapter 1, Subchapter A, Division 1, §§1.1 - 1.42 of this title (relating to Central Administration).

  (3) Decertification is effective on the date on which the company receives notice of decertification from the comptroller. Notices will be sent via certified mail or via an overnight common carrier delivery service, and become effective on receipt by the CAPCO.

  (4) In the event of decertification of a CAPCO, the comptroller shall notify any appropriate state agency of the decertification including, but not limited to the Secretary of State, the Office of Economic Development and Tourism, and the Office of the Insurance Commissioner.

  (5) Premium tax credits previously claimed shall be recaptured and future premium tax credits shall be forfeited following decertification of a CAPCO in accordance with the provisions of Insurance Code, Article 4.63.

  (6) When a CAPCO has invested an amount equal to 100% of its certified capital, with respect to Program One, in qualified investments, any premium tax credit claimed or to be claimed by a certified investor with respect to an investment in Program One is not subject to recapture or forfeiture. When a CAPCO has invested an amount equal to 100% of its certified capital with respect to Program Two in qualified investments, any premium tax credit claimed or to be claimed by a certified investor with respect to an investment in Program Two is not subject to recapture or forfeiture.

  (7) The comptroller will send a written notice to each certified investor whose premium tax credit is subject to recapture or forfeiture for failure of the CAPCO to maintain certification eligibility. Notification will be sent in accordance with paragraph (3) of this subsection.

  (8) The comptroller may impose an administrative penalty on any CAPCO that violates the provisions of this section. Each day a violation continues or occurs is a separate violation. The maximum penalty may not exceed $25,000 for each violation.

    (A) The penalty amounts are based on the following:

      (i) seriousness of the violations, including the nature, circumstances, extent, and gravity of the violation;

      (ii) economic harm caused by the violation;

      (iii) history of previous violations;

      (iv) amount necessary to deter a future violation;

      (v) efforts to correct the violation; and

      (vi) any other matter that justice may require.

    (B) Each of the following is a separate violation that is subject to a penalty of $5,000. Thereafter, an additional penalty of $5,000 will be imposed for each 30 day period the violation remains uncorrected:

      (i) failure to file annual reports by January 31;

      (ii) failure to maintain in the principal office in Texas all financial, administrative, management and investment records, including details of both qualified investments and unqualified investments;

      (iii) failure to report names and addresses of certified investors, including the date and amount of investments;

      (iv) failure to file an annual audited financial statement with an unqualified opinion and any Statement of Auditing Standard No. 61 communication by April 1; and

      (v) failure to provide detailed financial and investment information that supports each annual report.

    (C) Each of the following is a separate violation that is subject to a penalty of $10,000. Thereafter, an additional penalty of $10,000 will be imposed for each 30 day period the violation remains uncorrected:

      (i) failure to maintain the primary CAPCO office in Texas;

      (ii) investment in a business that is found to be unqualified, without first requesting from the comptroller an evaluation of the business as provided under subsection (g) of this section; and

      (iii) failure to provide information about the CAPCO's operation within 30 days after the comptroller requests the information.

    (D) If a CAPCO is assessed penalties, a re-determination hearing may be requested as provided in Tax Code, Chapter 111.

  (9) Indemnity Agreements and Insurance Authorization. A CAPCO may agree to indemnify or purchase insurance for the benefit of a certified investor for losses resulting from the recapture or forfeiture of premium tax credits under Insurance Code, Article 4.63. Any guaranty, indemnity, bond, insurance policy, or other payment undertaking made under this section may not be provided by more than one certified investor of the CAPCO or affiliate of the certified investor.

(g) Premium Tax Credits. In the year a certified investor makes an investment of certified capital, the certified investor shall earn a vested premium tax credit that is equal to the amount of the investment, subject to the other provisions in this section. With respect to Program One, beginning with the tax report due March 2, 2009, for the 2008 tax year, a certified investor may take up to 25% of these tax credits each year until all credits have been used. The credit may not be applied to estimated payments due in 2008, but may be applied to estimated payments beginning with those made in 2009. With respect to Program Two, beginning with the tax report due March 1, 2013 for the 2012 tax year, a certified investor may take up to 25% of these credits each year until all credits have been used. The credit may not be applied to estimated payments due in 2012 but may be applied to estimated payments beginning with those made in 2013.

  (1) The credit to be applied against state premium tax liability in any one year may not exceed the state premium tax liability of the certified investor for the taxable year. Any unused credit against state premium tax liability may be carried forward indefinitely until the premium tax credits are used.

  (2) A certified investor claiming a credit against state premium tax liability earned through an investment in a Texas CAPCO is not required to pay any additional retaliatory tax levied under Insurance Code, Article 21.46, as a result of claiming that credit.

  (3) A premium tax credit allocation claim form for certified investors must be prepared and executed by each CAPCO receiving an investment commitment, on a form provided by the comptroller. A CAPCO and its affiliates may not file premium tax credit allocation claims in excess of the maximum amount of certified capital for which premium tax credits may be allowed. The form shall include an affidavit of the certified investor that legally binds the investor to make an investment of certified capital in an amount allocated by the comptroller. The forms with respect to Program One are due from each CAPCO not later than the 120th day after the date the CAPCO rule is adopted. The forms with respect to Program Two are due from each CAPCO not later than January 1 2008.

  (4) The comptroller shall notify each CAPCO of the amount of tax credits allocated to each certified investor not later than the 15th business day after the date on which the comptroller accepts premium tax credit allocation claims.

  (5) A certified investor's tax credits are limited to the amount of certified capital as allocated or as subsequently reallocated by the comptroller and funded by the certified investor. The maximum request for premium tax credits that any one individual certified investor, on an aggregate basis with its affiliates, may request in one or more premium tax allocation claim forms submitted pursuant to paragraph (1) of this subsection may not, with respect to Program One or Program Two as applicable, exceed the greater of:

    (A) $10 million; or

    (B) 15% of the maximum aggregate amount available under Insurance Code, Article 4.67(a).

  (6) The total amount of credits allowed is $200 million Program One and $200 million for Program Two. Total annual credits, with respect to each of Program One and Program Two, are limited to the lesser of $50 million per year, or 25% of the total amount of investment with respect to each of Program One and Program Two. A CAPCO, together with its affiliates, may not file premium tax credit allocation claims on behalf of its investors in excess of $200 million with respect to Program One or Program Two.

  (7) Pro rata allocation of credits.

    (A) The comptroller shall perform a pro rata allocation of the total amount of premium tax credits under this if:

      (i) the total amount of certified capital requested under paragraph (3) of this subsection exceeds the total limit on credits under paragraph (6) of this subsection; or

      (ii) if an allocation of credits under clause (i) of this subparagraph has occurred and a CAPCO notifies the comptroller either by hand delivery or overnight common carrier delivery service that it did not receive an investment of certified capital equal to the amount of the investment commitment from one or more investors, as provided on the premium tax credit allocation form that is filed under paragraph (3) of this subsection, before the end of the 10th business day after the date of receipt of the notice of allocation.

    (B) the pro rata allocation for each certified investor shall be computed as follows:

      (i) for an allocation under subparagraph (A)(i) of this paragraph, a fraction, the numerator of which is the value determined in paragraph (5) of this subsection for each certified investor and the denominator of which is the total amount of all premium tax credit allocation claims that are filed with respect to Program One or Program Two under paragraph (3) of this subsection, for all certified investors, multiplied by the total limit on credits for such program as provided by paragraph (6) of this subsection.

      (ii) for a reallocation under subparagraph (A)(ii) of this paragraph, the comptroller shall reallocate the forfeited premium tax credit allocation among the other certified investors in all CAPCOs that originally received an allocation, in an amount that will ensure a result after reallocation that is the same as if the original request for the forfeited allocation had not been included in the allocation process.

  (8) Premium tax credits allocated under this subsection may be transferred or assigned as provided in §3.830 of this title (relating to Premium Tax Credit for Examination Expenses, Evaluation Fees, Assessments, and Certified Capital Companies (CAPCOs); Limitations and Transfers). The transfer or assignment of a premium tax credit does not affect the schedule for taking premium tax credits under this section. The transfer, sale, or assignment of premium tax credits, are subject to the follow conditions:

    (A) Failure to comply with §3.830 of this title, could jeopardize the investor's ability to transfer premium tax credits.

Cont'd...

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