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91_SB0011eng SB11 Engrossed LRB9101143PTpk 1 AN ACT concerning development of small businesses in 2 Illinois. 3 Be it enacted by the People of the State of Illinois, 4 represented in the General Assembly: 5 Section 1. Short title. This Act may be cited as the 6 Certified Capital Company Act. 7 Section 5. Policy statement. The primary purpose of the 8 Certified Capital Company Act is to provide assistance in the 9 formation of new and expansion of existing businesses that 10 create jobs in the State by providing an incentive for 11 insurance companies to invest in certified capital companies. 12 Section 10. Definitions. For the purpose of this Act: 13 "Affiliate of a certified capital company or insurance 14 company" means: 15 (a) Any person, directly or indirectly beneficially 16 owning, whether through rights, options, convertible 17 interests, or otherwise, controlling, or holding power to 18 vote 25% or more of the outstanding voting securities or 19 other ownership interests of the certified capital 20 company or insurance company, as applicable; 21 (b) Any person 25% or more of whose outstanding 22 voting securities or other ownership interest are 23 directly or indirectly beneficially owned, whether 24 through rights, options, convertible interests, or 25 otherwise, controlled, or held with power to vote by the 26 certified capital company or insurance company, as 27 applicable; 28 (c) Any person directly or indirectly controlling, 29 controlled by, or under common control with the certified 30 capital company or insurance company, as applicable; SB11 Engrossed -2- LRB9101143PTpk 1 (d) A partnership in which the certified capital 2 company or insurance company, as applicable, is a general 3 partner; or 4 (e) Any person who is an officer, director, 5 employee, or agent of the certified capital company or 6 insurance company, as applicable, or an immediate family 7 member of that officer, director, employee, or agent. 8 "Certification date" means the date on which a certified 9 capital company is so designated by the Department. 10 "Certified capital" means an investment of cash by a 11 certified investor in a certified capital company that fully 12 funds the purchase price of either or both its equity 13 interest in the certified capital company or a qualified debt 14 instrument issued by the certified capital company. 15 "Certified capital company" means a partnership, 16 corporation, trust, or limited liability company, whether 17 organized on a profit or not-for-profit basis, that has as 18 its primary business activity the investment of cash in 19 qualified businesses and that is certified by the Department 20 as meeting the criteria of this Act. 21 "Certified investor" means any insurance company that (A) 22 contributes certified capital pursuant to an allocation of 23 privilege tax credits under Section 25 of this Act or (B) 24 becomes irrevocably committed to contribute certified capital 25 by preparing and executing a privilege tax credit allocation 26 claim. 27 "Department" means the Department of Commerce and 28 Community Affairs. 29 "Person" means any natural person or entity, including a 30 corporation, general or limited partnership, trust, or 31 limited liability company. 32 "Privilege tax credit allocation claim" means a claim for 33 allocation of privilege tax credits prepared and executed by 34 a certified investor on a form provided by the Department and SB11 Engrossed -3- LRB9101143PTpk 1 filed by a certified capital company with the Department. 2 The form shall include an affidavit of the certified investor 3 under which the certified investor shall become legally bound 4 and irrevocably committed to make an investment of certified 5 capital in a certified capital company in the amount 6 allocated (even if such amount is less than the amount of the 7 claim), subject only to the receipt of an allocation pursuant 8 to Section 25 of this Act. 9 "Qualified business" means a new or expanding existing 10 business that meets all of the following conditions as of the 11 time of a certified capital company's first investment in the 12 business: 13 (a) It is headquartered in this State, and its 14 principal business operations are located in this State; 15 (b) It is a small business concern as defined in 16 Section 121.201 of the small business size regulations of 17 the U.S. Small Business Administration, 13 CFR 121.201. 18 A business predominantly engaged in professional services 19 provided by accountants, lawyers, or physicians shall not 20 constitute a qualified business. 21 "Qualified debt instrument" means a debt instrument 22 issued by a certified capital company, at par value or a 23 premium, with an original maturity date of at least 5 years 24 from date of issuance, a repayment schedule that is no faster 25 than a level principal amortization over 5 years, an 26 annualized internal rate of return (calculated using the 27 purchase price of the qualified debt instrument, all payments 28 of principal and interest, and all future tax credits 29 projected to be received) not to exceed 3.5% over the then 30 current yield of the most recently issued 10-year U.S. 31 Treasury security at the time of issuance of the qualified 32 debt instrument, and contains no equity component (unless the 33 equity component is severable from and not considered a part 34 of the qualified debt instrument) or interest, distribution, SB11 Engrossed -4- LRB9101143PTpk 1 or payment features that are related to the profitability of 2 the certified capital company or the performance of the 3 certified capital company's investment portfolio. 4 "Qualified Distribution" means any distribution or 5 payment from a certified capital company in connection with 6 the following: 7 (a) Reasonable costs and expenses of forming, 8 syndicating, managing, and operating the certified 9 capital company, including reasonable and necessary fees 10 paid for professional services (such as legal and 11 accounting services) related to the formation and 12 operation of the certified capital company, provided that 13 no distribution or payment is directly or indirectly made 14 to a certified investor, and an annual management fee in 15 an amount that does not exceed 2% of the value of the 16 assets of the certified capital company; and 17 (b) Any projected increase in federal or State 18 taxes, including penalties and interest related to State 19 and federal income taxes, of the equity owners of a 20 certified capital company resulting from the earnings or 21 other tax liability of the certified capital company to 22 the extent that the increase is related to the ownership, 23 management, or operation of a certified capital company. 24 "Qualified Investment" means the investment of cash by a 25 certified capital company in a qualified business for the 26 purchase of any debt, equity, or hybrid security, of any 27 nature and description whatsoever, including a debt 28 instrument or security that has the characteristics of debt 29 but that provides for conversion into equity or equity 30 participation instruments such as options or warrants. 31 "State privilege tax liability" means any liability 32 incurred by an insurance company under the provisions of 33 Section 409 of the Illinois Insurance Code. SB11 Engrossed -5- LRB9101143PTpk 1 Section 15. Certification. 2 (a) The Department shall establish by rule or regulation 3 the procedures for making an application to become a 4 certified capital company. The applicant shall pay a 5 non-refundable application fee of $7,500 at the time of 6 filing the application with the Department. 7 (b) A certified capital company's equity capitalization 8 at the time of seeking certification must be $500,000 or more 9 and must be in the form of unencumbered cash, marketable 10 securities, or other liquid assets. The applicant shall 11 submit with its initial application an audited balance sheet 12 with an unqualified opinion from a firm of independent 13 certified public accountants as of a date no more than 35 14 days prior to the date of the application. 15 (c) The Department shall review the organizational 16 documents of each applicant for certification and the 17 business history of the applicant and shall determine that 18 the applicant's cash, marketable securities, and other liquid 19 assets are at least $500,000. 20 (d) The Department shall verify that at least 2 21 principals of the certified capital company or at least 2 22 persons employed to manage the funds of the certified capital 23 company have not less than 2 years of experience in the 24 venture capital industry. 25 (e) Any offering material involving the sale of 26 securities of the certified capital company shall include the 27 following statement: "By authorizing the formation of a 28 certified capital company, the State does not necessarily 29 endorse the quality of management or the potential for 30 earnings of such company and is not liable for damages or 31 losses to a certified investor in the company. Use of the 32 word 'certified' in an offering does not constitute a 33 recommendation or endorsement of the investment by the 34 Securities Department of the Office of the Secretary of SB11 Engrossed -6- LRB9101143PTpk 1 State. In the event applicable provisions of this Act are 2 violated, the State may require forfeiture of unused 3 privilege tax credits and repayment of used privilege tax 4 credits." 5 (f) Within 30 days of application, the Department shall 6 issue the certification or shall refuse the certification and 7 communicate in detail to the applicant the grounds for the 8 refusal, including suggestions for the removal of those 9 grounds. The Department shall review and approve or reject 10 applications in the order submitted, and in the event more 11 than one application is received by the Department on any 12 date, all such applications shall be reviewed and approved 13 simultaneously, except in the case of incomplete applications 14 or applications for which additional information is requested 15 by the Department and is not supplied by the applicant within 16 the allowable time limits established by the Department. 17 (g) No insurance company, group of insurance companies, 18 affiliate of an insurance company, group of affiliates of an 19 insurance company, or combination of insurance companies, 20 affiliates, or groups shall, directly or indirectly, manage a 21 certified capital company, beneficially own 10% or more, 22 whether through rights, options, convertible interests, or 23 otherwise, of the outstanding voting securities of a 24 certified capital company, or control the direction of 25 investments for a certified capital company. This provision 26 shall not preclude an insurance company or affiliate of an 27 insurance company from possessing voting rights with respect 28 to certain extraordinary issues, or certified investor, 29 insurance company, or any other party from exercising its 30 legal rights and remedies (which may include interim 31 management of a certified capital company) in the event that 32 a certified capital company is in default of its statutory 33 obligations or its contractual obligations to such certified 34 investor, insurance company, or other party. SB11 Engrossed -7- LRB9101143PTpk 1 Section 20. Privilege tax credit. 2 (a) Any certified investor who makes an investment of 3 certified capital pursuant to an allocation of privilege tax 4 credits under Section 25 of this Act shall, in the year of 5 investment, earn a vested credit against State privilege tax 6 liability levied pursuant to Section 409 of the Illinois 7 Insurance Code equal to 100% of the certified investor's 8 investment of certified capital. A certified investor shall 9 be entitled to take up to 10% of the vested privilege tax 10 credit in any taxable year of the certified investor. 11 (b) The credit to be applied against State privilege tax 12 liability in any one year may not exceed the State privilege 13 tax liability of the certified investor for that taxable 14 year. All unused credits against State privilege tax 15 liability may be carried forward until the privilege tax 16 credits are utilized or privilege tax filings for the 17 calendar year 2015, whichever is sooner; provided that in no 18 one taxable year may the certified investor together with its 19 affilliates utilize privilege tax credits which in the 20 aggregate equal more than 10% of the certified investor's 21 total vested privilege tax credit. 22 (c) A certified investor claiming a credit against State 23 privilege tax liability earned through an investment in a 24 certified capital company shall not be required to pay any 25 additional retaliatory tax levied pursuant to Section 444 of 26 the Illinois Insurance Code as a result of claiming that 27 credit. 28 (d) A certified investor or any holder of a transferred 29 credit claiming a credit against State privilege tax 30 liability shall provide to the Department of Insurance 31 information, including, but not limited to, the amount of 32 certified capital investment and the certified capital 33 company where investment was made, as may be required by the 34 Department of Insurance by regulation adopted pursuant to the SB11 Engrossed -8- LRB9101143PTpk 1 authority set forth in Section 55 of this Act and Section 401 2 of the Illinois Insurance Code. 3 Section 25. Aggregate limitations on credits. 4 (a) The aggregate amount of certified capital for which 5 privilege tax credits shall be allowed for all certified 6 investors under this Act shall not exceed the amount that 7 would entitle all certified investors in certified capital 8 companies to take aggregate credits of $30,000,000 per year. 9 No certified capital company (together with its affiliates) 10 may file privilege tax credit allocation claims in excess of 11 the maximum amount of certified capital for which privilege 12 tax credits may be allowed as provided in this subsection. 13 (b) Certified capital for which privilege tax credits 14 are allowed will be allocated to certified investors in 15 certified capital companies in the order that privilege tax 16 credit allocation claims are filed with the Department by 17 such certified capital companies on behalf of their certified 18 investors. All filings made on the same day shall be treated 19 as having been made contemporaneously. 20 (c) In the event that 2 or more certified capital 21 companies file privilege tax credit allocation claims with 22 the Department on behalf of their respective certified 23 investors on the same day, and the amount of such privilege 24 tax credit allocation claims exceeds in the aggregate the 25 remaining amount of available tax credits under the 26 provisions of this Section after giving effect to all 27 privilege tax credit allocation claims filed (and not 28 forfeited) prior to the claims, capital for which privilege 29 tax credits are allowed shall be allocated among the 30 certified investors of the submitting certified capital 31 companies on a pro rata basis with respect to the amounts 32 claimed. The pro rata allocation for any one certified 33 investor shall be the product of a fraction, the numerator of SB11 Engrossed -9- LRB9101143PTpk 1 which is the amount of the privilege tax credit allocation 2 claim filed on behalf of such certified investor and the 3 denominator of which is the total of all privilege tax credit 4 allocation claims filed on behalf of all certified investors 5 on the same day, multiplied by the remaining amount of 6 available tax credits under the provisions of this Section 7 after giving effect to all privilege tax credit allocation 8 claims filed (and not forfeited) prior to the claims. 9 (d) Within 5 business days after the Department receives 10 a privilege tax credit allocation claim filed by a certified 11 capital company on behalf of one or more of its certified 12 investors, the Department shall notify the certified capital 13 company of the amount of tax credits allocated to each of the 14 certified investors in the certified capital company. 15 (e) In the event a certified capital company does not 16 receive an investment of certified capital equaling the 17 amount of privilege tax credits allocated to a certified 18 investor for which it filed a privilege tax credit allocation 19 claim within 5 business days of its receipt of notice of 20 allocation, that portion of the privilege tax credits 21 allocated to the certified investor in the certified capital 22 company will be forfeited, and the Department will reallocate 23 that certified capital among the other certified investors in 24 all certified capital companies on a pro rata basis with 25 respect to the privilege tax credit allocation claims filed 26 on behalf of such certified investors by all certified 27 capital companies. 28 (f) The maximum amount of certified capital for which 29 privilege tax credits shall be allowed to any one certified 30 investor (and its affiliates) in one or more certified 31 capital companies in any year shall not exceed 10% of the 32 aggregate limitation as provided in subsection (a). 33 Section 30. Requirements for continuance of SB11 Engrossed -10- LRB9101143PTpk 1 certification. 2 (a) To continue to be certified, a certified capital 3 company must make qualified investments according to the 4 following schedule: 5 (1) Within the period ending 3 years after its 6 certification date, a certified capital company must have 7 made qualified investments cumulatively equal to 30% of 8 its certified capital. 9 (2) Within the period ending 5 years after its 10 certification date, a certified capital company must have 11 made qualified investments cumulatively equal to 50% of 12 its certified capital. 13 (b) The aggregate cumulative amount of all qualified 14 investments made by the certified capital company from its 15 certification date will be considered in the calculation of 16 the percentage requirements under this Act. Any proceeds 17 received from a qualified investment may be invested in 18 another qualified investment and shall count toward any 19 requirement in this Act with respect to investments of 20 certified capital. 21 (c) Any business that is classified as a qualified 22 business at the time of the first investment in the business 23 by a certified capital company shall remain classified as a 24 qualified business and may receive follow-on investments from 25 any certified capital company or any of its affiliates, and 26 such follow-on investments shall be qualified investments 27 even though such business may not meet the definition of a 28 qualified business at the time of such follow-on investments; 29 provided that at the time of the follow-on investment the 30 business is headquartered and has its principal business 31 operations located in the State. 32 (d) No qualified investment may be made at a cost to a 33 certified capital company greater than 15% of the total 34 certified capital of the certified capital company at the SB11 Engrossed -11- LRB9101143PTpk 1 time of investment. 2 (e) At its option, a certified capital company, prior to 3 making a proposed investment in a specific business, may 4 request from the Department a written opinion that the 5 business in which it proposes to invest should be considered 6 a qualified business. Upon receiving such a request, the 7 Department shall determine whether or not the business meets 8 the definition of a qualified business and notify the 9 certified capital company of its determination and an 10 explanation thereof. 11 (f) All certified capital not currently invested in 12 qualified investments by the certified capital company must 13 be invested in cash deposited with a federally insured 14 financial institution, certificates of deposit in a federally 15 insured financial institution, investment securities that are 16 obligations of the United States, its agencies or 17 instrumentalities, or obligations that are guaranteed fully 18 as to principal and interest by the United States, 19 investment-grade instruments (rated in the top 4 rating 20 categories by a nationally recognized rating organization), 21 obligations of this State, any municipality in this State, or 22 any political subdivision of this State; or any other 23 investments approved in advance and in writing by the 24 Department. 25 (g) Each certified capital company shall report the 26 following to the Department: 27 (1) As soon as practicable after the receipt of 28 certified capital, each certified capital company shall 29 report the following to the Department: (A) the name of 30 each certified investor from which the certified capital 31 was received, including such certified investor's 32 insurance privilege tax identification number, (B) the 33 amount of each certified investor's investment of 34 certified capital and privilege tax credits, and (C) the SB11 Engrossed -12- LRB9101143PTpk 1 date on which the certified capital was received. 2 (2) On an annual basis, on or before January 31st, 3 (A) the amount of the certified capital company's 4 certified capital at the end of the immediately preceding 5 year, (B) whether or not the certified capital company 6 has invested more than 15% of its total certified capital 7 in any one business, and (C) all qualified investments 8 that the certified capital company made during the 9 previous calendar year. 10 (3) Each certified capital company shall provide to 11 the Department annual audited financial statements, which 12 shall include the opinion of an independent certified 13 public accountant, within 90 days of the close of the 14 fiscal year. The audit shall address the methods of 15 operation and conduct of the business of the certified 16 capital company to determine if the certified capital 17 company is complying with the statutes and program rules 18 and that the funds received by the certified capital 19 company have been invested as required within the time 20 limits provided by subsection (a) of Section 30. 21 (4) On or before January 31 of each year, each 22 certified capital company shall pay an annual, 23 non-refundable certification fee of $5,000 to the 24 Department; provided, that no such fee shall be required 25 within 6 months of the initial certification date of a 26 certified capital company. 27 Section 35. Distributions. A certified capital company 28 may make qualified distributions at any time. In order to 29 make a distribution or payment, other than a qualified 30 distribution, a certified capital company must have made 31 qualified investments in an amount cumulatively equal to 100% 32 of its certified capital. A certified capital company may, 33 however, make repayments of principal and interest on its SB11 Engrossed -13- LRB9101143PTpk 1 indebtedness without any restriction whatsoever, including 2 repayments of indebtedness of the certified capital company 3 on which certified investors earned privilege tax credits. 4 Cumulative distributions to equity holders of the certified 5 capital company, other than qualified distributions, in 6 excess of the certified capital company's original certified 7 capital and any additional capital contributed to the 8 certified capital company shall be subject to audit by a 9 nationally recognized certified public accounting firm 10 acceptable to the Department at the expense of the certified 11 capital company. The audit shall determine whether aggregate 12 cumulative distributions to all investors and equity holders 13 (including all payments of principal and interest on 14 qualified debt instruments), other than qualified 15 distributions, when combined with all tax credits utilized by 16 the certified investors of the certified capital company 17 pursuant to this Act, have resulted in an annual internal 18 rate of return of 15% computed on the sum of total original 19 certified capital of the certified capital company and any 20 additional capital contributed to the certified capital 21 company. Thirty percent of any distributions made to the 22 equity holders of the certified capital company, other than 23 qualified distributions, in excess of the amount required to 24 produce a 15% annual internal rate of return, as determined 25 by the audit, shall be annually payable by December 1 of each 26 calendar year by the certified capital company to the State 27 Treasurer for deposit in the State Pension Fund in the State 28 Treasury. 29 Section 40. Decertification. 30 (a) The Department shall conduct an annual review of 31 each certified capital company to determine if the certified 32 capital company is abiding by the requirements of 33 certification, to advise the certified capital company as to SB11 Engrossed -14- LRB9101143PTpk 1 the eligibility status of its qualified investments, and to 2 ensure that no investment has been made in violation of this 3 Act. The cost of the annual review shall be paid by each 4 certified capital company according to a reasonable fee 5 schedule adopted by the Department. 6 (b) Any material violation of Section 30 shall be 7 grounds for decertification of the certified capital company. 8 If the Department determines that a certified capital company 9 is not in compliance with the requirements of Section 30, it 10 shall, by written notice, inform the officers of the 11 certified capital company that the certified capital company 12 may be subject to decertification in 120 days from the date 13 of mailing of the notice, unless the deficiencies are 14 corrected and the certified capital company is again in 15 compliance with all requirements for certification. 16 (c) At the end of the 120-day grace period, if the 17 certified capital company is still not in compliance with 18 Section 30, the Department may send a notice of 19 decertification to the certified capital company and to all 20 other appropriate State agencies. 21 (d) Decertification of a certified capital company may 22 cause the recapture of privilege tax credits previously 23 claimed and the forfeiture of future privilege tax credits to 24 be claimed by certified investors with respect to such 25 certified capital company, as follows: 26 (1) Decertification of a certified capital company 27 within 3 years of its certification date shall cause the 28 recapture of all privilege tax credits previously claimed 29 and the forfeiture of all future privilege tax credits to 30 be claimed by certified investors with respect to such 31 certified capital company. 32 (2) When a certified capital company meets all 33 requirements for continued certification under paragraph 34 (1) of subsection (a) of Section 30 and subsequently SB11 Engrossed -15- LRB9101143PTpk 1 fails to meet the requirements for continued 2 certification under the provisions of paragraph (2) of 3 subsection (a) of Section 30, those privilege tax credits 4 that have been or will be taken by certified investors 5 within 3 years from the certification date of the 6 certified capital company will not be subject to 7 recapture or forfeiture; however, all privilege tax 8 credits that have been or will be taken by certified 9 investors after the third anniversary of the 10 certification date of the certified capital company shall 11 be subject to recapture or forfeiture. 12 (3) Once a certified capital company has met all 13 requirements for continued certification under paragraphs 14 (1) and (2) of subsection (a) of Section 30, and is 15 subsequently decertified, those privilege tax credits 16 that have been or will be taken by certified investors 17 within 5 years from the certification date of the 18 certified capital company will not be subject to 19 recapture or forfeiture. Those privilege tax credits to 20 be taken subsequent to the fifth year of certification 21 shall be subject to forfeiture only if the certified 22 capital company is decertified within 5 years from its 23 certification date. 24 (4) Once a certified capital company has invested 25 an amount cumulatively equal to 100% of its certified 26 capital in qualified investments, all privilege tax 27 credits claimed or to be claimed by its certified 28 investors shall no longer be subject to recapture or 29 forfeiture. 30 (e) The Department shall send written notice to the 31 address of each certified investor whose privilege tax credit 32 has been subject to recapture or forfeiture, using the 33 address last shown on the last privilege tax filing. 34 (f) The Department shall have the authority to waive any SB11 Engrossed -16- LRB9101143PTpk 1 recapture or forfeiture of credits if, after considering all 2 facts and circumstances, it determines that such waiver will 3 have the effect of furthering State economic development. 4 Section 45. Transferability. The privilege tax credit 5 established by this Act may be transferred or sold. The 6 Department shall adopt rules to facilitate the transfer or 7 sale of the privilege tax credits. Any transfer or sale 8 shall not affect the time schedule for taking the privilege 9 tax credit as provided in this Act or the limitation of using 10 10% of the certified investor's investment as credit in any 11 year as provided in Section 20 of this Act. Any privilege 12 tax credits recaptured under Section 40 shall be the 13 liability of the taxpayer that actually claimed the privilege 14 tax credits. 15 Section 50. Impact of tax credits claimed by a certified 16 investor on insurance rates. A certified investor shall not 17 be required to reduce the provision for privilege tax 18 included in ratemaking for any insurance contract written in 19 Illinois on account of a reduction in its Illinois privilege 20 tax derived from the tax credit granted under this Act. 21 Section 55. Rules. 22 (a) The Department shall adopt rules necessary to carry 23 out the provisions of this Act within 60 days after the 24 effective date of this Act. The rules shall provide that the 25 Department shall begin accepting applications for 26 certification as a certified capital company not later than 27 90 days after the effective date of this Act. The rules shall 28 further provide that any certified capital company may file 29 privilege tax credit allocation claims on behalf of its 30 certified investors at any time on or after its certification 31 date and that privilege tax credits shall be earned by and SB11 Engrossed -17- LRB9101143PTpk 1 vested in certified investors at the time of such investment 2 of certified capital, although the privilege tax credits may 3 not be claimed or utilized until 2000. 4 (b) The Department of Insurance shall adopt rules to 5 carry out the collection of State privilege tax as it is 6 associated with the credit provided in Section 20 of this 7 Act. Such authority is limited to the collection of 8 information necessary to maintain the proper use of vested 9 credits generated pursuant to this Act. 10 Section 60. Reporting. Within 90 days of the fifth 11 anniversary of the effective date of this Act, the Department 12 shall prepare and present a report to the General Assembly of 13 this State that sets forth the following: 14 (a) the total dollar amount each certified capital 15 company received from all certified investors, the identity 16 of certified investors, and the total amount of privilege tax 17 credits used by each certified investor through the date of 18 the report; 19 (b) the total dollar amount invested by each certified 20 capital company and that portion invested in qualified 21 businesses, the identity and location of those businesses, 22 the amount invested in each qualified business, and the total 23 number of total permanent, full-time jobs created or retained 24 by each qualified business; and 25 (c) such other information with respect to the economic 26 benefits to the State that have resulted from investments by 27 certified capital companies as the Department deems 28 appropriate and informative. 29 Section 105. The Illinois Insurance Code is amended by 30 changing Section 409 as follows: 31 (215 ILCS 5/409) (from Ch. 73, par. 1021) SB11 Engrossed -18- LRB9101143PTpk 1 Sec. 409. Annual privilege tax payable by companies. 2 (1) As of January 1, 1999 for all health maintenance 3 organization premiums written; as of July 1, 1998 for all 4 premiums written as accident and health business, voluntary 5 health service plan business, dental service plan business, 6 or limited health service organization business; and as of 7 January 1, 1998 for all other types of insurance premiums 8 written, every company doing any form of insurance business 9 in this State, including, but not limited to, every risk 10 retention group, and excluding all fraternal benefit 11 societies, all farm mutual companies, all religious 12 charitable risk pooling trusts, and excluding all statutory 13 residual market and special purpose entities in which 14 companies are statutorily required to participate, whether 15 incorporated or otherwise, shall pay, for the privilege of 16 doing business in this State, to the Director for the State 17 treasury a State tax equal to 0.5% of the net taxable premium 18 written, together with any amounts due under Section 444 of 19 this Code, except that the tax to be paid on any premium 20 derived from any accident and health insurance or on any 21 insurance business written by any company operating as a 22 health maintenance organization, voluntary health service 23 plan, dental service plan, or limited health service 24 organization shall be equal to 0.4% of such net taxable 25 premium written, together with any amounts due under Section 26 444. Upon the failure of any company to pay any such tax 27 due, the Director may, by order, revoke or suspend the 28 company's certificate of authority after giving 20 days 29 written notice to the company, or commence proceedings for 30 the suspension of business in this State under the procedures 31 set forth by Section 401.1 of this Code. The gross taxable 32 premium written shall be the gross amount of premiums 33 received on direct business during the calendar year on 34 contracts covering risks in this State, except premiums on SB11 Engrossed -19- LRB9101143PTpk 1 annuities, premiums on which State premium taxes are 2 prohibited by federal law, premiums paid by the State for 3 health care coverage for Medicaid eligible insureds as 4 described in Section 5-2 of the Illinois Public Aid Code, 5 premiums paid for health care services included as an element 6 of tuition charges at any university or college owned and 7 operated by the State of Illinois, premiums on group 8 insurance contracts under the State Employees Group Insurance 9 Act of 1971, and except premiums for deferred compensation 10 plans for employees of the State, units of local government, 11 or school districts. The net taxable premium shall be the 12 gross taxable premium written reduced only by the following: 13 (a) the amount of premiums returned thereon which 14 shall be limited to premiums returned during the same 15 preceding calendar year and shall not include the return 16 of cash surrender values or death benefits on life 17 policies including annuities; 18 (b) dividends on such direct business that have 19 been paid in cash, applied in reduction of premiums or 20 left to accumulate to the credit of policyholders or 21 annuitants. In the case of life insurance, no deduction 22 shall be made for the payment of deferred dividends paid 23 in cash to policyholders on maturing policies; dividends 24 left to accumulate to the credit of policyholders or 25 annuitants shall be included as gross taxable premium 26 written when such dividend accumulations are applied to 27 purchase paid-up insurance or to shorten the endowment or 28 premium paying period. 29 (2) The annual privilege tax payment due from a company 30 under subsection (4) of this Section may be reduced by: (a) 31 the excess amount, if any, by which the aggregate income 32 taxes paid by the company, on a cash basis, for the preceding 33 calendar year under subsections (a) through (d) of Section 34 201 of the Illinois Income Tax Act exceed 1.5% of the SB11 Engrossed -20- LRB9101143PTpk 1 company's net taxable premium written for that prior calendar 2 year, as determined under subsection (1) of this Section; and 3 (b) the amount of any fire department taxes paid by the 4 company during the preceding calendar year under Section 5 11-10-1 of the Illinois Municipal Code. Any deductible 6 amount or offset allowed under items (a) and (b) of this 7 subsection for any calendar year will not be allowed as a 8 deduction or offset against the company's privilege tax 9 liability for any other taxing period or calendar year. In 10 addition, there shall be deducted from the tax payment due 11 the tax credit provided for in Section 20 of the Certified 12 Capital Company Act. 13 (3) If a company survives or was formed by a merger, 14 consolidation, reorganization, or reincorporation, the 15 premiums received and amounts returned or paid by all 16 companies party to the merger, consolidation, reorganization, 17 or reincorporation shall, for purposes of determining the 18 amount of the tax imposed by this Section, be regarded as 19 received, returned, or paid by the surviving or new company. 20 (4)(a) All companies subject to the provisions of this 21 Section shall make an annual return for the preceding 22 calendar year on or before March 15 setting forth such 23 information on such forms as the Director may reasonably 24 require. Payments of quarterly installments of the 25 taxpayer's total estimated tax for the current calendar year 26 shall be due on or before April 15, June 15, September 15, 27 and December 15 of such year, except that all companies 28 transacting insurance in this State whose annual tax for the 29 immediately preceding calendar year was less than $5,000 30 shall make only an annual return. Failure of a company to 31 make the annual payment, or to make the quarterly payments, 32 if required, of at least 25% of either (i) the total tax paid 33 during the previous calendar year or (ii) 80% of the actual 34 tax for the current calendar year shall subject it to the SB11 Engrossed -21- LRB9101143PTpk 1 penalty provisions set forth in Section 412 of this Code. 2 (b) Notwithstanding the foregoing provisions, no annual 3 return shall be required or made on March 15, 1998, under 4 this subsection. For the calendar year 1998: 5 (i) each health maintenance organization shall have 6 no estimated tax installments; 7 (ii) all companies subject to the tax as of July 1, 8 1998 as set forth in subsection (1) shall have estimated 9 tax installments due on September 15 and December 15 of 10 1998 which installments shall each amount to no less than 11 one-half of 80% of the actual tax on its net taxable 12 premium written during the period July 1, 1998, through 13 December 31, 1998; and 14 (iii) all other companies shall have estimated tax 15 installments due on June 15, September 15, and December 16 15 of 1998 which installments shall each amount to no 17 less than one-third of 80% of the actual tax on its net 18 taxable premium written during the calendar year 1998. 19 In the year 1999 and thereafter all companies shall make 20 annual and quarterly installments of their estimated tax as 21 provided by paragraph (a) of this subsection. 22 (5) In addition to the authority specifically granted 23 under Article XXV of this Code, the Director shall have such 24 authority to adopt rules and establish forms as may be 25 reasonably necessary for purposes of determining the 26 allocation of Illinois corporate income taxes paid under 27 subsections (a) through (d) of Section 201 of the Illinois 28 Income Tax Act amongst members of a business group that files 29 an Illinois corporate income tax return on a unitary basis, 30 for purposes of regulating the amendment of tax returns, for 31 purposes of defining terms, and for purposes of enforcing the 32 provisions of Article XXV of this Code. The Director shall 33 also have authority to defer, waive, or abate the tax imposed 34 by this Section if in his opinion the company's solvency and SB11 Engrossed -22- LRB9101143PTpk 1 ability to meet its insured obligations would be immediately 2 threatened by payment of the tax due. 3 (Source: P.A. 90-583, eff. 5-29-98.) 4 Section 999. Effective date. This Act takes effect upon 5 becoming law.