HF 2856

as introduced - 88th Legislature (2013 - 2014) Posted on 03/10/2014 12:56pm

A bill for an act
relating to taxation; income and corporate franchise small business investment
credit; modifying certain qualification requirements; appropriating money;
amending Minnesota Statutes 2012, section 116J.8737, subdivisions 3, 5, 7, 9,
12; Minnesota Statutes 2013 Supplement, section 116J.8737, subdivisions 1, 2.

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

Section 1.

Minnesota Statutes 2013 Supplement, section 116J.8737, subdivision 1,
is amended to read:

Subdivision 1.

Definitions.

(a) For the purposes of this section, the following terms
have the meanings given.

(b) "Qualified small business" means a business that has been certified by the
commissioner under subdivision 2.

(c) "Qualified investor" means an investor who has been certified by the
commissioner under subdivision 3.

(d) "Qualified fund" means a pooled angel investment network fund that has been
certified by the commissioner under subdivision 4.

(e) "Qualified investment" means a cash investment in a qualified small business
of a minimum of:

(1) $10,000 in a calendar year by a qualified investor; or

(2) $30,000 in a calendar year by a qualified fund.

A qualified investment must be made in exchange for common stock, a partnership
or membership interest, preferred stock, debt with mandatory conversion to equity, or an
equivalent ownership interest as determined by the commissioner.

(f) "Family" means a family member within the meaning of the Internal Revenue
Code, section 267(c)(4).

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

(h) "Intern" means a student of an accredited institution of higher education, or a
former student who has graduated in the past six months from an accredited institution
of higher education, who is employed by a qualified small business in a nonpermanent
position for a duration of nine months or less that provides training and experience in the
primary business activity of the business.

(i) "Liquidation event" means a conversion of qualified investment for cash, cash
and other consideration, or any other form of equity or debt interest.

new text begin (j) "Immediate family member" means a spouse, child, parent, brother, or sister.
new text end

new text begin (k) "Qualified greater Minnesota business" means a qualified small business that
is also certified by the commissioner as a qualified greater Minnesota business under
subdivision 2, paragraph (h).
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment for
taxable years beginning after December 31, 2014.
new text end

Sec. 2.

Minnesota Statutes 2013 Supplement, section 116J.8737, subdivision 2, is
amended to read:

Subd. 2.

Certification of qualified small businesses.

(a) Businesses may apply
to the commissioner for certification as a qualified small business new text begin or qualified greater
Minnesota small business new text end for a calendar year. The application must be in the form
and be made under the procedures specified by the commissioner, accompanied by an
application fee of $150. Application fees are deposited in the small business investment
tax credit administration account in the special revenue fund. The application for
certification for 2010 must be made available on the department's Web site by August 1,
2010. Applications for subsequent years' certification must be made available on the
department's Web site by November 1 of the preceding year.

(b) Within 30 days of receiving an application for certification under this subdivision,
the commissioner must either certify the business as satisfying the conditions required
of a qualified small business deleted text begin , deleted text end new text begin or qualified greater Minnesota small business, new text end request
additional information from the business, or reject the application for certification. If
the commissioner requests additional information from the business, the commissioner
must either certify the business or reject the application within 30 days of receiving the
additional information. If the commissioner neither certifies the business nor rejects
the application within 30 days of receiving the original application or within 30 days of
receiving the additional information requested, whichever is later, then the application is
deemed rejected, and the commissioner must refund the $150 application fee. A business
that applies for certification and is rejected may reapply.

(c) To receive certification new text begin as a qualified small business new text end , a business must satisfy
all of the following conditions:

(1) the business has its headquarters in Minnesota;

(2) at least 51 percent of the business's employees are employed in Minnesota, and
51 percent of the business's total payroll is paid or incurred in the state;

(3) the business is engaged in, or is committed to engage in, innovation in Minnesota
in one of the following as its primary business activity:

(i) using proprietary technology to add value to a product, process, or service in a
qualified high-technology field;

(ii) researching or developing a proprietary product, process, or service in a qualified
high-technology field; or

(iii) researching, developing, or producing a new proprietary technology for use in
the fields of agriculture, tourism, forestry, mining, manufacturing, or transportation;

(4) other than the activities specifically listed in clause (3), the business is not
engaged in real estate development, insurance, banking, lending, lobbying, political
consulting, information technology consulting, wholesale or retail trade, leisure,
hospitality, transportation, construction, ethanol production from corn, or professional
services provided by attorneys, accountants, business consultants, physicians, or health
care consultants;

(5) the business has fewer than 25 employees;

(6) the business must pay its employees annual wages of at least 175 percent of the
federal poverty guideline for the year for a family of four and must pay its interns annual
wages of at least 175 percent of the federal minimum wage used for federally covered
employers, except that this requirement must be reduced proportionately for employees
and interns who work less than full-time, and does not apply to an executive, officer, or
member of the board of the business, or to any employee who owns, controls, or holds
power to vote more than 20 percent of the outstanding securities of the business;

(7) the business has (i) not been in operation for more than ten years, or (ii) not
been in operation for more than 20 years if the business is engaged in the research,
development, or production of medical devices or pharmaceuticals for which United
States Food and Drug Administration approval is required for use in the treatment or
diagnosis of a disease or condition;

(8) the business has not previously received private equity investments of more
than $4,000,000;

(9) the business is not an entity disqualified under section 80A.50, paragraph (b),
clause (3); and

(10) the business has not issued securities that are traded on a public exchange.

(d) In applying the limit under paragraph (c), clause (5), the employees in all members
of the unitary business, as defined in section 290.17, subdivision 4, must be included.

(e) In order for a qualified investment in a business to be eligible for tax credits:

(1) the business must have applied for and received certification for the calendar
year in which the investment was made prior to the date on which the qualified investment
was made;

(2) the business must not have issued securities that are traded on a public exchange;

(3) the business must not issue securities that are traded on a public exchange within
180 days after the date on which the qualified investment was made; and

(4) the business must not have a liquidation event within 180 days after the date on
which the qualified investment was made.

(f) The commissioner must maintain a list of new text begin qualified small new text end businesses new text begin and qualified
greater Minnesota businesses new text end certified under this subdivision for the calendar year and
make the list accessible to the public on the department's Web site.

(g) For purposes of this subdivision, the following terms have the meanings given:

(1) "qualified high-technology field" includes aerospace, agricultural processing,
renewable energy, energy efficiency and conservation, environmental engineering, food
technology, cellulosic ethanol, information technology, materials science technology,
nanotechnology, telecommunications, biotechnology, medical device products,
pharmaceuticals, diagnostics, biologicals, chemistry, veterinary science, and similar
fields; deleted text begin and
deleted text end

(2) "proprietary technology" means the technical innovations that are unique and
legally owned or licensed by a business and includes, without limitation, those innovations
that are patented, patent pending, a subject of trade secrets, or copyrighted deleted text begin . deleted text end new text begin ; and
new text end

new text begin (3) "greater Minnesota" means the area of Minnesota located outside of the
metropolitan area as defined in section 473.121, subdivision 2.
new text end

new text begin (h) To receive certification as a qualified greater Minnesota business, a business must
satisfy all of the requirements of paragraph (c) and must satisfy the following conditions:
new text end

new text begin (1) the business has its headquarters in greater Minnesota; and
new text end

new text begin (2) at least 51 percent of the business's employees are employed in greater Minnesota,
and 51 percent of the business's total payroll is paid or incurred in greater Minnesota.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment for
taxable years beginning after December 31, 2014.
new text end

Sec. 3.

Minnesota Statutes 2012, section 116J.8737, subdivision 3, is amended to read:

Subd. 3.

Certification of qualified investors.

(a) Investors may apply to the
commissioner for certification as a qualified investor for a taxable year. The application
must be in the form and be made under the procedures specified by the commissioner,
accompanied by an application fee of $350. Application fees are deposited in the small
business investment tax credit administration account in the special revenue fund. The
application for certification for 2010 must be made available on the department's Web
site by August 1, 2010. Applications for subsequent years' certification must be made
available on the department's Web site by November 1 of the preceding year.

(b) Within 30 days of receiving an application for certification under this subdivision,
the commissioner must either certify the investor as satisfying the conditions required
of a qualified investor, request additional information from the investor, or reject the
application for certification. If the commissioner requests additional information from the
investor, the commissioner must either certify the investor or reject the application within
30 days of receiving the additional information. If the commissioner neither certifies the
investor nor rejects the application within 30 days of receiving the original application or
within 30 days of receiving the additional information requested, whichever is later, then
the application is deemed rejected, and the commissioner must refund the $350 application
fee. An investor who applies for certification and is rejected may reapply.

(c) To receive certification, an investor must (1) be a natural person; deleted text begin and deleted text end (2) certify
to the commissioner that the investor will only invest in a transaction that is exempt under
section 80A.46, clause (13) or (14), or in a security registered under section 80A.50,
paragraph (b) new text begin ; and (3) not be a founder, officer, principal, or immediate family member of
a founder, officer, or principal of the qualifying business new text end .

(d) In order for a qualified investment in a qualified small business to be eligible
for tax credits, a qualified investor who makes the investment must have applied for
and received certification for the calendar year prior to making the qualified investment,
except in the case of an investor who is not an accredited investor, within the meaning of
Regulation D of the Securities and Exchange Commission, Code of Federal Regulations,
title 17, section 230.501, paragraph (a), application for certification may be made within
30 days after making the qualified investment.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment for
taxable years beginning after December 31, 2014.
new text end

Sec. 4.

Minnesota Statutes 2012, section 116J.8737, subdivision 5, is amended to read:

Subd. 5.

Credit allowed.

(a) A qualified investor or qualified fund is eligible for
a credit equal to 25 percent of the qualified investment in a qualified small business.
Investments made by a pass-through entity qualify for a credit only if the entity is a
qualified fund. The commissioner must not allocate more than $11,000,000 in credits to
qualified investors or qualified funds for taxable years beginning after December 31, 2009,
and before January 1, 2011 deleted text begin , and deleted text end new text begin ; new text end must not allocate more than $12,000,000 in credits per
year for taxable years beginning after December 31, 2010, and before January 1, 2015 new text begin ; and
must not allocate more than $15,000,000 in credits per year for taxable years beginning
after December 31, 2014, and before January 1, 2017. For taxable years beginning after
December 31, 2014, and before January 1, 2017, $7,500,000 must be allocated to credits
for qualifying investments in qualified greater Minnesota businesses and minority- or
women-owned qualified small businesses in Minnesota new text end . Any portion of a taxable year's
credits that is not allocated by the commissioner does not cancel and may be carried
forward to subsequent taxable years until all credits have been allocated.

(b) The commissioner may not allocate more than a total maximum amount in credits
for a taxable year to a qualified investor for the investor's cumulative qualified investments
as an individual qualified investor and as an investor in a qualified fund; for married
couples filing joint returns the maximum is $250,000, and for all other filers the maximum
is $125,000. The commissioner may not allocate more than a total of $1,000,000 in credits
over all taxable years for qualified investments in any one qualified small business.

(c) The commissioner may not allocate a credit to a qualified investor either as an
individual qualified investor or as an investor in a qualified fund if the investor receives
more than 50 percent of the investor's gross annual income from the qualified small
business in which the qualified investment is proposed. A member of the family of an
individual disqualified by this paragraph is not eligible for a credit under this section. For
a married couple filing a joint return, the limitations in this paragraph apply collectively
to the investor and spouse. For purposes of determining the ownership interest of an
investor under this paragraph, the rules under section 267(c) and 267(e) of the Internal
Revenue Code apply.

(d) Applications for tax credits for 2010 must be made available on the department's
Web site by September 1, 2010, and the department must begin accepting applications
by September 1, 2010. Applications for subsequent years must be made available by
November 1 of the preceding year.

(e) Qualified investors and qualified funds must apply to the commissioner for tax
credits. Tax credits must be allocated to qualified investors or qualified funds in the order
that the tax credit request applications are filed with the department. The commissioner
must approve or reject tax credit request applications within 15 days of receiving the
application. The investment specified in the application must be made within 60 days of
the allocation of the credits. If the investment is not made within 60 days, the credit
allocation is canceled and available for reallocation. A qualified investor or qualified fund
that fails to invest as specified in the application, within 60 days of allocation of the
credits, must notify the commissioner of the failure to invest within five business days of
the expiration of the 60-day investment period.

(f) All tax credit request applications filed with the department on the same day must
be treated as having been filed contemporaneously. If two or more qualified investors or
qualified funds file tax credit request applications on the same day, and the aggregate
amount of credit allocation claims exceeds the aggregate limit of credits under this section
or the lesser amount of credits that remain unallocated on that day, then the credits must
be allocated among the qualified investors or qualified funds who filed on that day on a
pro rata basis with respect to the amounts claimed. The pro rata allocation for any one
qualified investor or qualified fund is the product obtained by multiplying a fraction,
the numerator of which is the amount of the credit allocation claim filed on behalf of
a qualified investor and the denominator of which is the total of all credit allocation
claims filed on behalf of all applicants on that day, by the amount of credits that remain
unallocated on that day for the taxable year.

(g) A qualified investor or qualified fund, or a qualified small business acting on their
behalf, must notify the commissioner when an investment for which credits were allocated
has been made, and the taxable year in which the investment was made. A qualified fund
must also provide the commissioner with a statement indicating the amount invested by
each investor in the qualified fund based on each investor's share of the assets of the
qualified fund at the time of the qualified investment. After receiving notification that the
investment was made, the commissioner must issue credit certificates for the taxable year
in which the investment was made to the qualified investor or, for an investment made by
a qualified fund, to each qualified investor who is an investor in the fund. The certificate
must state that the credit is subject to revocation if the qualified investor or qualified
fund does not hold the investment in the qualified small business for at least three years,
consisting of the calendar year in which the investment was made and the two following
years. The three-year holding period does not apply if:

(1) the investment by the qualified investor or qualified fund becomes worthless
before the end of the three-year period;

(2) 80 percent or more of the assets of the qualified small business is sold before
the end of the three-year period;

(3) the qualified small business is sold before the end of the three-year period; or

(4) the qualified small business's common stock begins trading on a public exchange
before the end of the three-year period.

(h) The commissioner must notify the commissioner of revenue of credit certificates
issued under this section.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment for
taxable years beginning after December 31, 2014.
new text end

Sec. 5.

Minnesota Statutes 2012, section 116J.8737, subdivision 7, is amended to read:

Subd. 7.

Revocation of credits.

(a) If the commissioner determines that a
qualified investor or qualified fund did not meet the three-year holding period required in
subdivision 5, paragraph (g), any credit allocated and certified to the investor or fund is
revoked and must be repaid by the investor.

(b) If the commissioner determines that a business did not meet the employment
and payroll requirements in subdivision 2, paragraph (c), clause (2), new text begin or paragraph (h), as
applicable, new text end in any of the five calendar years following the year in which an investment in the
business that qualified for a tax credit under this section was made, the business must repay
the following percentage of the credits allowed for qualified investments in the business:

Year following the year in which		Percentage of credit required
the investment was made:		to be repaid:
	First	100%
	Second	80%
	Third	60%
	Fourth	40%
	Fifth	20%
	Sixth and later	0

(c) The commissioner must notify the commissioner of revenue of every credit
revoked and subject to full or partial repayment under this section.

(d) For the repayment of credits allowed under this section and section 290.0692,
a qualified small business, qualified investor, or investor in a qualified fund must file an
amended return with the commissioner of revenue and pay any amounts required to be
repaid within 30 days after becoming subject to repayment under this section.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment for
taxable years beginning after December 31, 2014.
new text end

Sec. 6.

Minnesota Statutes 2012, section 116J.8737, subdivision 9, is amended to read:

Subd. 9.

Report to legislature.

Beginning in 2011, the commissioner must
annually report by March 15 to the chairs and ranking minority members of the legislative
committees having jurisdiction over taxes and economic development in the senate and
the house of representatives, in compliance with sections 3.195 and 3.197, on the tax
credits issued under this section. The report must include:

(1) the number and amount of the credits issued;

(2) the recipients of the credits;

(3) for each qualified small business new text begin or qualified greater Minnesota business new text end , its
location, line of business, and if it received an investment resulting in certification of
tax credits;

(4) the total amount of investment in each qualified small business resulting in
certification of tax credits;

(5) for each qualified small business that received investments resulting in tax
credits, the total amount of additional investment that did not qualify for the tax credit;

(6) the number and amount of credits revoked under subdivision 7;

(7) the number and amount of credits that are no longer subject to the three-year
holding period because of the exceptions under subdivision 5, paragraph (g), clauses
(1) to (4); and

(8) any other information relevant to evaluating the effect of these credits.

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective the day following final enactment for
taxable years beginning after December 31, 2014.
new text end

Sec. 7.

Minnesota Statutes 2012, section 116J.8737, subdivision 12, is amended to read:

Subd. 12.

Sunset.

This section expires for taxable years beginning after December
31, deleted text begin 2014 deleted text end new text begin 2016 new text end , except that reporting requirements under subdivision 6 and revocation
of credits under subdivision 7 remain in effect through deleted text begin 2016 deleted text end new text begin 2018 new text end for qualified
investors and qualified funds, and through deleted text begin 2018 deleted text end new text begin 2020 new text end for qualified small businesses,
reporting requirements under subdivision 9 remain in effect through deleted text begin 2019 deleted text end new text begin 2021 new text end , and the
appropriation in subdivision 11 remains in effect through deleted text begin 2018 deleted text end new text begin 2020 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