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HF 2633

as introduced - 88th Legislature (2013 - 2014) Posted on 03/17/2014 03:38pm

KEY: stricken = removed, old language.
underscored = added, new language.

Bill Text Versions

Engrossments
Introduction Posted on 03/03/2014

Current Version - as introduced

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9.1 9.2

A bill for an act
relating to taxation; income and franchise; establishing a greater Minnesota
angel investment credit; appropriating money; proposing coding for new law in
Minnesota Statutes, chapters 116J; 290.

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

Section 1.

new text begin [116J.8739] GREATER MINNESOTA ANGEL INVESTMENT
CREDIT.
new text end

new text begin Subdivision 1. new text end

new text begin Definitions. new text end

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

new text begin (b) "Family" means a family member within the meaning of the Internal Revenue
Code, section 267(c)(4).
new text end

new text begin (c) "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 (d) "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 end

new text begin (e) "Pass-through entity" means a corporation that for the applicable taxable year is
treated as an S corporation or means 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.
new text end

new text begin (f) "Qualified fund" means a pooled angel investment network fund that has been
certified by the commissioner under section 116J.8737, subdivision 4, for the taxable year.
new text end

new text begin (g) "Qualified investment" means a cash investment in a qualified small business
of a minimum of:
new text end

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

new text begin (2) $30,000 in a calendar year by a qualified fund.
new text end

new text begin 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.
new text end

new text begin (h) "Qualified investor" means an investor who has been certified by the
commissioner under section 116J.8737, subdivision 3, for the taxable year.
new text end

new text begin (i) "Qualified small business" means a business that has been certified by the
commissioner under subdivision 2.
new text end

new text begin Subd. 2. new text end

new text begin Certification of qualified small businesses. new text end

new text begin (a) Businesses may apply
to the commissioner for certification as a qualified small business for a calendar year.
The application must be in the form and manner specified by the commissioner, and
accompanied by an application fee of $150. Application fees are deposited in the greater
Minnesota angel investment credit administration account in the special revenue fund.
The application for certification for 2014 must be made available on the department's Web
site by August 1, 2014. Applications for subsequent years' certification must be made
available on the department's Web site by November 1 of the preceding year.
new text end

new text begin (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, 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.
new text end

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

new text begin (1) the business has its headquarters in greater Minnesota;
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 (3) the business is engaged in, or is committed to engage in, greater Minnesota in
one of the following as its primary business activity:
new text end

new text begin (i) manufacturing;
new text end

new text begin (ii) agricultural processing or other business activities related to agriculture, but
excluding the operation of a farm; or
new text end

new text begin (iii) research and development related to activities under item (i) or (ii);
new text end

new text begin (4) other than as part of or incidental to the activities in clause (3), the business is
not engaged in real estate development, insurance, banking, lending, lobbying, political
consulting, wholesale or retail trade, leisure, hospitality, transportation, or professional
services provided by attorneys, accountants, business consultants, physicians, or health
care consultants;
new text end

new text begin (5) the business has fewer than 25 employees;
new text end

new text begin (6) the business pays its employees wages, whether paid on an hourly basis or
otherwise, equal to the average hourly wage of employees in greater Minnesota, as
determined by the commissioner, except that this requirement 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;
new text end

new text begin (7) the business has:
new text end

new text begin (i) not been in operation for more than ten years; or
new text end

new text begin (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;
new text end

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

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

new text begin (10) the business has not issued securities that are traded on a public exchange; and
new text end

new text begin (11) the business has not been certified as a qualified business under section
116J.8737, subdivision 2, or has elected to have its certification under that section canceled.
new text end

new text begin (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.
new text end

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

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

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

new text begin (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
new text end

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

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

new text begin Subd. 3. new text end

new text begin Credit allowed. new text end

new text begin (a) A qualified investor or qualified fund is eligible for
a credit equal to 50 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 $5,000,000 in credits to qualified
investors or qualified funds. Any credits that are not allocated by the commissioner, that
are canceled, or that are revoked and repaid are available to be allocated and used.
new text end

new text begin (b) The commissioner must not allocate more than $125,000 ($250,000 for married
joint filers) 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. 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.
new text end

new text begin (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 sections 267(c) and 267(e) of the Internal
Revenue Code apply.
new text end

new text begin (d) Applications for tax credits must be made available on the department's Web
site by September 1, 2014, and the commissioner must begin accepting applications by
that date.
new text end

new text begin (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. 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.
new text end

new text begin (f) All tax credit request applications filed 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.
new text end

new text begin (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:
new text end

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

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

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

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

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

new text begin Subd. 4. new text end

new text begin Annual reports. new text end

new text begin (a) By February 1 of each year, each qualified small
business that received an investment that qualified for a credit, and each qualified investor
and qualified fund that made an investment that qualified for a credit, must submit an
annual report to the commissioner and pay a filing fee of $100. Each qualified investor and
qualified fund must submit reports for three years following each year in which it made
an investment that qualified for a credit, and each qualified small business must submit
reports for five years following the year in which it received an investment qualifying
for a credit. Reports must be made in the form required by the commissioner. All
filing fees collected must be deposited in the greater Minnesota angel investment credit
administration account in the special revenue fund.
new text end

new text begin (b) A report from a qualified small business must certify that the business satisfies
the following requirements:
new text end

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

new text begin (3) that the business meets the payroll requirements in subdivision 2, paragraph
(c), clause (6).
new text end

new text begin (c) Reports from qualified investors must certify that the investor remains invested
in the qualified small business as required by subdivision 3, paragraph (g).
new text end

new text begin (d) Reports from qualified funds must certify that the fund remains invested in the
qualified small business as required by subdivision 3, paragraph (g).
new text end

new text begin (e) A qualified small business that ceases all operations and becomes insolvent
must file a final annual report in the form required by the commissioner documenting its
insolvency. In the following years, the business is exempt from the annual reporting
requirement, the report filing fee, and the fine for failure to file a report.
new text end

new text begin (f) A qualified small business, qualified investor, or qualified fund that fails to file an
annual report as required under this subdivision is subject to a $500 fine.
new text end

new text begin Subd. 5. new text end

new text begin Revocation of credits. new text end

new text begin (a) If the commissioner determines that a
qualified investor or qualified fund did not meet the three-year holding period required in
subdivision 3, paragraph (g), any credit allocated and certified to the investor or fund is
revoked and must be repaid by the investor.
new text end

new text begin (b) If the commissioner determines that a business did not meet the employment and
payroll requirements in subdivision 2, paragraph (c), clause (2), 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:
new text end

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

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

new text begin (d) For the repayment of credits allowed under this section and section 290.0693,
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 end

new text begin Subd. 6. new text end

new text begin Data privacy. new text end

new text begin Data contained in an application submitted to the
commissioner under this section are nonpublic data, or private data on individuals, as
defined in section 13.02, subdivision 9 or 12, except that the following data items are public:
new text end

new text begin (1) the name, mailing address, telephone number, e-mail address, contact person's
name, and industry type of a qualified small business upon approval of the application
and certification by the commissioner under subdivision 2;
new text end

new text begin (2) for credit certificates issued under subdivision 5, the amount of the credit
certificate issued, amount of the qualified investment, the name of the qualified investor or
qualified fund that received the certificate, and the name of the qualifying small business
in which the qualifying investment was made;
new text end

new text begin (3) for credits revoked under subdivision 5, the amount revoked and the name of the
qualified investor or qualified fund; and
new text end

new text begin (4) for credits revoked under subdivision 5, paragraphs (b) and (c), the amount
revoked and the name of the qualified small business.
new text end

new text begin Subd. 7. new text end

new text begin Report to the legislature. new text end

new text begin 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:
new text end

new text begin (1) the number and amount of the credits issued;
new text end

new text begin (2) the recipients of the credits;
new text end

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

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

new text begin (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;
new text end

new text begin (6) the number and amount of credits revoked under subdivision 5;
new text end

new text begin (7) the number and amount of credits that are no longer subject to the three-year
holding period because of the exceptions under subdivision 3, paragraph (g), clauses
(1) to (4); and
new text end

new text begin (8) any other information relevant to evaluating the effect of these credits.
new text end

new text begin Subd. 8. new text end

new text begin Appropriation. new text end

new text begin Amounts in the greater Minnesota angel investment credit
administration account in the special revenue fund are appropriated to the commissioner
for costs associated with certifying applications and refunding application fees under
subdivision 2, and for expenses of administering the credit.
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, 2013.
new text end

Sec. 2.

new text begin [290.0693] GREATER MINNESOTA ANGEL INVESTMENT CREDIT.
new text end

new text begin Subdivision 1. new text end

new text begin Definitions. new text end

new text begin For purposes of this section, terms defined in section
116J.8739 have the meaning given in that section.
new text end

new text begin Subd. 2. new text end

new text begin Credit allowed. new text end

new text begin A qualified investor is allowed a credit against the tax
imposed under this chapter for qualified investments made in a qualified small business
for the taxable year. The credit equals the amount and applies to the taxable year indicated
on the certificate provided to the qualified investor under section 116J.8738, but the
maximum credit in any taxable year is $250,000 for a married couple filing a joint return,
and $125,000 for all other claimants.
new text end

new text begin Subd. 3. new text end

new text begin Proportional credits. new text end

new text begin Each pass-through entity must provide each
investor a statement indicating the investor's share of the credit amount certified to the
pass-through entity based on its share of the pass-through entity's capital assets at the
time of the qualified investment.
new text end

new text begin Subd. 4. new text end

new text begin Credit refundable. new text end

new text begin If the amount of the credit under this section for any
taxable year exceeds the claimant's liability for tax under this chapter, the commissioner
shall refund the excess to the claimant. An amount sufficient to pay the refunds is
appropriated to the commissioner from the general fund.
new text end

new text begin Subd. 5. new text end

new text begin Audit powers. new text end

new text begin Notwithstanding the certification of eligibility issued by the
commissioner of employment and economic development under sections 116J.8737 and
116J.8738, the commissioner may utilize any audit and examination powers under chapter
270C or 289A to the extent necessary to verify that the taxpayer is eligible for the credit
and to assess for the amount of any improperly claimed credit.
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, 2013.
new text end