January 5, 1994
Mr. David S. Massey General Counsel Department of the Secretary of State 300 N. Salisbury Street Raleigh, North Carolina 27603-5909
Re: Advisory Opinion; Richardson Sports Limited Partnership; Qualified business venture credit; Division V of Chapter 105 of the General Statutes; N.C.G.S. 105-163.010, et. seq.
Dear Mr. Massey:
Richardson Sports Limited Partnership recently filed an application with the Department of the Secretary of State to register as a Qualified Business Venture in order that the partners might claim a tax credit pursuant to N.C.G.S. 105-163.011. This application was dated 24 November 1993 and was received in the Office of the Secretary of State on 22 December 1993. The Securities Division of the Department of the Secretary of State registered Richardson Sports Limited Partnership as a Qualified Business Venture on 22 December 1993. The partners originally put their investment into an escrow account in the month of November, 1993, although these funds were actually invested into the business from the escrow account on 2 December 1993. You ask our advice whether these investments would qualify for the tax credit allowed in
N.C.G.S. 105-163.011.
For reasons which follow, it is our opinion that the partnership is eligible to claim a tax credit.
Pursuant to N.C.G.S. 105-163.011, on or after January, 1988, a taxpayer may make an investment qualifying for the income tax credit. The tax credit is to be taken the year following the investment in a Qualified Business Venture. "The credit may not be taken for the year in which the investment is made but shall be taken for the taxable year beginning during the calendar year following the calendar year in which the investment was made." N.C.G.S. 105163.011(a) [for the corporate taxpayer] and (b) [for the individual taxpayer]. "To be eligible for the tax credit … the taxpayer must file an application for the credit with the Secretary of Revenue on or before April 15 of the year following the calendar year in which the investment was made."
N.C.G.S. 105-163.011(c).
By informal opinion dated 6 October 1987, our office advised you "that a business must be certified by the Securities Division of the Office of the Secretary of State pursuant to N.C. Gen. Stat. §105-163.094 (now §105-163.013) before an investment in such a business will qualify for the investment tax credit of N.C. Gen. Stat. §105-163.092 (now §105-163.011)." See, letter dated 6 October 1987 addressed to David S. Massey and signed by Donald W. Laton, Associate Attorney General, copy attached.
By informal memorandum dated 24 June 1991 addressed to Michael S. Hodges, Director of the Individual Income Tax Division of the North Carolina Department of Revenue, Special Deputy Attorney General George W. Boylan advised that "it appears that approval by the Secretary of State any time during the year in which the investment is made will entitle a taxpayer to claim the investment credit upon his next year’s return." See, memorandum dated 24 June 1991 addressed to Michael S. Hodges from Special Deputy Attorney General George W. Boylan, copy attached. In reaching this conclusion, Mr. Boylan reasoned, "I do not believe that strict prospectivity (the investment credit could only be claimed where the investment occurred after the Secretary of State had approved the investment organization as a Qualified Business Venture) meshes with the annual accounting nature of the income tax and the few existing references to timeliness within these (N.C.G.S. 105-163.010 through 163.014) provisions. The credit may not be taken ‘for the year in which the investment is made,’ but must be claimed in the next calendar year." By memorandum dated 13 September 1991, Mr. Boylan advised Mr. Hodges that the 24 June 1991 informal memorandum was withdrawn because "the question posed by you was previously answered in a letter opinion to David Massey, dated 6 October 1987." See, memorandum dated 13 September 1991 addressed to Michael S. Hodges from Special Deputy Attorney General George W. Boylan, copy attached.
Today, after careful review and in accordance with the written opinion policy adopted shortly after Attorney General Easley assumed office, we officially adopt as the position of this office the conclusion reached in the 24 June 1991 Boylan to Hodges memorandum – "that approval by the Secretary of State at any time during the year in which the investment is made will entitle a taxpayer to claim the investment credit upon his next year’s return."
This conclusion is based upon the pertinent laws in effect through 31 December 1993. Effective 1 January 1994, for the first time the General Assembly specified that for an investment to be eligible for the tax credit, the investment must be made on or after the application to qualify as a Qualified Business Venture is filed with the Secretary of State. "The effective date of registration for a qualified business venture whose application is accepted for registration is the filing date of its application. No credit is allowed under this Division for an investment made before the effective date of the registration or after the registration is revoked." N.C.G.S. 105-163.013(b)(6), which became effective 1 January 1994. See, Chapter 443, 1993 Session Laws.
Should you have any questions, please advise.
John R. McArthur Chief Counsel
Andrew A. Vanore, Jr.
Chief Deputy Attorney General