SF 292

as introduced - 86th Legislature (2009 - 2010) Posted on 02/09/2010 02:12am

A bill for an act
relating to taxation; insurance; providing a credit for investment in start-up and
emerging Minnesota businesses; proposing coding for new law in Minnesota
Statutes, chapters 116J; 297I.

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

Section 1.

new text begin [116J.665] MINNESOTA BUSINESS INVESTMENT COMPANY
CREDIT.
new text end

new text begin Subdivision 1. 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.
new text end

new text begin (b) "Affiliate" means:
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new text begin (1) any person who, directly or indirectly, beneficially owns, controls, or holds
power to vote 15 percent or more of the outstanding voting securities or other voting
ownership interest of a Minnesota business investment company or insurance company;
new text end

new text begin (2) any person, 15 percent or more of whose outstanding voting securities or other
voting ownership interests are directly or indirectly beneficially owned, controlled, or held
with power to vote by a Minnesota business investment company or insurance company.
new text end

new text begin Notwithstanding this subdivision, an investment by a participating investor in a
Minnesota business investment company pursuant to an allocation of premium tax credits
under this section does not cause that Minnesota business investment company to become
an affiliate of that participating investor.
new text end

new text begin (c) "Allocation date" means the date on which credits under section 297I.23 are
allocated to the participating investors of a Minnesota business investment company
under this section.
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new text begin (d) "Designated capital" means an amount of money that:
new text end

new text begin (1) is invested by a participating investor in a Minnesota business investment
company; and
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new text begin (2) fully funds the purchase price of either or both participating investor's equity
interest in a Minnesota business investment company or a qualified debt instrument issued
by a Minnesota business investment company.
new text end

new text begin (e) "Minnesota business investment company" means a partnership, corporation,
trust, or limited liability company, organized on a for-profit basis, that:
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new text begin (1) has its principal office located or is headquartered in Minnesota;
new text end

new text begin (2) has as its primary business activity the investment of cash in qualified businesses;
and
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new text begin (3) is certified by the Department of Employment and Economic Development as
meeting the criteria in this section.
new text end

new text begin (f) "Participating investor" means any insurer as defined in section 60A.02,
subdivision 4, that contributes designated capital pursuant to this section.
new text end

new text begin (g) "Person" means any natural person or entity, including, but not limited to, a
corporation, general or limited partnership, trust, or limited liability company.
new text end

new text begin (h)(1) "Qualified business" means a business that is independently owned and
operated and meets all of the following requirements:
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new text begin (i) it is headquartered in Minnesota, its principal business operations are located in
this state, and at least 60 percent of its employees are located in Minnesota;
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new text begin (ii) it has not more than 100 employees;
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new text begin (iii) it is not predominantly engaged in:
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new text begin (A) professional services provided by accountants, doctors, or lawyers;
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new text begin (B) banking or lending;
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new text begin (C) real estate development;
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new text begin (D) insurance;
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new text begin (E) oil and gas exploration;
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new text begin (F) direct gambling activities; or
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new text begin (G) making loans to or investments in a Minnesota business investment company
or an affiliate; and
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new text begin (iv) it is not a franchise of and has no financial relationship with a Minnesota business
investment company or any affiliate of a Minnesota business investment company prior to
a Minnesota business investment company's first qualified investment in the business.
new text end

new text begin (2) A business classified as a qualified business at the time of the first qualified
investment in the business will remain classified as a qualified business and may receive
continuing qualified investments from any Minnesota business investment company.
Continuing investments will constitute qualified investments even though the business may
not meet the definition of a qualified business at the time of such continuing investments.
new text end

new text begin (i) "Qualified debt instrument" means a debt instrument issued by a Minnesota
business investment company which meets all of the following criteria:
new text end

new text begin (1) it is issued at par value or a premium;
new text end

new text begin (2) it has an original maturity date of at least four years from the date of issuance,
and a repayment schedule which is not faster than a level principal amortization over
four years; and
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new text begin (3) it satisfies the rating criteria to qualify as "NAIC1," as determined by the
Securities Valuation Office of the National Association of Insurance Commissioners.
new text end

new text begin (j) "Qualified distribution" means any distribution or payment not made to a
participating investor or affiliate of a participating investor by a Minnesota business
investment company in connection with the following:
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new text begin (1) costs and expenses of forming, syndicating, and organizing the Minnesota
business investment company, including fees paid for professional services, and the costs
of financing and insuring the obligations of a Minnesota business investment company;
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new text begin (2) an annual management fee not to exceed two percent of designated capital on
an annual basis to offset the costs and expenses of managing and operating a Minnesota
business investment company;
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new text begin (3) reasonable and necessary fees in accordance with industry custom for ongoing
professional services, including, but not limited to, legal and accounting services related to
the operation of a Minnesota business investment company, not including any lobbying or
governmental relations;
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new text begin (4) any increase or projected increase in federal or state taxes, including penalties
and related interest of the equity owners of a Minnesota business investment company
resulting from the earnings or other tax liability of a Minnesota business investment
company to the extent that the increase is related to the ownership, management, or
operation of a Minnesota business investment company.
new text end

new text begin (5) Payments of principal and interest to holders of qualified debt instruments issued
by a Minnesota business investment company may be made without restriction whatsoever.
new text end

new text begin (k) "Qualified investment" means the investment of money by a Minnesota
business investment company in a qualified business for the purchase of any debt, debt
participation, equity, or hybrid security of any nature and description whatsoever, including
a debt instrument or security that has the characteristics of debt but which provides for
conversion into equity or equity participation instruments such as options or warrants.
Any repayment of a qualified investment prior to one year from the date of issuance shall
result in the amount of such qualified investment being reduced by 50 percent for purposes
of the cumulative investment requirement set forth in subdivision 8, paragraph (c).
new text end

new text begin (l) "State premium tax liability" means any liability incurred by an insurance
company under the provisions of chapter 297I or in the case of a repeal or a reduction by
the state of the liability imposed by chapter 297I, any other tax liability imposed upon an
insurance company by the state.
new text end

new text begin Subd. 2. new text end

new text begin Certification. new text end

new text begin (a) The department must provide a standardized format for
applying for the business investment credit under section 297I.23.
new text end

new text begin (b) An applicant is required to:
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new text begin (1) file an application with the department;
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new text begin (2) pay a nonrefundable application fee of $7,500 at the time of filing the application;
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new text begin (3) submit as part of its application an audited balance sheet that contains an
unqualified opinion of an independent certified public accountant issued not more than 35
days before the application date that states that the applicant has an equity capitalization
of $500,000 or more in the form of unencumbered cash, marketable securities, or other
liquid assets; and
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new text begin (4) have at least two principals or persons, at least one of which is primarily located
in Minnesota, employed or engaged to manage the funds who each have a minimum of
five years of money management experience in the venture capital or business industry.
new text end

new text begin (c) The department may certify partnerships, corporations, trusts, or limited liability
companies, organized on a for-profit basis, which submit an application to be designated
as a Minnesota business investment company if such applicant is located, headquartered,
and licensed or registered to conduct business in Minnesota, has as its primary business
activity the investment of cash in qualified businesses, and meets the other criteria set
forth in this section.
new text end

new text begin (d) The department must review the organizational documents of each applicant for
certification and the business history of each applicant, determine whether the applicant
has satisfied the requirements of this section, and determine whether the officers and the
board of directors, general partners, trustees, managers, or members are trustworthy and
are thoroughly acquainted with the requirements of this section.
new text end

new text begin (e) Within 45 days after the receipt of an application, the department must issue the
certification or refuse the certification and communicate in detail to the applicant the
grounds for refusal, including suggestions for the removal of such grounds.
new text end

new text begin (f) The department must begin accepting applications to become a Minnesota
business investment company as defined under section 297I.23 by August 1, 2009.
new text end

new text begin Subd. 3. new text end

new text begin Requirements. new text end

new text begin (a) An insurance company or affiliate of an insurance
company must not, directly or indirectly:
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new text begin (1) beneficially own, whether through rights, options, convertible interest, or
otherwise, 15 percent or more of the voting securities or other voting ownership interest of
a Minnesota business investment company;
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new text begin (2) manage a Minnesota business investment company; or
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new text begin (3) control the direction of investments for a Minnesota business investment
company.
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new text begin (b) A Minnesota business investment company may obtain one or more guaranties,
indemnities, bonds, insurance policies, or other payment undertakings for the benefit
of its participating investors from any entity, except that in no case can more than one
participating investor of a Minnesota business investment company on an aggregate basis
with all affiliates of such participating investor be entitled to provide such guaranties,
indemnities, bonds, insurance policies, or other payment undertakings in favor of the
participating investors of a Minnesota business investment company and its affiliates in
this state.
new text end

new text begin (c) This subdivision does not preclude a participating investor, insurance company,
or other party from exercising its legal rights and remedies, including, without limitation,
interim management of a Minnesota business investment company, in the event that a
Minnesota business investment company is in default of its statutory obligations or its
contractual obligations to such participating investor, insurance company, or other party, or
from monitoring a Minnesota business investment company to ensure its compliance with
this section or disallowing any investments that have not been approved by the department.
new text end

new text begin (d) The department may contract with an independent third party to review,
investigate, and certify that the applications comply with the provisions of this section.
new text end

new text begin Subd. 4. new text end

new text begin Aggregate limitations on investment tax credits; allocation. new text end

new text begin (a)
The aggregate amount of investment tax credits to be allocated to all participating
investors of Minnesota business investment companies under this section shall not exceed
$160,000,000. No Minnesota business investment company, on an aggregate basis with its
affiliates, may file credit allocation claims that exceed $160,000,000.
new text end

new text begin (b) Credits must be allocated to participating investors in the order that the credit
allocation claims are filed with the department, provided that all credit allocation
claims filed with the department on the same day must be treated as having been filed
contemporaneously. Any credit allocation claims filed with the department prior to the
initial credit allocation claim filing date will be deemed to have been filed on such initial
credit allocation claim filing date. The department will set the initial credit allocation
claim filing date to be not less than 120 days and not greater than 150 days after the
department begins accepting applications for certification.
new text end

new text begin (c) In the event that two or more Minnesota business investment companies file
credit allocation claims with the department on behalf of their respective participating
investors on the same day, and the aggregate amount of credit allocation claims exceeds
the aggregate limit of investment tax credits under this section or the lesser amount of
credits that remain unallocated on that day, then the credits shall be allocated among the
participating investors who filed on that day on a pro rata basis with respect to the amounts
claimed. The pro rata allocation for any one participating investor 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 participating investor and the denominator of which is the total
of all credit allocation claims filed on behalf of all participating investors on that day, by
the aggregate limit of credits under this section or the lesser amount of credits that remain
unallocated on that day.
new text end

new text begin (d) Within ten business days after the department receives a credit allocation claim
filed by a Minnesota business investment company on behalf of one or more of its
participating investors, the department must notify the Minnesota business investment
company of the amount of credits allocated to each of the participating investors of that
Minnesota business investment company. In the event a Minnesota business investment
company does not receive an investment of designated capital from each participating
investor required to earn the amount of credits allocated to such participating investor
within ten business days of the Minnesota business investment company's receipt of notice
of allocation, then it shall notify the department on or before the next business day, and
the credits allocated to such participating investor of the Minnesota business investment
company will be forfeited. The department must then reallocate those forfeited credits
among the participating investors of the other Minnesota business investment companies
on a pro rata basis with respect to the credit allocation claims filed on behalf of the
participating investors. The commissioner is authorized, but not required, to levy a fine of
not more than $50,000 on any participating investor that does not invest the full amount
of designated capital required to fund the credits allocated to it by the department in
accordance with the credit allocation claim filed on its behalf.
new text end

new text begin (e) No participating investor, on an aggregate basis with its affiliates, may file an
allocation claim for more than 25 percent of the maximum amount of investment tax
credits authorized hereunder, regardless of whether such claim is made in connection with
one or more Minnesota business investment companies.
new text end

new text begin Subd. 5. new text end

new text begin Requirements for continuance of certification. new text end

new text begin (a) To maintain its
certification, a Minnesota business investment company must make qualified investments
as follows:
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new text begin (1) within two years after the allocation date, a Minnesota business investment
company must invest an amount equal to at least 35 percent of its designated capital in
qualified investments; and
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new text begin (2) within three years after the allocation date, a Minnesota business investment
company must invest an amount equal to at least 50 percent of its designated capital
in qualified investments.
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new text begin (b) Prior to making a proposed qualified investment in a specific business, a
Minnesota business investment company must request from the department a written
determination that the proposed investment will qualify as a qualified investment in
a qualified business. The department must notify a Minnesota business investment
company within ten business days from the receipt of a request of its determination and an
explanation thereof. If the department fails to notify the Minnesota business investment
company of its determination within the ten-business-day period, the proposed investment
must be deemed to be a qualified investment in a qualified business. If the department
determines that the proposed investment does not meet the definition of a qualified
investment or qualified business, or both, the department may nevertheless consider the
proposed investment a qualified investment and, if necessary, the business a qualified
business, if the department determines that the proposed investment will further state
economic development.
new text end

new text begin (c) All designated capital not invested in qualified investments by a Minnesota
business investment company shall be held or invested in such manner as the Minnesota
business investment company, in its discretion, deems appropriate. Designated capital
and proceeds of designated capital returned to a Minnesota business investment company
after being originally invested in qualified investments may be invested again in qualified
investments and such investment shall count toward the requirements of paragraph (a)
of this subdivision with respect to making investments of designated capital in qualified
investments.
new text end

new text begin (d) If, within four years after its allocation date, a Minnesota business investment
company has not invested at least 60 percent of its designated capital in qualified
investments, neither the Minnesota business investment company nor its affiliates shall
be permitted to receive management fees.
new text end

new text begin (e) If, within six years after its allocation date, a Minnesota business investment
company has not invested at least 100 percent of its designated capital in qualified
investments, neither the Minnesota business investment company nor its affiliates shall
be permitted to receive management fees.
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new text begin (f) A Minnesota business investment company may not invest more than 15 percent
of its designated capital in any one qualified business without the specific approval
of the department.
new text end

new text begin (g) For purposes of calculating the above investment percentage thresholds of
paragraph (a) of this subdivision, the cumulative amount of all qualified investments made
by a Minnesota business investment company from the allocation date must be considered.
new text end

new text begin Subd. 6. new text end

new text begin Minnesota business investment company reporting requirements.
new text end

new text begin (a) Each Minnesota business investment company must report the following to the
department:
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new text begin (1) as soon as practicable after the receipt of designated capital:
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new text begin (i) the name of each participating investor from which the designated capital was
received, including such participating investor's insurance tax identification number;
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new text begin (ii) the amount of each participating investor's investment of designated capital; and
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new text begin (iii) the date on which the designated capital was received;
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new text begin (2) on an annual basis, on or before January 31 of each year:
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new text begin (i) the amount of the Minnesota business investment company's remaining
uninvested designated capital at the end of the immediately preceding taxable year;
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new text begin (ii) whether or not the Minnesota business investment company has invested more
than 15 percent of its total designated capital in any one business;
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new text begin (iii) all qualified investments that the Minnesota business investment company has
made in the previous taxable year, including the number of employees of each qualified
business in which it has made investments at the time of such investment, and as of
December 1 of the preceding taxable year; and
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new text begin (iv) for any qualified business where the Minnesota business investment company
no longer has an investment, the Minnesota business investment company must provide
employment figures for that company as of the last day before the investment was
terminated;
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new text begin (3) other information that the department may reasonably request that will help the
department ascertain the impact of the Minnesota business investment company program
both directly and indirectly on the economy of the state of Minnesota including, but
not limited to, the number of jobs created by qualified businesses that have received
qualified investments;
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new text begin (4) within 90 days of the close of its fiscal year, annual audited financial statements
of the Minnesota business investment company, which must include the opinion of an
independent certified public accountant; and
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new text begin (5) an "agreed upon procedures report" or equivalent regarding the operations of the
Minnesota business investment company.
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new text begin (b) A Minnesota business investment company must pay to the department an
annual, nonrefundable certification fee of $5,000 on or before April 1, or $10,000 if later.
No annual certification fee is required if the payment date for such fee is within six months
of the date a Minnesota business investment company is first certified by the department.
new text end

new text begin (c) Upon satisfying the requirements of subdivision 5, paragraph (a), clause (2), a
Minnesota business investment company shall provide the notice to the department and
the department shall, within 60 days of receipt of such notice, either confirm that the
Minnesota business investment company has satisfied the requirements of subdivision
5, paragraph (a), clause (2), as of such date or provide notice of noncompliance and
an explanation of any existing deficiencies. If the department does not provide such
notification within 60 days, the Minnesota business investment company shall be deemed
to have met the requirements of subdivision 5, paragraph (a), clause (2).
new text end

new text begin Subd. 7. new text end

new text begin Distributions. new text end

new text begin A Minnesota business investment company may make
qualified distributions at any time. In order for a Minnesota business investment
company to make a distribution other than a qualified distribution to its equity holders,
the cumulative amount of all qualified investments of the Minnesota business investment
company must equal or exceed 100 percent of its designated capital.
new text end

new text begin Subd. 8. new text end

new text begin Decertification. new text end

new text begin (a) The department shall conduct an annual review of
each Minnesota business investment company to determine if a Minnesota business
investment company is abiding by the requirements of certification and to ensure that no
investment has been made in violation of this section. The cost of the annual review
must be paid by each Minnesota business investment company according to a reasonable
fee schedule adopted by the department.
new text end

new text begin (b) Any material violation of this section, including any material misrepresentation
made to the department in connection with the application process, may be grounds for
decertification of a Minnesota business investment company and the disallowance of
credits under section 297I.23, provided that in all instances the department shall provide
notice to the Minnesota business investment company of the grounds of such proposed
decertification and the opportunity to cure such violation before any such decertification
shall become effective.
new text end

new text begin (c) Once a Minnesota business investment company has invested an amount
cumulatively equal to 100 percent of its designated capital in qualified investments,
provided that the Minnesota business investment company has met all other requirements
under this section as of such date, the Minnesota business investment company shall
no longer be subject to regulation by the department or the reporting requirements
under subdivision 6. Upon receiving certification by a Minnesota business investment
company that it has invested an amount equal to 100 percent of its designated capital, the
department must notify a Minnesota business investment company within 60 days that it
has or has not met the requirements, with a reason for the determination if it has not. If the
department does not provide notification of deregulation within 60 days, the Minnesota
business investment company shall be deemed to have met the requirements and shall be
deemed to no longer be subject to regulation by the department.
new text end

new text begin (d) The department must send written notice of any decertification proceedings to
the commissioner of revenue and to the address of each participating investor whose
tax credit may be subject to recapture or forfeiture, using the address shown on the last
filing submitted to the department.
new text end

new text begin Subd. 9. new text end

new text begin Registration requirements. new text end

new text begin All investments by participating investors
for which tax credits are awarded under this section must be registered or specifically
exempt from registration.
new text end

new text begin Subd. 10. new text end

new text begin Reports to governor and legislature. new text end

new text begin The department must make
an annual report to the governor and the chairs and ranking minority members of the
committees having jurisdiction over taxes and economic development. The report must
include:
new text end

new text begin (1) the number of Minnesota business investment companies holding designated
capital;
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new text begin (2) the amount of designated capital invested in each Minnesota business investment
company;
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new text begin (3) the cumulative amount that each Minnesota business investment company has
invested as of January 1, 2010, and the cumulative total each year thereafter;
new text end

new text begin (4) the cumulative amount of follow-on capital that the investments of each
Minnesota business investment company have created in terms of capital invested in
qualified businesses at the same time or subsequent to investments made by a Minnesota
business investment company in such businesses by sources other than Minnesota
business investment companies;
new text end

new text begin (5) the total amount of investment tax credits applied under this section for each year;
new text end

new text begin (6) the performance of each Minnesota business investment company with regard to
the requirements for continued certification;
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new text begin (7) the classification of the companies in which each Minnesota business investment
company has invested according to industrial sector and size of company;
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new text begin (8) the gross number of jobs created by investments made by each Minnesota
business investment company and the number of jobs retained;
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new text begin (9) the location of the companies in which each Minnesota business investment
company has invested;
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new text begin (10) those Minnesota business investment companies that have been decertified,
including the reasons for decertification; and
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new text begin (11) other related information as necessary to evaluate the effect of this section on
economic development.
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.

new text begin [297I.23] MINNESOTA BUSINESS INVESTMENT COMPANY CREDIT.
new text end

new text begin (a) A participating investor as defined under section 116J.665, subdivision 1, shall
earn a credit against the tax imposed in this chapter equal to 80 percent of the participating
investor's investment of designated capital in a Minnesota business investment company.
Beginning January 1, 2013, a participating investor may claim the credit as follows:
new text end

new text begin (1) in tax year 2013, an amount equal to 20 percent of the participating investor's
investment of designated capital;
new text end

new text begin (2) in tax year 2014, an amount equal to 20 percent of the participating investor's
investment of designated capital;
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new text begin (3) in tax year 2015, an amount equal to 20 percent of the participating investor's
investment of designated capital; and
new text end

new text begin (4) in tax year 2016, an amount equal to 20 percent of the participating investor's
investment of designated capital.
new text end

new text begin (b) The credit for any taxable year must not exceed the liability for tax under
this chapter for such year. If the amount of the credit determined under this section for
any taxable year exceeds the liability for tax under this chapter, the excess shall be an
investment tax credit carryover to future taxable years without limitation. Credits may be
used in connection with both final payments and prepayments of a participating investor's
state premium tax liability.
new text end

new text begin (c) A participating investor claiming a credit under this section is not required to pay
any additional retaliatory tax levied as a result of claiming the credit.
new text end

new text begin (d) A participating investor is not required to reduce the amount of tax pursuant to
the state premium tax liability included by the participating investor in connection with
ratemaking for any insurance contract written in this state because of a reduction in the
participating investor's tax liability based on the tax credit allowed under this section.
new text end

new text begin (e) If the taxes paid by a participating investor with respect to its state premium
tax liability constitute a credit against any other tax that is imposed by this state, the
participating investor's credit against the other tax shall not be reduced by virtue of the
reduction in the participating investor's tax liability based on the tax credit allowed
under this section.
new text end

new text begin (f) Final decertification of Minnesota business investment company under section
116J.665 may result in the disallowance and the recapture of the credit allowed under this
section. The amount to be disallowed and recaptured must be assessed as follows:
new text end

new text begin (1) decertification of a Minnesota business investment company within two years of
its allocation date and prior to meeting the requirements of section 116J.665, subdivision
5, paragraph (a), clause (1), shall result in the disallowance of all of the credits allowed
under this section;
new text end

new text begin (2) decertification of Minnesota business investment company that has already met
the requirements of section 116J.665, subdivision 5, paragraph (a), clause (1), shall not
cause the disallowance of any credits allowed under this section nor the recapture of any
portion of the credits that was previously taken.
new text end

new text begin (g) A participating investor must not transfer, agree to transfer, sell, or agree to
sell the credit under this section until 180 days from the date on which the participating
investor invested designated capital. After 180 days from the date of investment, a
participating investor, or subsequent transferee, may transfer credits based upon rules
adopted by the department to facilitate such transfers. Any transfer or sale of the credits
does not affect the time schedule for claiming the credit. Any tax credits recaptured
under this section remain the liability of the participating investor that actually applied
the credit towards its tax liability.
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, 2009.
new text end