HF 2375

as introduced - 81st Legislature (1999 - 2000) Posted on 12/15/2009 12:00am

  1.1                          A bill for an act
  1.2             relating to taxation; individual income and corporate 
  1.3             franchise; allowing a credit for equity investments in 
  1.4             certain small businesses; proposing coding for new law 
  1.5             in Minnesota Statutes, chapter 290. 
  1.6   BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA: 
  1.7      Section 1.  [290.0691] [SMALL BUSINESS INVESTMENT CREDIT.] 
  1.8      Subdivision 1.  [DEFINITION.] For purposes of this section, 
  1.9   "qualified small business" means an entity, whether organized as 
  1.10  a corporation, partnership, or proprietorship, organized for 
  1.11  profit that satisfies the following conditions: 
  1.12     (1) the entity has 20 or fewer employees and had less than 
  1.13  $1,000,000 in gross annual receipts in each of its three 
  1.14  previous taxable years.  The number of employees for purposes of 
  1.15  this clause and clause (2) must be determined on an annualized 
  1.16  full-time equivalent basis; 
  1.17     (2) the entity is not a subsidiary or an affiliate of an 
  1.18  entity which employs more than 20 employees or which has total 
  1.19  gross receipts for the previous year of more than $1,000,000, 
  1.20  computed by aggregating all of the employees and gross receipts 
  1.21  of the business entities affiliated with the business; 
  1.22     (3) the entity has its commercial domicile in this state; 
  1.23     (4) the entity did not derive more than 20 percent of its 
  1.24  gross receipts from royalties, rents, dividends, interest, 
  1.25  annuities, and sales or exchanges of stock or securities in any 
  2.1   one of the three previous taxable years.  Gross receipts from 
  2.2   the sale of stock or securities are taken into account only to 
  2.3   the extent of gains realized.  If the business was not in 
  2.4   operation for an entire year at the time of application for the 
  2.5   certification, this clause is not satisfied if the entity 
  2.6   engages in or intends to engage in a trade or business which 
  2.7   produces or is likely to derive more than 20 percent of its 
  2.8   gross receipts from rents, royalties, dividends, interest, 
  2.9   annuities, and sales or exchanges of stock and securities.  This 
  2.10  clause does not apply to the first taxable year of the entity, 
  2.11  if the total amount of passive income for the year is less than 
  2.12  $3,000 or to a sole proprietor; 
  2.13     (5) the entity is not engaged in a trade or business, the 
  2.14  primary purpose of which is described in section 144(a)(8) of 
  2.15  the Internal Revenue Code; and 
  2.16     (6) the commissioner of trade and economic development 
  2.17  certifies that the entity satisfies the requirements of clauses 
  2.18  (1) to (5).  An income tax return filed with the commissioner of 
  2.19  trade and economic development to obtain a certification is 
  2.20  nonpublic data or private data on individuals, whichever 
  2.21  applies, as defined in section 13.02. 
  2.22     Subd. 2.  [CREDIT ALLOWED.] (a) A credit is allowed against 
  2.23  the tax imposed under section 290.06 equal to the lesser of: 
  2.24     (1) $75,000; or 
  2.25     (2) 30 percent of the net investment made by the taxpayer 
  2.26  during the taxable year in the equity stock of a qualified small 
  2.27  business, computed for the investment in each qualified small 
  2.28  business, less: 
  2.29     (i) $25,000; or 
  2.30     (ii) 75 percent of the taxpayer's tax liability computed 
  2.31  after the subtraction of all the nonrefundable credits. 
  2.32     (b) For purposes of this credit, the following limitations 
  2.33  apply: 
  2.34     (1) equity stock means common or preferred stock in the 
  2.35  qualified small business and does not include any security that 
  2.36  would be treated as debt under section 385 of the Internal 
  3.1   Revenue Code; 
  3.2      (2) the taxpayer and any related persons may not own more 
  3.3   than 49 percent of the value of any class of stock.  For 
  3.4   purposes of this clause, a person is a related person to another 
  3.5   person if:  
  3.6      (i) the relationship between the persons would result in a 
  3.7   disallowance of losses under section 267 or 707(b) of the 
  3.8   Internal Revenue Code; or 
  3.9      (ii) the persons are members of the same controlled group 
  3.10  of the corporations; and 
  3.11     (3) "net investment" is limited to cash or the fair market 
  3.12  value of marketable securities which are transferred to the 
  3.13  qualified small business in return for equity stock, less the 
  3.14  value of any other property or other consideration received by 
  3.15  the taxpayer.  The amount of the net investment is reduced by 
  3.16  any payments made by the qualified small business to redeem 
  3.17  shares of its stock or to acquire the assets or stock of another 
  3.18  business during a 24-month period beginning one year before the 
  3.19  taxpayer's purchase of the stock in the qualified small business.
  3.20     Marketable securities are limited to:  
  3.21     (i) obligations of the United States government; 
  3.22     (ii) securities of a corporation or other entity, the stock 
  3.23  or other securities of which are listed on the New York or 
  3.24  American Stock Exchanges, or by the National Association of 
  3.25  Securities Dealers Automated Quotation System; or 
  3.26     (iii) state or local government obligations, other than 
  3.27  private activity bonds as defined in section 141 of the Internal 
  3.28  Revenue Code.  
  3.29     The transfer of assets of an entity engaged in a trade or 
  3.30  business as a corporation, partnership, association, or 
  3.31  proprietorship to a corporation does not qualify as a net 
  3.32  investment for purposes of the credit, if the ownership of the 
  3.33  transferee corporation is substantially the same as that of the 
  3.34  entity.  For purposes of the preceding sentence, any property 
  3.35  owned by or used directly in the business, pledged as 
  3.36  collateral, or used as working capital constitute assets of the 
  4.1   business. 
  4.2      (c) In the case of an investment made by a small business 
  4.3   corporation, having a valid election in effect under section 
  4.4   1362 of the Internal Revenue Code, or by a partnership, the 
  4.5   credit must be allocated among the shareholders or partners on a 
  4.6   pro rata basis and the limitations contained in paragraph (a) 
  4.7   apply to the small business corporation or partnership.  In no 
  4.8   case may a taxpayer be allowed a maximum credit in excess of 
  4.9   that permitted by paragraph (a). 
  4.10     Subd. 3.  [RECAPTURE.] (a) A taxpayer who receives a tax 
  4.11  reduction under subdivision 2 must repay to the commissioner an 
  4.12  amount of the tax reduction as specified in paragraph (b), if 
  4.13  any of the following conditions occur within a four-year period 
  4.14  after the date of investment: 
  4.15     (1) the taxpayer transfers, sells, or otherwise disposes of 
  4.16  the stock other than a transfer by the estate of a taxpayer who 
  4.17  died after acquiring the stock; 
  4.18     (2) the taxpayer or a related person acquires an interest 
  4.19  in the qualified small business in excess of that permitted by 
  4.20  subdivision 2, paragraph (b), clause (2); or 
  4.21     (3) the transferee ceases operations in Minnesota. 
  4.22     (b) The amount of the repayment is determined under the 
  4.23  following schedule: 
  4.24     (1) less than six months, 100 percent; 
  4.25     (2) six months or more, but less than 12 months, 87-1/2 
  4.26  percent; 
  4.27     (3) 12 months or more, but less than 18 months, 75 percent; 
  4.28     (4) 18 months or more, but less than 24 months, 62-1/2 
  4.29  percent; 
  4.30     (5) 24 months or more, but less than 30 months, 50 percent; 
  4.31     (6) 30 months or more, but less than 36 months, 37-1/2 
  4.32  percent; 
  4.33     (7) 36 months or more, but less than 42 months, 25 percent; 
  4.34  and 
  4.35     (8) 42 months or more, but less than 48 months, 12-1/2 
  4.36  percent. 
  5.1      Subd. 4.  [MULTISTATE BUSINESSES.] If a qualified small 
  5.2   business is engaged in business partly within and partly without 
  5.3   the state, the credit allowable under subdivision 2 must be 
  5.4   apportioned.  The credit must be multiplied by the arithmetic 
  5.5   average of the qualified small business' property and payroll, 
  5.6   determined under section 290.191, subdivisions 10 and 12, using 
  5.7   data from the most recently available year.  After the 
  5.8   investment is made, the qualified small business must certify to 
  5.9   the investing taxpayer its factors under section 290.191, 
  5.10  subdivisions 10 and 12, for each of the succeeding two tax 
  5.11  years.  If the factors for either of those years would result in 
  5.12  at least a 25 percent change in the allowable credit, the 
  5.13  taxpayer must file an amended return repaying or claiming the 
  5.14  difference in the credit.  No interest or penalties apply on the 
  5.15  change in the credit.  If the qualified small business ceases 
  5.16  operations in Minnesota and the recapture provisions under 
  5.17  subdivision 3 apply, the requirement to recompute the credit and 
  5.18  file an amended return does not apply. 
  5.19     Subd. 5.  [CARRYOVER.] If the amount of the allowable 
  5.20  credit exceeds the liability for tax or if the limitations in 
  5.21  subdivision 2, paragraph (a), clause (3), applies, the unused 
  5.22  credit for the taxable year is a carryover to each of the 
  5.23  succeeding five taxable years.  The entire amount of the unused 
  5.24  credit must be carried to the earliest of the taxable years to 
  5.25  which it may be carried.  "Tax liability" means the liability 
  5.26  for tax imposed by section 290.06 reduced by the sum of the 
  5.27  nonrefundable credits allowed under this chapter. 
  5.28     Subd. 6.  [COMMISSIONER'S POWER TO DISALLOW CREDIT.] The 
  5.29  commissioner may disallow a credit under this section, if the 
  5.30  commissioner determines that the transaction giving rise to the 
  5.31  credit was entered into by the parties primarily to reduce taxes 
  5.32  and not primarily for an independent business or commercial 
  5.33  purpose other than the reduction of taxes. 
  5.34     Subd. 7.  [NONSEVERABILITY.] The legislature intends that 
  5.35  all of the provisions of this credit are integral parts of the 
  5.36  credit.  If a provision of the credit is found to be invalid, 
  6.1   the legislature intends that the entire credit is invalid. 
  6.2      Sec. 2.  [EFFECTIVE DATE.] 
  6.3      Section 1 is effective for taxable years beginning after 
  6.4   December 31, 1999, for purchases made after July 1, 1999.