This rule was published in the January 15, 2016, issue (Vol. 2016, No. 2) of the Utah State Bulletin.
R357. Governor, Economic Development.
R357-7. Utah Capital Investment Board.
(1) The purpose of these rules is to establish criteria
and procedures for the allocation and issuance of contingent tax
credits to designated investors.
(1) U.C.A. 63N-6-203, 63N-6-401, 63N-6-406, 63N-6-408
requires the Utah Capital Investment Board to make rules
establishing the manner by which it allocates, issues, certifies,
transfers and redeems contingent tax credits.
(1) "Act" means the Utah Venture Capital
Enhancement Act U.C.A. 63N-6.
(2) "Actual Return" means the actual aggregate
amount of moneys or the fair market value of property received
from a fund of funds by a designated investor, with respect to an
investment amount for which a certificate is issued, including
amounts received as returns of invested capital or returns on
invested capital and amounts received in excess of invested
capital, in whatever form received for the period from the date
of the closing to the applicable maturity date.
(3) "Board" means the Utah Capital Investment
Board created under U.C.A. 63N-6-103(1).
(4) "Certificate" or "tax credit
certificate" means a document constituting a contract
between the state of Utah and a holder and evidencing a tax
credit that has been issued and, subject to the contingencies
described on the certificate that may become available to the
(5) "Certificate register" means the register
to be maintained by the board recording the name, address, and
taxpayer identification number of each holder and the maximum
potential amount of the tax credits represented by each
certificate issued to each holder.
(6) "Certified tax credits" means tax credits
that have been verified by the board to the commission and to the
holder of the certificate that represents such tax
(7) "Closing" means a time when a certificate
is issued to a designated investor in exchange for a commitment
to contribute cash to the capital of a fund of funds.
(8) "Commission" means the Utah State Tax
(9) "Commitment" means either a binding
obligation undertaken at closing to invest in a fund of funds in
the future or an actual investment made in a fund of funds, but
without counting the same amount twice.
(10) "Contingencies" shall mean the conditions
under which a tax credit may be claimed and shall include each of
(a) The condition that the tax credits may only be used
to the extent that the actual return on the investment amount
associated with the certificate is less than the applicable
scheduled return on such investment amount, and then only to the
extent such tax credit becomes a certified tax credit.
(b) The condition that the amount of the total verified
tax credits represented by such certificate that may be claimed
during any redemption year will be limited to the amount
certified by the board to the commission.
(c) The condition that no amount of the tax credit may be
claimed prior to a maturity date stated on the certificate;
(d) The condition that the receipt by the designated
investor of an actual return on the investment amount associated
with the certificate equal to the scheduled return on such
investment amount will result in the cancellation of the tax
(11) "Corporation" means the Utah Capital
Investment Corporation created under Section U.C.A.
(12) "Day" means any weekday Monday through
Friday that is not a legal holiday of the state of Utah.
(13) "Designated investor" means a natural
person or an entity, other than the corporation, that has
committed to contribute capital to a fund of funds, and such
person's or entity's successors or assignees.
(14) "Designated purchaser" means:
(a) a person who enters into a written undertaking with
the board to purchase a commitment; or
(b) a transferee who assumes the obligations to make the
purchase described in the commitment.
(15) "Fiscal year" means the fiscal year for
the state of Utah.
(16) "Fund of funds" means any private,
for-profit limited partnership or limited liability company
established by the corporation to which a designated investor
commits to make a capital contribution.
(17) "Holder" means a holder of a tax
certificate, either as a designated investor or as a transferee
of a designated investor, as reflected on the certificate
(18) "Investment amount" means the amount of
cash contributed by a designated investor to a fund of funds with
respect to which a certificate has been issued.
(19) "Maturity date" means a specific date or
dates specified in a certificate, representing the earliest date
of which a holder of the certificate may use it.
(20) "Percentage of Return" means the
percentage represented by the quotient of (1) the actual return
for a designated investor on the investment amount associated
with a certificate divided by (2) the scheduled return for such
designated investor on such investment amount.
(21) "Portfolio entity" means a venture capital
fund or direct investment entity in which a fund of funds makes
(22) "Rate of return" means Internal Rate of
Return calculated inclusive of all cash flows both positive and
negative in addition to the fair market value of unrealized
(23) "Redeem" means, with respect to a
certificate, to present such certificate to the commission as
payment due on or after the date of such presentation.
(24) "Redemption reserve" means the reserve
established by the corporation to facilitate the cash redemption
(25) "Redemption year" means each calendar year
for which certified tax credits associated with a certificate may
first be utilized.
(26) "Scheduled return" means the scheduled
return, whether in money or property, (including returns of and
returns on investment) with respect to an investment amount
associated with a certificate issued to a designated investor in
a fund of funds determined in accordance with the limited
partnership agreement or the operating agreement of such fund of
funds for the period from the date of the closing to the
applicable maturity date. If relevant for determining the amount
of the scheduled return, the board shall presume that a verified
credit will be transferred at 100 percent of the amount stated on
the certified tax credit. It shall be the burden of a designated
investor to show that the certified tax credit cannot be
transferred without discounting the amount stated on such
(27) "Tax credit" means a contingent,
refundable tax credit authorized by U.C.A.
R357-7-4. Requirements of the Utah Capital Investment
(1) Within 20 days prior to each closing, the corporation
shall deliver a written report to the board containing the
(a) a copy of the certificate of limited partnership or
articles of organization of the fund of funds for which a closing
(b) a summary of the terms of the anticipated investments
in such fund of funds as contained in the limited partnership
agreement or the operating agreement of the funds of
(c) a statement of the anticipated date of the closing;
(d) evidence that the designated investor is an
(2) No less than two days prior to each closing, the
corporation shall deliver to the board a signed statement of an
officer of the corporation certifying the names, addresses, and
taxpayer identification numbers of the persons expected to be
designated investors at the closing, the total amount of the
capital commitments expected to be received at the closing, the
maximum amount of tax credits to be represented by each
certificate to be issued at the closing, the date of the
anticipated closing, the maturity date or dates for each
certificate to be issued at closing, the contingencies applicable
to the tax credits, and the calculation formula for determining
the scheduled return.
R357-7-5. Allocation and Issuance of Certificates.
(1) Certificates shall be issued only by the board and
only with respect to an actual capital commitment to a fund of
funds. The board shall not issue a certificate until it has
verified that the Utah Fund of Funds has agreed to treat the tax
credits as a loan from the state of Utah, and the terms for the
repayment of the loan.
(2) Following receipt of the certification of the
corporation, the board shall issue a certificate to each such
designated investor at closing.
(3) The maximum amount of the tax credits represented by
each certificate shall be calculated in accordance with the
limited partnership agreement or operating agreement of the
applicable fund of funds or loan agreement between a designated
investor and a fund of funds and will be subject to the
limitations stated in the U.C.A. 63N-6-406(2)(a)(c).
(4) A tax credit certificate shall contain, or
incorporate by reference to another document, each of the
(a) the name, address, and tax identification number of
(b) the amount of the investment commitment;
(c) all of the contingencies applicable to the tax
(d) the date of issuance of the certificate;
(e) the maximum amount of the tax credit represented by
(f) the maturity date of the certificate;
(g) the formula to be used to determine the total amount
of return owed to the designated investor;
(h) if the certificate is issued upon a transfer after
certification, the amount of the certified tax credits
represented by such certificate and the redemption year(s);
(i) the credit code to use to claim the credit on the
Utah State tax return.
(5) All other requirements as set forth in U.C.A.
R357-7-6. Procedures for Certification of Tax Credits.
(1) At any time after the applicable maturity date for a
certificate, the holder may present such certificate to the board
for certification no later than June 30 of the calendar year
maturity date stated on the certificate.
(2) Prior to certification the board will verify that no
funds are available in the redemption reserve account.
(3) The corporation, and any entity with which the
corporation has entered into agreements pursuant to the
investments and financial transactions described in U.C.A.
63N-6-301(2)(c), shall provide all documents that the board finds
are, or may become, necessary for the board to certify the amount
of tax credits to be issued pursuant to the chapter. Such
documents include but are not limited to the following:
(a) Financial transactions related to the corporation,
the Utah Fund of Funds, designated investors, lenders, or
(b) Financial documents, loan agreements, and security
instruments to which any of the corporation, the Utah Fund of
Funds, designated investors, lenders, or a portfolio entity is a
(c) Investment agreements to which any of the
corporation, Utah Fund of Funds, designated investors, lenders,
or a portfolio entity is a party.
(d) All legal documents and correspondence outlined
herein to which any of the corporation, the Utah Fund of Funds,
designated investors, lenders, or a portfolio entity is a
(e) All documents and financial information necessary to
calculate the actual return, scheduled return, and the percentage
(f) Any other documents the board deems necessary to
assess compliance with this chapter or to correctly verify the
amount of tax credits related to a certificate issued pursuant to
(4) Within 30 days of the receipt of all documents and
information pursuant to subsection (3) the board shall establish
and certify the amount of tax credits related to that
certificate, if any, which may be initially used in each
(5) The board shall issue to the holder of such
certificate a certification setting forth (a) the amount of
certified tax credits represented by such certificate (if any)
and (b) the amount of certified tax credits represented by such
certificate and redemption year (if any).
(6) If the certified certificate has more than one
maturity date, the board shall issue to the holder a certificate
for the certified tax credits. The certified certificate will
contain no contingencies. The board shall issue one or more
balance certificates for any maturity dates for which the tax
credits are not then being certified.
(7) Certificates being certified for a maturity date
shall be certified pro rata with all other certificates being
certified for the same maturity date.
(8) If a contingent certificate has more than one
maturity date, the most recent maturity date prior to the date on
which the certificate was presented to the board for
certification shall be the maturity date used for purposes of
certification under this rule.
(9) Once a tax credit has been certified, the board will
notify the Commission of such certification within 7
R357-7-7. Contractual Nature of Certificates; Irrevocability
of Tax Credits.
(1) Upon the issuance of a certificate, the entitlement
of a holder to use the tax credits represented by the certificate
shall be final and permanent, subject only to the contingencies
expressly stated or incorporated by reference in the certificate,
and such entitlement shall not be subject to any further
condition, reduction, modification, amendment, change,
revocation, or recapture.
(2) The entitlement of a holder to claim tax credits
represented by a certificate shall constitute a contract between
the state of Utah on the one hand and such holder and the
holder's successors and assignees on the other hand which
shall not be subject to modification, amendment, change or
rescission without prior written consent of the holder as of the
date of any such purported action. No such modification,
amendment, change or recession to which a holder may have agreed
shall be binding upon any of the successors or assignees of such
holder unless it is stated in the text of the certificate issued
to such successor assignee.
(3) The entitlement of a holder to claim tax credits
represented by such certificate shall not be affected in any way
or become subject to forfeiture or recapture by:
(a) Action or inaction of the holder or designated
(b) The transfer by the designated investor of all our
any portion of the designated investor's interest in a fund
(c) The determination after the closing that a fund of
funds was not organized or did not make its investments in
accordance with the requirements of the Act or these
(d) The invalidity or illegality for any reason of the
existence or functions of the board, a fund of funds, or the
corporation or any portfolio entity for any reason;
(e) The bankruptcy, insolvency, reorganization, merger,
consolidation, dissolution or liquidation of the board, a fund of
funds, or the corporation or any portfolio entity for any reason;
(f) The level, timing or degree of success of any fund of
funds or any portfolio entities, or the extent to which venture
capital funds that are portfolio entities are invested in Utah
venture capital projects, or are successful in accomplishing any
economic development objective.
(4) If the legal existence of the board, a fund of funds,
the corporation or the commission is ended or some or all of its
respective functions are transferred to another entity at any
time prior to the full use of 100 percent of the tax credits that
could potentially be represented by all of the certificates, the
board or its successor (or the state of Utah if the legal
existence of the board ends or the board ceases to have the
requisite authority and there is no successor with such
authority) shall adopt such rules as may be necessary to ensure
the continuity and effectiveness of the entitlement of each
holder to use the tax credits represented by such holder's
R357-7-8. Transfer of Tax Credit Certificates.
(1) Certificates shall be transferrable by the holders
and any subsequent holders to any transferee or
(2) Transfer of a certificate may be effected only by the
holder's surrender of the certificate to the board with an
endorsement in favor of the transferee, or transferees, and a
statement containing the name, address and tax identification
number of the transferee, and a written request for the board to
issue a replacement certificate or certificates in the name of
the transferee(s) (as well as, in any case where the transferor
request that more than one replacement certificate be issued, a
statement by the transferor that sets forth the aggregate amount
of tax credits represented by the transferred certificate that
are to be represented by each replacement certificate).
(3) Within 20 days after the surrender and endorsement of
a certificate, the board shall issue a replacement certificate or
certificates in the name of the transferee(s). Once a transferor
of a certificate has surrendered a certificate to the board, such
transferor may no longer use the tax credits represented by such
(4) A holder shall have the right to pledge and grant
security interests in certificates and tax credits held by such
holder as collateral for loans to or other obligations of the
R357-7-9. Cancellation of Tax Credits Upon Receipt of the
(1) Tax credits represented by a certificate are subject
to cancellation only as provided in the certificate and upon
receipt by the designated investor of an actual return equal to
the designated investor's scheduled return with respect to
(2) At the time of each distribution to a designated
investor in a fund of funds, the corporation shall determine the
amount of tax credits related to each certificate that have been
cancelled and have become null and void by reason of such
distribution, if any, and shall certify such amount to the
(a) After any such certification, the board shall certify
to the holder of each such certificate, at the holder's
address as shown on the certificate register, and to the
commission the amount of tax credits that are deemed to have been
cancelled and to be null and void.
(b) If at any time prior to a certification of a
certificate the actual return of a designated investor shall
equal the designated investor's scheduled return with respect
to such a certificate, and all other conditions for cancellation
contained in the certificate have been met, the corporation shall
so certify to the board.
(c) After any such certification, the board shall certify
to such holder at the holder's address shown on the
certificate register and to the commission that such certificates
shall be deemed to have been cancelled and to be null and void.
Tax credits that are cancelled may be reissued with respect to
the same or another fund of funds.
R357-7-10. Lost or Mutilated Tax Credit Certificates.
Upon receipt of evidence satisfactory to the board of the
loss, theft, destruction or mutilation of any certificate, and in
case of any such loss, theft or destruction, upon delivery of any
indemnity agreement satisfactory to the board, or in case of any
such mutilation, upon surrender and cancellation of such
certificate, the board shall issue an deliver to the holder a
replacement certificate within twenty days.
R357-7-11. Redeeming the Tax Credit Certificates.
(1) Once certified by the board, the holder of the tax
credit certificate may present such certificate to the commission
for redemption subject to the following provisions:
(a) The contingent tax credit certified by the board
shall be claimed for a tax year of the designated investors, or
transferee, that begins during the same year as the stated
maturity date listed on such certificate. The designated investor
(or a transferee of the Certified Contingent Credit) may submit
to the commission at any time following the date of such
certification by the board, but no later than the general filing
deadline for Utah State tax returns (including extensions) for
the redemption year.
(b) The person or entity claiming a refund must timely
file a Utah State tax return claiming a refundable credit; and no
other filing or forms or actions are necessary, and no other
conditions apply, for obtaining a refund in respect of such tax
credit. The commission will manually process a tax return with a
claim for refund certified by the board and will pay the amount
indicated on such tax return (such payment generally, but not
always, made within ninety (90) days from the date for such
return (the "Due Date")). If the board notified the
commission of the filing of a claim for refund by the designated
investor, the commission will take steps to expedite the
(2) There is no limitation on a person:
(a) filing more than one claim for refund with the
(b) receiving more than one refund from the commission,
in each case, in any one calendar year or other twelve (12) month
(3) If an entity is not otherwise a Utah taxpayer, its
taxable year, for purposes of the Utah Act, shall be considered
to end annually on the same date that its tax year ends for US
federal income tax purposes. For a disregarded entity that is not
otherwise a Utah taxpayer, such entity may designate any date on
which its taxable year ends by stating such date on the Utah tax
return on which it files its claim for refund.
(4) If the investor or any transferee is a corporation or
other business organization or entity included in a combined Utah
state tax return, and such tax return claims a tax credit, the
commission will treat such tax credit as a refundable credit for
the combined group.
R357-7-12. Criteria and Procedures for Assessing the
Likelihood of Future Certificate Redemptions by Designated
(1) On an annual basis, the corporation staff and/or the
Allocation Manager will provide the board with a comprehensive
report including the following:
(a) a detailed accounting of cash outflows and cash
inflows from fund investments during the year.
(b) a detailed accounting of payments made to lenders or
equity investors during the year.
(c) a detailed accounting of management fees paid to the
corporation during the year.
(d) a detailed accounting of increases or decreases in
unrealized value during the year.
(e) a five year projection of cash flows with sensitivity
around investment returns, interest rates, and distribution
(f) third party audit of the Utah Fund of Funds including
(g) verification of individual portfolio fund
R357-7-13. Target Rate of Return or Range of Returns on
Venture Capital Investments of the Utah Fund of Funds.
The target rate of return on venture capital investments
of the Utah Fund of Funds is a minimum of 5%. The corporation
will submit to the board annually a detailed accounting of the
calculation of the rate of return. It is understood by the board
that the fund that returns in the early years of the fund will
likely be negative.
R357-7-14. Certificate Registry.
A certificate register detailing all transactions involving
the certificates shall be held and maintained at the Office of the
KEY: economic development, capital investments
Date of Enactment or Last Substantive Amendment: [
September 11, 2014]
Authorizing, Implemented, or Interpreted
The Portable Document Format (PDF) version of the Bulletin is the official version. The PDF version of this issue is available at https://rules.utah.gov/publicat/bull-pdf/2016/b20160115.pdf. The HTML edition of the Bulletin is a convenience copy. Any discrepancy between the PDF version and HTML version is resolved in favor of the PDF version.