§ 44-43-1 - Definitions.
SECTION 44-43-1
§ 44-43-1 Definitions. – For the purpose of this chapter:
(1) "Average annual gross revenue" means the average of theamounts received or accrued by a qualifying business entity determined on anannualized basis from the sale of goods or services prior to diminution by thecost of those sales or services. The determination is limited to amounts, ifany, received or accrued during the four (4) taxable years of the businessentity, or a lesser period as may be applicable, immediately preceding thetaxable year during which the entity applied to the department forcertification as a qualifying business entity.
(2) "Certified venture capital partnership" means anypartnership formed under the laws of Rhode Island that:
(i) Has at least three (3) partners each of whom hascontributed at least five thousand dollars ($5,000) and who have contributed inthe aggregate at least two hundred fifty thousand dollars ($250,000) to thepartnership;
(ii) Employs a professional manager who is an individual withprior experience managing venture capital funds;
(iii) Is organized and operated to invest at least ninetypercent (90%) of the amounts contributed to its capital in qualifyingactivities and is registered or exempt from registration under the securitieslaws of Rhode Island;
(iv) Has bonding of its employees to fully cover all fundsreceived from partners;
(v) Has filed with the department information as may berequested describing its organization, operation, and programs and has receivedcertification and annual recertification from the department pursuant to rulesand regulations promulgated by the department, that its organization,operation, and proposed programs comply with the requirements of this chapter;and
(vi) Has not violated the requirements prescribed in thischapter, or the conditions and requirements imposed by the department.
(3) "Department" means the Rhode Island economic developmentcorporation.
(4) "Entrepreneur" means any individual in the employ on afull-time basis of a qualifying business entity who owns an interest in theentity equal to at least five percent (5%) in value of the entity.
(5) "Qualifying activities" means to provide capital:
(i) To invest in one or more qualifying business entitieswhose principal office and the majority of whose assets are located in RhodeIsland;
(ii) To invest a portion of its funds, as stated in thissection, in one or more qualifying business entities whose principal office islocated outside of Rhode Island and who have entered into binding commitmentsto establish, expand, or increase its operations at a regular place of businessin Rhode Island; or
(iii) To invest a portion of its funds, as stated in thissection, in research and experimental expenditures (as defined in 26 U.S.C.§ 174) conducted in Rhode Island to assist those qualifying businessentities in which the partnership has or would be able to invest. A certifiedventure capital partnership commencing with its first year of operation, orafter there has been a forty percent (40%) change in ownership or the admissionof new partners whose contributions have increased the capital of thepartnership by at least sixty-five percent (65%), may invest in the aggregateup to the following total portion of its investments made during each year inthe types of investments described in subdivisions (6)(ii) and (6)(iii) of thissection.
YearPortion
1 50%
2 40%
3 30%
4 30%
5 30%
6 and subsequent years 20%
(6) "Qualifying business entity" means any corporation,partnership or other business entity that meets all of the following criteriaand the predecessors and successors of any corporation, partnership or otherbusiness entity:
(i) Whose average annual gross revenue is less than twomillion five hundred thousand dollars ($2,500,000);
(ii) Which has been in business for less than four (4) years;and
(iii) Which will expend an amount which is not less than theamounts allowed as a deduction under § 44-43-2 to establish, expand orincrease its operations at a regular place of business in Rhode Island or topurchase the interest of one or more prior owners of the entity if the entityhas entered into binding commitments to expend an amount not less than theamount paid to establish, expand or increase the entity's operations at aregular place of business in Rhode Island; and
(iv) Has received certification and annual recertificationfrom the department, pursuant to rules and regulations promulgated by thedepartment, that the preceding requirements have been satisfied.
(7) "Qualifying investment" means that portion, determinedbased on a taxpayer's interest in a certified venture capital partnership under26 U.S.C. § 702(a)(8), of the taxpayer's investment in the partnershipthat is invested by the partnership in qualifying activities during thetaxpayer's taxable year.