72nd OREGON LEGISLATIVE ASSEMBLY--2003 Regular Session
 
NOTE:  Matter within  { +  braces and plus signs + } in an
amended section is new. Matter within  { -  braces and minus
signs - } is existing law to be omitted. New sections are within
 { +  braces and plus signs + } .
 
LC 1856
 
                         Senate Bill 362
 
Sponsored by Senator DECKERT, Representative BUTLER (at the
  request of Oregon Council on Knowledge and Economic
  Development)
 
 
                             SUMMARY
 
The following summary is not prepared by the sponsors of the
measure and is not a part of the body thereof subject to
consideration by the Legislative Assembly. It is an editor's
brief statement of the essential features of the measure as
introduced.
 
  Establishes exemption from personal income tax for certain
income of upper-level managers at certain venture capital firms
and for certain income of upper-level scientific research
personnel at accredited colleges and universities. Directs
Economic and Community Development Department to certify
taxpayers as eligible for exemption upon application and
determination that exemption requirements are met.
  Applies to applications for certification made in tax years
beginning on or after January 1, 2003.
  Takes effect on 91st day following adjournment sine die.
 
                        A BILL FOR AN ACT
Relating to taxation; and prescribing an effective date.
Be It Enacted by the People of the State of Oregon:
  SECTION 1.  { + Sections 2 to 5 of this 2003 Act are added to
and made a part of ORS chapter 285B. + }
  SECTION 2.  { + As used in sections 2 to 5 of this 2003 Act:
  (1) 'Business operations' means any activity undertaken to
promote the purposes for which a firm exists, except that '
business operations' does not include marketing and sales
activities.
  (2) 'Firm' means a business firm as defined in ORS 285B.650.
  (3) 'Qualified taxpayer' means:
  (a) An individual who has authority to make fundamental
business decisions about the activities or continued existence of
the firm; or
  (b) An individual affiliated with a university who is engaged
in research related to biosciences, computer software,
technological devices and equipment, communications equipment or
other innovative technology, if the individual has authority to
make fundamental decisions about the direction of research
conducted at the university.
  (4) 'University':
  (a) Means a state institution under the direction of the State
Board of Higher Education, the Oregon Health and Science
University or a generally accredited public or not-for-profit
institution of higher education that confers both undergraduate
and graduate degrees; and
 
  (b) Does not include a community college operated under ORS
chapter 341.
  (5) 'Venture capital firm' means a firm primarily engaged in:
  (a) Identifying start-up companies and young, rapidly growing
companies that have potential to develop into significant
economic contributors; and
  (b) Making private equity investments in the companies
described in paragraph (a) of this subsection. + }
  SECTION 3.  { + (1) An individual seeking the personal income
tax exemption allowed under section 8 of this 2003 Act shall
apply to the Economic and Community Development Department for
initial certification under this section.
  (2) The individual must apply for initial certification on or
before the end of the first 12 months following the date:
  (a) The firm begins business operations in this state; or
  (b) The university begins a new line of research in this state
in a topical area that would qualify for the tax exemption
established under section 8 of this 2003 Act.
  (3) Application shall be made on a form, prescribed by the
department, that contains the following information:
  (a) The applicant's name, address and taxpayer identification
information.
  (b) If the applicant is affiliated with a university, the name
and address of the university, a description of the specific
research activities in which the applicant is engaged at the
university, the possible uses of the research, an explanation of
the sources of funding for the research and the date on which the
specific line of research was started at the university.
  (c) If the applicant is affiliated with a firm, the name,
address and description of the firm with whom the applicant is
affiliated. The description must detail the business operations
of the firm both within this state and elsewhere in a manner that
is sufficient for the department to determine whether the firm
constitutes a venture capital firm, including an explanation of
the types of companies the firm has invested in and a financial
statement setting forth the amount of assets currently
unobligated and available for investment by the firm.
  (d) If the applicant is affiliated with a firm, a description
of the duties, responsibilities and activities engaged in by the
applicant in connection with the applicant's position with the
firm that is sufficient for the department to determine whether
the applicant is a qualified taxpayer. The description must also
include an explanation of any venture capital investment made in
this state in the preceding 12 months in which the applicant was
personally involved.
  (e) Any other information that the department requires.
  (4) An application filed under this section shall be
accompanied by a fee in an amount prescribed by the department by
rule. The fee required by the department may not exceed $1,000.
  (5) When an application is filed under this section, the
department shall review the application and determine whether
initial certification may be issued. The determination to issue
initial certification shall be made by finding that:
  (a) The duties, responsibilities and activities of the
applicant are sufficient for the applicant to be a qualified
taxpayer for purposes of initial certification;
  (b) If the applicant is affiliated with a university, the
research in which the applicant engages constitutes a new line of
research for which there exists stable, ongoing funding and for
which there exists one or more possible commercial applications;
and
  (c) If the applicant is affiliated with a firm, the firm with
which the applicant is affiliated is a venture capital firm that
has begun business operations in this state within the past 12
months, has at least $75 million in unobligated venture capital
that is available for investment and has invested at least $2
million in one or more businesses in this state in the previous
12 months.
  (6)(a) If the department determines that the applicant,
application and firm or university with which the applicant is
affiliated meet the requirements for initial certification under
this section, the department shall issue an initial certification
to the applicant, certifying that the applicant may claim the
personal income tax exemption established under section 8 of this
2003 Act. The certification shall be made in writing and shall
state the date the application was filed with the department and
any other information the department determines necessary.
  (b) Notwithstanding paragraph (a) of this subsection, an
applicant may not receive initial certification under this
section if the applicant is affiliated with a firm that is
related under section 267 of the Internal Revenue Code to a firm
that has conducted business operations in this state for more
than 12 months during the five years preceding the date of
application for initial certification.
  (7) If the department determines that the applicant,
application or firm or university with which the applicant is
affiliated does not meet the requirements for initial
certification under this section, the department may not issue
certification. The applicant may appeal the decision not to issue
an initial certification under this section in the manner of a
contested case under ORS 183.310 to 183.550. + }
  SECTION 4.  { + (1) Following issuance of an initial
certification under section 3 of this 2003 Act and in order to
continue to claim the personal income tax exemption set forth in
section 8 of this 2003 Act, a holder of initial certification
must apply for annual certification under this section. The
application for annual certification shall be filed with the
Economic and Community Development Department within the period
commencing 30 days before and ending 30 days after the
anniversary of the date the preceding application for initial or
annual certification was filed with the department.
  (2) An application for annual certification shall contain all
of the information required in an application for initial
certification under section 3 of this 2003 Act, updated to
reflect the activities of the applicant and firm or university
for the 12 months following the date of the last application for
initial or annual certification.
  (3) An application filed under this section must be accompanied
by a fee in an amount prescribed by the department by rule. The
fee required by the department may not exceed $1,000.
  (4) The department shall review an application for annual
certification and issue the annual certification if the
application would have been approved for initial certification,
except that:
  (a) The requirement that a firm has begun business operations
within this state within the previous 12 months is waived;
  (b) In the case of a venture capital firm, the requirement that
the firm has at least $75 million in unobligated venture capital
that is available for investment is waived; and
  (c) A firm must have been an ongoing concern for the entire
12-month period for which the application for annual
certification is made.
  (5) If the department determines that the applicant,
application and firm or university with which the applicant is
affiliated meet the requirements for annual certification under
this section, the department shall issue an annual certification
to the applicant, certifying that the applicant may claim the
personal income tax exemption established under section 8 of this
2003 Act. The certification shall be made in writing and shall
state the date the application was filed with the department and
any other information the department determines necessary.
 
  (6) If the department determines that the applicant,
application or firm or university with which the applicant is
affiliated does not meet the requirements for annual
certification under this section, the department may not issue
certification.  The applicant may appeal the decision not to
issue an annual certification under this section in the manner of
a contested case under ORS 183.310 to 183.550. + }
  SECTION 5.  { + At the request of the Department of Revenue,
the Economic and Community Development Department shall forward
copies of initial and annual certifications made under sections 3
and 4 of this 2003 Act to the Department of Revenue. + }
  SECTION 6.  { + An application for initial certification under
section 3 of this 2003 Act may not be filed with the Economic and
Community Development Department prior to December 1, 2003. + }
  SECTION 7.  { + Section 8 of this 2003 Act is added to and made
a part of ORS chapter 316. + }
  SECTION 8.  { + (1) Income derived from a qualified taxpayer's
affiliation with a venture capital firm or a university is exempt
from the tax imposed under this chapter if the taxpayer has been
issued an initial or annual certification by the Economic and
Community Development Department under section 3 or 4 of this
2003 Act.
  (2) The exemption in this section applies to the tax year in
which the application for certification was filed with the
Economic and Community Development Department, as indicated on
the letter of certification issued to the qualified taxpayer.
  (3) For purposes of this section, income derived from a
qualified taxpayer's affiliation with a firm or university
includes but is not limited to wages, salary, guaranteed
payments, bonuses, commissions, transfers of stock or other
property from the firm to the taxpayer, and gain from the sale of
stock or other ownership interest in the firm without regard to
whether the taxpayer acquired the stock or ownership interest
from the firm or elsewhere.
  (4) Notwithstanding subsection (1) of this section, the
exemption may not be claimed:
  (a) For a tax year that is more than seven consecutive tax
years after the first tax year for which the exemption is
claimed; or
  (b) For a tax year that is after the year of initial
certification and after a tax year in which the exemption was not
claimed.
  (5) The definitions in section 2 of this 2003 Act apply to this
section. + }
  SECTION 9.  { + Section 8 of this 2003 Act applies to
applications for initial or annual certification filed with the
Economic and Community Development Department in tax years
beginning on or after January 1, 2003. + }
  SECTION 10.  { + The Economic and Community Development
Department shall prepare reports on the personal income tax
exemption program established under sections 2 to 5 and 8 of this
2003 Act. The reports shall contain an explanation of
administrative rules adopted by the department and a study of the
effectiveness of the program in creating high-wage jobs in this
state and in creating opportunities in venture capital funding
and in university research. The reports shall be presented to
those committees of the Seventy-third and Seventy-fourth
Legislative Assemblies having jurisdiction over revenue and tax
matters. Reports shall be made on or before March 1, 2005, and
March 1, 2007. + }
  SECTION 11.  { + This 2003 Act takes effect on the 91st day
after the date on which the regular session of the Seventy-second
Legislative Assembly adjourns sine die. + }
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