HF 2429

1st Engrossment - 87th Legislature (2011 - 2012) Posted on 03/05/2012 03:39pm

A bill for an act
relating to economic development; establishing a technology corporate franchise
tax certificate transfer program; amending Minnesota Statutes 2010, sections
290.01, subdivision 29; 290.06, by adding a subdivision; proposing coding for
new law in Minnesota Statutes, chapter 116J.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.

new text begin [116J.8738] TECHNOLOGY CORPORATE FRANCHISE TAX
CERTIFICATE TRANSFER PROGRAM.
new text end

new text begin Subdivision 1. new text end

new text begin Program established. new text end

new text begin The commissioner shall establish a corporate
franchise tax benefit certificate transfer program to allow new or expanding emerging
technology and biotechnology companies in this state with unused net operating loss
carryovers under section 290.095 to surrender those tax benefits for use by other corporate
franchise taxpayers in this state. The tax benefits may be used on the corporate franchise
tax returns to be filed by those taxpayers in exchange for private financial assistance to
be provided by the corporate franchise taxpayer that is the recipient of the tax benefit
certificate to assist in the funding of costs incurred by the new or expanding emerging
technology and biotechnology company.
new text end

new text begin Subd. 2. new text end

new text begin Definitions. new text end

new text begin (a) For purposes of this section, the following terms have the
meanings given, unless the context clearly requires otherwise.
new text end

new text begin (b) "Biotechnology" means the continually expanding body of fundamental
knowledge about the functioning of biological systems from the macro level to the
molecular and subatomic levels, as well as novel products, services, technologies, and
sub-technologies developed as a result of insights gained from research advances that add
to that body of fundamental knowledge.
new text end

new text begin (c) "Biotechnology company" means an emerging corporation that:
new text end

new text begin (1) has its headquarters or base of operations in this state;
new text end

new text begin (2) owns, has filed for, or has a valid license to use protected, proprietary intellectual
property; and
new text end

new text begin (3) is engaged in the research, development, production, or provision of
biotechnology for the purpose of developing or providing products or processes
for specific commercial or public purposes, including but not limited to, medical,
pharmaceutical, nutritional, and other health-related purposes, agricultural purposes, and
environmental purposes.
new text end

new text begin (d) "Full-time employee" means a person employed by a new or expanding emerging
technology or biotechnology company for consideration for at least 35 hours a week, or
who renders any other standard of service generally accepted by custom or practice as
full-time employment and whose wages are subject to withholding as provided in section
290.92, or who is a partner of a new or expanding emerging technology or biotechnology
company who works for the partnership for at least 35 hours a week, or who renders
any other standard of service generally accepted by custom or practice as full-time
employment, and whose distributive share of income, gain, loss, or deduction, or whose
guaranteed payments, or any combination thereof, is subject to the payment of estimated
taxes, as provided in section 289A.25. To qualify as a full-time employee, an employee
must also receive from the new or expanding emerging technology or biotechnology
company group health benefits under a health plan as defined under section 62A.011,
subdivision 3, or under a self-insured employee welfare benefit plan as defined in United
States Code, title 29, section 1002. Full-time employee excludes any person who works as
an independent contractor or on a consulting basis for the new or expanding emerging
technology or biotechnology company.
new text end

new text begin (e) "New or expanding" means a technology or biotechnology company that:
new text end

new text begin (1) on June 30 of the year in which the corporation files an application for surrender
of unused but otherwise allowable tax benefits under this section and on the date of the
exchange of the corporate franchise tax benefit certificate, has fewer than 250 employees
in the United States;
new text end

new text begin (2) on June 30 of the year in which the corporation files the application, has at least
one full-time employee working in this state if the company has been incorporated for less
than three years, has at least five full-time employees working in this state if the company
has been incorporated for more than three years but less than five years, and has at least
ten full-time employees working in this state if the company has been incorporated for
more than five years; and
new text end

new text begin (3) on the date of the exchange of the corporate franchise tax benefit certificate, the
corporation has the number of full-time employees in this state required by clause (2).
new text end

new text begin (f) "Technology company" means an emerging corporation that:
new text end

new text begin (1) has its headquarters or base of operations in this state;
new text end

new text begin (2) owns, has filed for, or has a valid license to use protected, proprietary intellectual
property; and
new text end

new text begin (3) employs some combination of the following: highly educated or trained
managers and workers, or both, employed in this state who use sophisticated scientific
research service or production equipment, processes, or knowledge to discover, develop,
test, transfer, or manufacture a product or service.
new text end

new text begin Subd. 3. new text end

new text begin Allocation of tax benefits; annual limit. new text end

new text begin (a) The commissioner, in
cooperation with the commissioner of revenue, shall review and approve applications by
new or expanding emerging technology and biotechnology companies in this state with
unused but otherwise allowable net operating loss carryovers under section 290.095, to
surrender those tax benefits in exchange for private financial assistance to be made by the
corporate franchise taxpayer that is the recipient of the corporate franchise tax benefit
certificate in an amount equal to at least 75 percent of the amount of the surrendered tax
benefit. The amount of the surrendered tax benefit is the amount of the net operating loss
carryover multiplied by the new or expanding emerging technology or biotechnology
company's anticipated apportionment percentage, as determined under section 290.191,
for the taxable year in which the benefit is transferred and subsequently multiplied by the
corporate franchise tax rate under section 290.06, subdivision 1.
new text end

new text begin (b) The commissioner must approve the transfer of no more than $60,000,000 of
tax benefits in each fiscal year. If the total amount of transferable tax benefits requested
to be surrendered by approved applicants exceeds $60,000,000 for a fiscal year, the
commissioner, in cooperation with the commissioner of revenue, must not approve the
transfer of more than $60,000,000 for that fiscal year and shall allocate the transfer of tax
benefits by approved corporations using the following method:
new text end

new text begin (1) an eligible applicant with $250,000 or less of transferable tax benefits is
authorized to surrender the entire amount of its transferable tax benefits;
new text end

new text begin (2) an eligible applicant with more than $250,000 of transferable tax benefits is
authorized to surrender a minimum of $250,000 of its transferable tax benefits; and
new text end

new text begin (3) an eligible applicant with more than $250,000 of transferable tax benefits is
authorized to surrender additional transferable tax benefits determined by multiplying
the applicant's transferable tax benefits less the minimum transferable tax benefits that
corporation is authorized to surrender under clause (2) by a fraction, the numerator of
which is the total amount of transferable tax benefits that the commissioner is authorized
to approve less the total amount of transferable tax benefits approved under clauses (1)
and (2) and the denominator of which is the total amount of transferable tax benefits
requested to be surrendered by all eligible applicants less the total amount of transferable
tax benefits approved under clauses (1) and (2).
new text end

new text begin (c) If the total amount of transferable tax benefits that would be authorized using the
method under paragraph (b) exceeds $60,000,000 for a fiscal year, then the commissioner,
in cooperation with the commissioner of revenue, shall limit the total amount of tax
benefits authorized to be transferred to $60,000,000 by applying the above method on an
apportioned basis.
new text end

new text begin Subd. 4. new text end

new text begin Qualifying tax benefits and corporations. new text end

new text begin For purposes of this section,
transferable tax benefits include an eligible applicant's unused but otherwise allowable
carryover of net operating losses multiplied by the applicant's anticipated allocation factor
as determined under section 290.191 for the taxable year in which the benefit is transferred
and subsequently multiplied by the corporation franchise tax rate under section 290.06,
subdivision 1. An eligible applicant's transferable tax benefits are limited to net operating
losses that the applicant requests to surrender in its application to the authority and must
not, in total, exceed the maximum amount of tax benefits that the applicant is eligible to
surrender. No application for a corporate franchise tax benefit transfer certificate must be
approved in which the new or expanding emerging technology or biotechnology company:
new text end

new text begin (1) has demonstrated positive net operating income in any of the two previous full
years of ongoing operations as determined on its financial statements issued according to
generally accepted accounting standards endorsed by the Financial Accounting Standards
Board; or
new text end

new text begin (2) is directly or indirectly at least 50 percent owned or controlled by another
corporation that has demonstrated positive net operating income in any of the two previous
full years of ongoing operations as determined on its financial statements issued according
to generally accepted accounting standards endorsed by the Financial Accounting
Standards Board or is part of a consolidated group of affiliated corporations, as filed for
federal income tax purposes, that in the aggregate has demonstrated positive net operating
income in any of the two previous full years of ongoing operations as determined on
its combined financial statements issued according to generally accepted accounting
standards endorsed by the Financial Accounting Standards Board.
new text end

new text begin The maximum lifetime value of surrendered tax benefits that a corporation is permitted to
surrender under the program is $15,000,000.
new text end

new text begin Subd. 5. new text end

new text begin Recapture of tax benefits. new text end

new text begin The commissioner, in consultation with the
commissioner of revenue, shall establish rules for the recapture of all, or a portion of,
the amount of a grant of a corporate franchise tax benefit certificate from the new or
expanding emerging technology or biotechnology company having surrendered tax
benefits under this section if the taxpayer fails to use the private financial assistance
received for the surrender of tax benefits as required by this section or fails to maintain a
headquarters or a base of operation in this state during the five years following receipt
of the private financial assistance; except if the failure to maintain a headquarters or a
base of operation in this state is due to the liquidation of the new or expanding emerging
technology or biotechnology company.
new text end

new text begin Subd. 6. new text end

new text begin Approval of acquisition of tax benefits; purposes; required agreement.
new text end

new text begin (a) The commissioner, in cooperation with the commissioner of revenue, shall review and
approve applications by taxpayers under the corporate franchise tax in chapter 290 to
acquire surrendered tax benefits approved under subdivision 3, which must be issued in
the form of corporate franchise tax benefit transfer certificates, in exchange for private
financial assistance to be made by the taxpayer in an amount equal to at least 75 percent of
the amount of the surrendered tax benefit of an emerging technology or biotechnology
company. The commissioner must not issue a corporate franchise tax benefit transfer
certificate, unless the applicant certifies that as of the date of the exchange of the corporate
franchise tax benefit certificate it is operating as a new or expanding emerging technology
or biotechnology company and has no current intention to cease operating as a new or
expanding emerging technology or biotechnology company.
new text end

new text begin (b) The private financial assistance shall assist in funding expenses incurred
in connection with the operation of the new or expanding emerging technology or
biotechnology company in this state, including but not limited to the expenses of fixed
assets, such as the construction and acquisition and development of real estate, materials,
start-up, tenant fit-out, working capital, salaries, research and development expenditures,
and any other expenses determined by the commissioner to be necessary to carry out
emerging technology or biotechnology company operations in this state.
new text end

new text begin (c) The commissioner shall require a corporate franchise taxpayer that acquires
a corporate franchise tax benefit certificate to enter into a written agreement with the
new or expanding emerging technology or biotechnology company concerning the terms
and conditions of the private financial assistance made in exchange for the certificate.
The written agreement may contain terms concerning the maintenance by the new or
expanding emerging technology or biotechnology company of a headquarters or a base
of operation in this state.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment
and applies to taxable years beginning after December 31, 2011.
new text end

Sec. 2.

Minnesota Statutes 2010, section 290.01, subdivision 29, is amended to read:

Subd. 29.

Taxable income.

The term "taxable income" means:

(1) for individuals, estates, and trusts, the same as taxable net income;

(2) for corporations, the taxable net income less

(i) the net operating loss deduction under section 290.095 new text begin , excluding any amount
surrendered under section 116J.8738 new text end ;

(ii) the dividends received deduction under section 290.21, subdivision 4;

(iii) the exemption for operating in a job opportunity building zone under section
469.317;

(iv) the exemption for operating in a biotechnology and health sciences industry
zone under section 469.337; and

(v) the exemption for operating in an international economic development zone
under section 469.326.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2011.
new text end

Sec. 3.

Minnesota Statutes 2010, section 290.06, is amended by adding a subdivision
to read:

new text begin Subd. 36. new text end

new text begin Credit; technology corporate franchise tax certificate transfer.
new text end

new text begin A taxpayer may take a credit against the tax imposed under subdivision 1 or section
290.0921 equal to the amount of the transferable tax benefits certified to the taxpayer for
the taxable year by the commissioner of employment and economic development under
section 116J.8738.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for taxable years beginning after
December 31, 2011.
new text end