HF 3855

as introduced - 85th Legislature (2007 - 2008) Posted on 12/15/2009 12:00am

A bill for an act
relating to taxation; allowing a regional emerging investment fund credit and
a seed capital investment credit; imposing duties on the commissioner of
employment and economic development; amending Minnesota Statutes 2006,
section 290.06, by adding subdivisions; 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.8732] TAX CREDITS; COMMISSIONER'S
RESPONSIBILITIES.
new text end

new text begin Subdivision 1. new text end

new text begin Scope. new text end

new text begin This section establishes rules that regional investment
funds must satisfy to qualify for the regional emerging business investment credit under
section 290.06, subdivision 34, and that businesses must satisfy to qualify for the seed
capital investment credit under section 290.06, subdivision 35, and the commissioner's
responsibility for certifying the funds and qualifying businesses.
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 and section 290.06,
subdivisions 34 and 35, the following terms have the meanings given.
new text end

new text begin (b) "Border city" means a city qualifying to designate a border city development
zone under section 469.1731.
new text end

new text begin (c) "Pass-through entity" means a corporation that for the applicable tax year is
treated as an S corporation or a general partnership, limited partnership, limited liability
partnership, trust, or limited liability company and for which the applicable taxable year is
not taxed as a corporation under chapter 290.
new text end

new text begin (d) "Primary sector business" means a qualified business that through the
employment of knowledge or labor adds value to a product, process, or service and
increases revenues to a Minnesota business generated by sales of products or services to
customers outside of the state or increases revenues to a qualified business the customers
of which previously were unable to acquire, or had limited availability of the product or
service from a Minnesota provider.
new text end

new text begin (e) "Qualified business" means a business certified by the commissioner as meeting
the requirements of subdivision 3.
new text end

new text begin (f) "Qualified small business" means a business meeting the requirements of
subdivision 5, paragraph (c).
new text end

new text begin (g) "Regional investment fund" means a fund certified by the commissioner as
meeting the requirements of subdivision 5.
new text end

new text begin Subd. 3. new text end

new text begin Qualified business for seed capital investment credit. new text end

new text begin (a) The
commissioner shall certify whether a business that has requested to become a qualified
business meets the requirements of paragraph (b).
new text end

new text begin (b) For purposes of this section, a qualified business must be a primary sector
business, other than a real estate investment trust, that:
new text end

new text begin (1) is incorporated or its satellite operation is incorporated as a for-profit corporation
or is a partnership, limited partnership, limited liability company, limited liability
partnership, or joint venture;
new text end

new text begin (2) is in compliance with the requirements for filings with the commissioner of
commerce under the securities laws of this state;
new text end

new text begin (3) has Minnesota residents as a majority of its employees in its principal office or
the satellite operation, located in a border city;
new text end

new text begin (4) has its principal office in a border city and has the majority of its business
activity performed in a border city, except sales activity, or has a significant operation in
a border city that has or is projected to have more than ten employees or $150,000 of
sales annually; and
new text end

new text begin (5) relies on innovation, research, or the development of new products and processes
in its plans for growth and profitability.
new text end

new text begin (c) The commissioner shall establish the necessary forms and procedures for
certifying qualified businesses.
new text end

new text begin (d) A qualified business may apply to the commissioner for a recertification. Only
one recertification is available to a qualified business. The application for recertification
must be filed with the commissioner within 90 days before the original certification
expiration date. The recertification issued by the director must comply with the provisions
of paragraph (e).
new text end

new text begin (e) The commissioner shall issue a certification letter to a business the commissioner
determines is a qualified business. The certification letter must include:
new text end

new text begin (1) the certification effective date; and
new text end

new text begin (2) the certification expiration date, which may not be more than four years from the
certification effective date.
new text end

new text begin Subd. 4. new text end

new text begin Seed capital investment credit reporting. new text end

new text begin Within 30 days after the date
that an investment in a qualified business is purchased, the qualified business shall file with
the commissioner and the commissioner of revenue and provide to the investor completed
forms prescribed by the commissioner of revenue that show as to each investment in the
qualified business the following:
new text end

new text begin (1) the name, address, and Social Security number of the taxpayer who made the
investment; and
new text end

new text begin (2) the dollar amount paid for the investment by the taxpayer.
new text end

new text begin Subd. 5. new text end

new text begin Qualified regional investment funds. new text end

new text begin (a) Qualified regional investment
funds are regional investment funds that the commissioner certifies as meeting the
requirements of this subdivision.
new text end

new text begin (b) For purposes of this section, a "qualified regional investment fund" means a
pooled investment fund that:
new text end

new text begin (1) invests in qualifying small businesses located in the region of the state that
is the focus of the fund;
new text end

new text begin (2) is organized as a pass-through entity;
new text end

new text begin (3) has no fewer than five separate investors and no investor owns more than 25
percent of the outstanding ownership interests in the fund. For purposes of determining
the number of investors and the ownership interests of an investor under this clause, the
ownership interests of an investor include those of (i) the investor's spouse, child, or
sibling, and (ii) a corporation, partnership, limited liability company, trust, or other entity
in which the investor has a controlling equity interest or in which the investor exercises
management control;
new text end

new text begin (4) has at least two-thirds of its members, shareholders, or partners who are residents
of the region that is the focus of the fund; and
new text end

new text begin (5) allocates at least 60 percent of the funds it invests to qualifying small businesses
within the region. Co-investments from other regional funds count toward this allocation.
new text end

new text begin (c) For purposes of this subdivision, a qualifying small business must satisfy all of
the following requirements:
new text end

new text begin (1) for a business with five or more employees, the business must pay wages and
benefits, measured on a full-time equivalent basis, to 75 percent or more of its employees
in excess of the first five employees, equal to 110 percent of the federal poverty level for
a family of four, and must strive to pay 175 percent of the federal poverty level for a
family of four;
new text end

new text begin (2) the business is engaged in, or is committed to engage in, biotechnology,
technology, manufacturing, agriculture, processing or assembling products, conducting
research and development, or developing a new product or business process;
new text end

new text begin (3) the business is not engaged in real estate development, insurance, banking,
lobbying, political consulting, wholesale or retail trade, leisure, hospitality, construction,
or professional services provided by attorneys, accountants, business consultants,
physicians, or health care consultants;
new text end

new text begin (4) the business has its headquarters in Minnesota;
new text end

new text begin (5) at least 51 percent of the business's employees are employed in Minnesota;
new text end

new text begin (6) the business has fewer than 100 employees;
new text end

new text begin (7) the business had less than $2,000,000 in annual gross sales receipts for the
previous year;
new text end

new text begin (8) the business is not a subsidiary or affiliate of a business which employs more
than 100 employees or has total gross sales receipts for the previous year of more than
$2,000,000, computed by aggregating all of the employees and gross sales receipts of the
business entities affiliated with the business;
new text end

new text begin (9) the business has not previously received more than $2,000,000 in private equity
investments; and
new text end

new text begin (10) the business has not previously received more than $1,000,000 in private equity
investments that qualified for and received tax credits under section 290.06, subdivision 34.
new text end

new text begin (d) Regional investment funds may apply to the commissioner for certification as
a qualified regional investment fund. The applications must be in the form and made
under the procedures specified by the commissioner. The commissioner may certify
up to 20 funds. The commissioner shall award certifications in the order of qualifying
applications received and shall seek to certify funds broadly dispersed across all regions of
the state. Of the 20 funds, the commissioner may certify no more than three funds that
seek business investment opportunities that may qualify for and receive tax credits under
section 290.06, subdivision 34, in more than 15 counties and no more than five funds that
seek business investment opportunities that may qualify for and receive tax credits under
section 290.06, subdivision 34, in the metropolitan area, as defined in section 473.121,
subdivision 2. The commissioner may provide certificates entitling investors in the fund
to credits under this provision up to $600,000 for each fund. The commissioner may
not issue a total amount of certificates for all funds of more than $3,000,000 per year in
fiscal years 2009, 2010, and 2011.
new text end

new text begin (e) The commissioner shall enter into an agreement with each of the funds awarded
credit certificates under paragraph (d). This agreement must include the fund's agreement
to comply with the requirements of this subdivision and section 290.06, subdivision 34, to
report on the employment figures and wages and benefits paid by the businesses in which
investments are made, and to the specific manner in which the fund agrees to satisfy the
requirement to allocate at least 60 percent of its investments to qualified small businesses
within the region. The commissioner shall define "region" for purposes of this subdivision.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment.
new text end

Sec. 2.

Minnesota Statutes 2006, section 290.06, is amended by adding a subdivision
to read:

new text begin Subd. 34. new text end

new text begin Regional emerging business investment credit. new text end

new text begin (a) A credit is allowed
against the tax imposed by this chapter for investments in a qualifying regional investment
fund. Investments in the fund may consist of equity investments or notes that pay
interest or other fixed amounts, or any combination of both, as the fund's governing body
determines appropriate. The credit equals 25 percent of the taxpayer's investment made
for the taxable year, but not to exceed the lesser of:
new text end

new text begin (1) the liability for tax under this chapter, including the applicable alternative
minimum tax, but excluding the minimum fee under section 290.0922; and
new text end

new text begin (2) the amount of the certificate under section 116J.8732, subdivision 5, provided to
the taxpayer by the fund.
new text end

new text begin (b) The taxpayer must claim the credit in the same taxable year in which the
investment in the fund is made. The credit is allowed only for investments made to a fund
that are made after the fund has been certified by the commissioner of employment and
economic development under paragraph (c).
new text end

new text begin (c) Each fund must provide each investor a statement indicating the investor's share
of the credits certified to the fund under section 116J.8732, subdivision 5, based on the
order in which the investor's investment is made to the fund.
new text end

new text begin (d) If the amount of the credit under this subdivision for any taxable year exceeds
the limitations under paragraph (a), clause (1), the excess is a credit carryover to each of
the ten succeeding taxable years. The entire amount of the excess unused credit for the
taxable year must be carried first to the earliest of the taxable years to which the credit
may be carried. The amount of the unused credit that may be added under this paragraph
may not exceed the taxpayer's liability for tax, less the credit for the taxable year.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective July 1, 2008, for taxable years
beginning after December 31, 2007, and only applies to investments made after the fund
has been certified by the commissioner of employment and economic development.
new text end

Sec. 3.

Minnesota Statutes 2006, section 290.06, is amended by adding a subdivision
to read:

new text begin Subd. 35. new text end

new text begin Seed capital investment credit. new text end

new text begin (a) An individual, estate, or trust is
allowed a credit against the tax imposed by this chapter for investments in a qualifying
business certified under section 116J.8732, subdivision 3. The credit equals 45 percent
of the amount invested by the taxpayer in qualified businesses during the taxable year,
but not to exceed the lesser of:
new text end

new text begin (1) $112,500; or
new text end

new text begin (2) the liability for tax under this chapter, including the applicable alternative
minimum tax, but excluding the minimum fee under section 290.0922.
new text end

new text begin (b) A pass-through entity that invests in a qualified business must be considered to
be the taxpayer for purposes of the investment limitations in this subdivision and the
amount of the credit allowed with respect to a pass-through entity's investment in a
qualified business must be determined at the pass-through entity level. The amount of the
total credit determined at the pass-through entity level must be allowed to the members in
proportion to their respective interests in the pass-through entity.
new text end

new text begin (c) An investment made in a qualified business from the assets of a retirement
plan is deemed to be the retirement plan participant's investment for the purpose of this
subdivision if a separate account is maintained for the plan participant and the participant
directly controls where the account assets are invested.
new text end

new text begin (d) The investment must be made on or after the certification effective date and
must be at risk in the business to be eligible for the tax credit under this subdivision.
An investment for which a credit is received under this subdivision must remain in the
qualified business for at least three years. Investments placed in escrow do not qualify
for the credit.
new text end

new text begin (e) The entire amount of an investment for which a credit is claimed under this
subdivision must be expended by the qualified business for plant, equipment, research and
development, marketing and sales activity, or working capital for the qualified business.
new text end

new text begin (f) A taxpayer who owns a controlling interest in the qualified business or who
receives more than 50 percent of the taxpayer's gross annual income from the qualified
business is not entitled to a credit under this subdivision. A member of the immediate
family of a taxpayer disqualified by this subdivision is not entitled to the credit under this
subdivision. For purposes of this subdivision, "immediate family" means the taxpayer's
spouse, parent, sibling, or child or the spouse of any such person.
new text end

new text begin (g) The commissioner may disallow any credit otherwise allowed under this
subdivision if any representation by a business in the application for certification as a
qualified business proves to be false or if the taxpayer or qualified business fails to satisfy
any conditions under this subdivision or section 116J.8732 or any conditions consistent
with those requirements otherwise determined by the commissioner. The commissioner
has four years after the due date of the return or after the return was filed, whichever
period expires later, to audit the credit and assess additional tax that may be found due
to failure to comply with the provisions of this subdivision and section 116J.8732. The
amount of any credit disallowed by the commissioner that reduced the taxpayer's income
tax liability for any or all applicable tax years, plus penalty and interest as provided under
chapter 289A, must be paid by the taxpayer.
new text end

new text begin (h) A regional investment fund that invests in a qualified business is the taxpayer
for purposes of the investment limitations in this subdivision. The amount of the credit
allowed with respect to the fund's investment in a qualified business must be determined
at the fund level. The amount of the total credit determined at the regional investment
fund level must be allowed to the investors in the fund in proportion to the investor's
respective interests in the fund.
new text end

new text begin (i) If the amount of the credit under this subdivision for any taxable year exceeds
the limitations under paragraph (a), clause (2), the excess is a credit carryover to each of
the four succeeding taxable years. The entire amount of the excess unused credit for the
taxable year must be carried first to the earliest of the taxable years to which the credit
may be carried. The amount of the unused credit that may be added under this paragraph
may not exceed the taxpayer's liability for tax, less the credit for the taxable year.
new text end

new text begin (j) The aggregate amount of seed capital investment tax credit allowed for
investments under this subdivision is limited to $ ....... for each fiscal year. If investments
in qualified businesses reported to the commissioner exceed the limits on credits for
investments imposed by this subdivision, the credit must be allowed to taxpayers in the
chronological order of their investments in qualified businesses as determined from the
forms filed under section 116J.8732.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective July 1, 2008, for taxable years
beginning after December 31, 2007, and only applies to investments made after the fund
has been certified by the commissioner of employment and economic development.
new text end