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HF 329

as introduced - 88th Legislature (2013 - 2014) Posted on 02/04/2013 02:59pm

KEY: stricken = removed, old language.
underscored = added, new language.
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A bill for an act
relating to taxation; small business investment credit; providing a higher credit
percentage for certain investments; amending Minnesota Statutes 2012, section
116J.8737, subdivisions 1, 2, 5, 7.

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

Section 1.

Minnesota Statutes 2012, 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.

new text begin (i) "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 (d).
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 2012, 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 for a calendar year.
new text beginIn addition, the application may request certification as a qualified greater Minnesota
business under paragraph (d).
new text endThe 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 businessnew text begin or a qualified greater Minnesota businessnew 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 certificationnew text begin as a qualified small businessnew 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 not been in operation for more than ten years;

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

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

new text begin (d) 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

deleted text begin (d)deleted text endnew text begin (e)new text end 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.

deleted text begin (e)deleted text endnew text begin (f)new text end In order for a qualified investment in a business to be eligible for tax credits,
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.

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

deleted text begin (g)deleted text endnew text begin (h)new text end 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 beginand
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 copyrighteddeleted text begin.deleted text endnew 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 EFFECTIVE DATE. new text end

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

Sec. 3.

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 tonew text begin:
new text end

new text begin (1)new text end 25 percent of the qualified investment in a qualified small businessnew text begin; or
new text end

new text begin (2) 50 percent of the qualified investment in a greater Minnesota businessnew text end.
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, and 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. 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, 2012.
new text end

Sec. 4.

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 (d),
clause (2), 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.
new text end