1.1 	A bill for an act
1.2 	relating to taxation; allowing a regional emerging investment fund credit and 
1.3 	a seed capital investment credit; imposing duties on the commissioner of 
1.4 	employment and economic development; amending Minnesota Statutes 2006, 
1.5 	section 290.06, by adding subdivisions; proposing coding for new law in 
1.6 	Minnesota Statutes, chapter 116J.
1.7 	BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

1.8 	Section 1. [116J.8732] TAX CREDITS; COMMISSIONER'S 
1.9 	RESPONSIBILITIES.
1.10 		Subdivision 1.Scope. This section establishes rules that regional investment 
1.11 	funds must satisfy to qualify for the regional emerging business investment credit under 
1.12 	section 290.06, subdivision 34, and that businesses must satisfy to qualify for the seed 
1.13 	capital investment credit under section 290.06, subdivision 35, and the commissioner's 
1.14 	responsibility for certifying the funds and qualifying businesses. 
1.15 		Subd. 2.Definitions. (a) For purposes of this section and section 290.06, 
1.16 	subdivisions 34 and 35, the following terms have the meanings given.
1.17 	(b) "Border city" means a city qualifying to designate a border city development 
1.18 	zone under section 469.1731.
1.19 	(c) "Pass-through entity" means a corporation that for the applicable tax year is 
1.20 	treated as an S corporation or a general partnership, limited partnership, limited liability 
1.21 	partnership, trust, or limited liability company and for which the applicable taxable year is 
1.22 	not taxed as a corporation under chapter 290.
1.23 	(d) "Primary sector business" means a qualified business that through the 
1.24 	employment of knowledge or labor adds value to a product, process, or service and 
1.25 	increases revenues to a Minnesota business generated by sales of products or services to 
2.1 	customers outside of the state or increases revenues to a qualified business the customers 
2.2 	of which previously were unable to acquire, or had limited availability of the product or 
2.3 	service from a Minnesota provider.
2.4 	(e) "Qualified business" means a business certified by the commissioner as meeting 
2.5 	the requirements of subdivision 3.
2.6 	(f) "Qualified small business" means a business meeting the requirements of 
2.7 	subdivision 5, paragraph (c).
2.8 	(g) "Regional investment fund" means a fund certified by the commissioner as 
2.9 	meeting the requirements of subdivision 5.
2.10 		Subd. 3.Qualified business for seed capital investment credit. (a) The 
2.11 	commissioner shall certify whether a business that has requested to become a qualified 
2.12 	business meets the requirements of paragraph (b).
2.13 	(b) For purposes of this section, a qualified business must be a primary sector 
2.14 	business, other than a real estate investment trust, that:
2.15 	(1) is incorporated or its satellite operation is incorporated as a for-profit corporation 
2.16 	or is a partnership, limited partnership, limited liability company, limited liability 
2.17 	partnership, or joint venture;
2.18 	(2) is in compliance with the requirements for filings with the commissioner of 
2.19 	commerce under the securities laws of this state;
2.20 	(3) has Minnesota residents as a majority of its employees in its principal office or 
2.21 	the satellite operation, located in a border city;
2.22 	(4) has its principal office in a border city and has the majority of its business 
2.23 	activity performed in a border city, except sales activity, or has a significant operation in 
2.24 	a border city that has or is projected to have more than ten employees or $150,000 of 
2.25 	sales annually; and
2.26 	(5) relies on innovation, research, or the development of new products and processes 
2.27 	in its plans for growth and profitability.
2.28 	(c) The commissioner shall establish the necessary forms and procedures for 
2.29 	certifying qualified businesses.
2.30 	(d) A qualified business may apply to the commissioner for a recertification. Only 
2.31 	one recertification is available to a qualified business. The application for recertification 
2.32 	must be filed with the commissioner within 90 days before the original certification 
2.33 	expiration date. The recertification issued by the director must comply with the provisions 
2.34 	of paragraph (e).
2.35 	(e) The commissioner shall issue a certification letter to a business the commissioner 
2.36 	determines is a qualified business. The certification letter must include:
3.1 	(1) the certification effective date; and
3.2 	(2) the certification expiration date, which may not be more than four years from the 
3.3 	certification effective date.
3.4 		Subd. 4.Seed capital investment credit reporting. Within 30 days after the date 
3.5 	that an investment in a qualified business is purchased, the qualified business shall file with 
3.6 	the commissioner and the commissioner of revenue and provide to the investor completed 
3.7 	forms prescribed by the commissioner of revenue that show as to each investment in the 
3.8 	qualified business the following:
3.9 	(1) the name, address, and Social Security number of the taxpayer who made the 
3.10 	investment; and
3.11 	(2) the dollar amount paid for the investment by the taxpayer.
3.12 		Subd. 5.Qualified regional investment funds. (a) Qualified regional investment 
3.13 	funds are regional investment funds that the commissioner certifies as meeting the 
3.14 	requirements of this subdivision. 
3.15 	(b) For purposes of this section, a "qualified regional investment fund" means a 
3.16 	pooled investment fund that:
3.17 	(1) invests in qualifying small businesses located in the region of the state that 
3.18 	is the focus of the fund;
3.19 	(2) is organized as a pass-through entity;
3.20 	(3) has no fewer than five separate investors and no investor owns more than 25 
3.21 	percent of the outstanding ownership interests in the fund. For purposes of determining 
3.22 	the number of investors and the ownership interests of an investor under this clause, the 
3.23 	ownership interests of an investor include those of (i) the investor's spouse, child, or 
3.24 	sibling, and (ii) a corporation, partnership, limited liability company, trust, or other entity 
3.25 	in which the investor has a controlling equity interest or in which the investor exercises 
3.26 	management control; 
3.27 	(4) has at least two-thirds of its members, shareholders, or partners who are residents 
3.28 	of the region that is the focus of the fund; and
3.29 	(5) allocates at least 60 percent of the funds it invests to qualifying small businesses 
3.30 	within the region. Co-investments from other regional funds count toward this allocation.
3.31 	(c) For purposes of this subdivision, a qualifying small business must satisfy all of 
3.32 	the following requirements:
3.33 	(1) for a business with five or more employees, the business must pay wages and 
3.34 	benefits, measured on a full-time equivalent basis, to 75 percent or more of its employees 
3.35 	in excess of the first five employees, equal to 110 percent of the federal poverty level for 
4.1 	a family of four, and must strive to pay 175 percent of the federal poverty level for a 
4.2 	family of four;
4.3 	(2) the business is engaged in, or is committed to engage in, biotechnology, 
4.4 	technology, manufacturing, agriculture, processing or assembling products, conducting 
4.5 	research and development, or developing a new product or business process;
4.6 	(3) the business is not engaged in real estate development, insurance, banking, 
4.7 	lobbying, political consulting, wholesale or retail trade, leisure, hospitality, construction, 
4.8 	or professional services provided by attorneys, accountants, business consultants, 
4.9 	physicians, or health care consultants;
4.10 	(4) the business has its headquarters in Minnesota;
4.11 	(5) at least 51 percent of the business's employees are employed in Minnesota;
4.12 	(6) the business has fewer than 100 employees;
4.13 	(7) the business had less than $2,000,000 in annual gross sales receipts for the 
4.14 	previous year;
4.15 	(8) the business is not a subsidiary or affiliate of a business which employs more 
4.16 	than 100 employees or has total gross sales receipts for the previous year of more than 
4.17 	$2,000,000, computed by aggregating all of the employees and gross sales receipts of the 
4.18 	business entities affiliated with the business;
4.19 	(9) the business has not previously received more than $2,000,000 in private equity 
4.20 	investments; and
4.21 	(10) the business has not previously received more than $1,000,000 in private equity 
4.22 	investments that qualified for and received tax credits under section 290.06, subdivision 34.
4.23 	(d) Regional investment funds may apply to the commissioner for certification as 
4.24 	a qualified regional investment fund. The applications must be in the form and made 
4.25 	under the procedures specified by the commissioner. The commissioner may certify 
4.26 	up to 20 funds. The commissioner shall award certifications in the order of qualifying 
4.27 	applications received and shall seek to certify funds broadly dispersed across all regions of 
4.28 	the state. Of the 20 funds, the commissioner may certify no more than three funds that 
4.29 	seek business investment opportunities that may qualify for and receive tax credits under 
4.30 	section 290.06, subdivision 34, in more than 15 counties and no more than five funds that 
4.31 	seek business investment opportunities that may qualify for and receive tax credits under 
4.32 	section 290.06, subdivision 34, in the metropolitan area, as defined in section 473.121, 
4.33 	subdivision 2. The commissioner may provide certificates entitling investors in the fund 
4.34 	to credits under this provision up to $600,000 for each fund. The commissioner may 
4.35 	not issue a total amount of certificates for all funds of more than $3,000,000 per year in 
4.36 	fiscal years 2009, 2010, and 2011.
5.1 	(e) The commissioner shall enter into an agreement with each of the funds awarded 
5.2 	credit certificates under paragraph (d). This agreement must include the fund's agreement 
5.3 	to comply with the requirements of this subdivision and section 290.06, subdivision 34, to 
5.4 	report on the employment figures and wages and benefits paid by the businesses in which 
5.5 	investments are made, and to the specific manner in which the fund agrees to satisfy the 
5.6 	requirement to allocate at least 60 percent of its investments to qualified small businesses 
5.7 	within the region. The commissioner shall define "region" for purposes of this subdivision.

5.8 	EFFECTIVE DATE. This section is effective the day following final enactment.

5.9 	Sec. 2. Minnesota Statutes 2006, section 290.06, is amended by adding a subdivision 
5.10 	to read:
5.11 		Subd. 34.Regional emerging business investment credit. (a) A credit is allowed 
5.12 	against the tax imposed by this chapter for investments in a qualifying regional investment 
5.13 	fund. Investments in the fund may consist of equity investments or notes that pay 
5.14 	interest or other fixed amounts, or any combination of both, as the fund's governing body 
5.15 	determines appropriate. The credit equals 25 percent of the taxpayer's investment made 
5.16 	for the taxable year, but not to exceed the lesser of:
5.17 	(1) the liability for tax under this chapter, including the applicable alternative 
5.18 	minimum tax, but excluding the minimum fee under section 290.0922; and
5.19 	(2) the amount of the certificate under section 116J.8732, subdivision 5, provided to 
5.20 	the taxpayer by the fund.
5.21 	(b) The taxpayer must claim the credit in the same taxable year in which the 
5.22 	investment in the fund is made. The credit is allowed only for investments made to a fund 
5.23 	that are made after the fund has been certified by the commissioner of employment and 
5.24 	economic development under paragraph (c).
5.25 	(c) Each fund must provide each investor a statement indicating the investor's share 
5.26 	of the credits certified to the fund under section 116J.8732, subdivision 5, based on the 
5.27 	order in which the investor's investment is made to the fund.
5.28 	(d) If the amount of the credit under this subdivision for any taxable year exceeds 
5.29 	the limitations under paragraph (a), clause (1), the excess is a credit carryover to each of 
5.30 	the ten succeeding taxable years. The entire amount of the excess unused credit for the 
5.31 	taxable year must be carried first to the earliest of the taxable years to which the credit 
5.32 	may be carried. The amount of the unused credit that may be added under this paragraph 
5.33 	may not exceed the taxpayer's liability for tax, less the credit for the taxable year.

6.1 	EFFECTIVE DATE. This section is effective July 1, 2008, for taxable years 
6.2 	beginning after December 31, 2007, and only applies to investments made after the fund 
6.3 	has been certified by the commissioner of employment and economic development.

6.4 	Sec. 3. Minnesota Statutes 2006, section 290.06, is amended by adding a subdivision 
6.5 	to read:
6.6 		Subd. 35.Seed capital investment credit. (a) An individual, estate, or trust is 
6.7 	allowed a credit against the tax imposed by this chapter for investments in a qualifying 
6.8 	business certified under section 116J.8732, subdivision 3. The credit equals 45 percent 
6.9 	of the amount invested by the taxpayer in qualified businesses during the taxable year, 
6.10 	but not to exceed the lesser of: 
6.11 	(1) $112,500; or
6.12 	(2) the liability for tax under this chapter, including the applicable alternative 
6.13 	minimum tax, but excluding the minimum fee under section 290.0922.
6.14 	(b) A pass-through entity that invests in a qualified business must be considered to 
6.15 	be the taxpayer for purposes of the investment limitations in this subdivision and the 
6.16 	amount of the credit allowed with respect to a pass-through entity's investment in a 
6.17 	qualified business must be determined at the pass-through entity level. The amount of the 
6.18 	total credit determined at the pass-through entity level must be allowed to the members in 
6.19 	proportion to their respective interests in the pass-through entity.
6.20 	(c) An investment made in a qualified business from the assets of a retirement 
6.21 	plan is deemed to be the retirement plan participant's investment for the purpose of this 
6.22 	subdivision if a separate account is maintained for the plan participant and the participant 
6.23 	directly controls where the account assets are invested.
6.24 	(d) The investment must be made on or after the certification effective date and 
6.25 	must be at risk in the business to be eligible for the tax credit under this subdivision. 
6.26 	An investment for which a credit is received under this subdivision must remain in the 
6.27 	qualified business for at least three years. Investments placed in escrow do not qualify 
6.28 	for the credit. 
6.29 	(e) The entire amount of an investment for which a credit is claimed under this 
6.30 	subdivision must be expended by the qualified business for plant, equipment, research and 
6.31 	development, marketing and sales activity, or working capital for the qualified business. 
6.32 	(f) A taxpayer who owns a controlling interest in the qualified business or who 
6.33 	receives more than 50 percent of the taxpayer's gross annual income from the qualified 
6.34 	business is not entitled to a credit under this subdivision. A member of the immediate 
6.35 	family of a taxpayer disqualified by this subdivision is not entitled to the credit under this 
7.1 	subdivision. For purposes of this subdivision, "immediate family" means the taxpayer's 
7.2 	spouse, parent, sibling, or child or the spouse of any such person.
7.3 	(g) The commissioner may disallow any credit otherwise allowed under this 
7.4 	subdivision if any representation by a business in the application for certification as a 
7.5 	qualified business proves to be false or if the taxpayer or qualified business fails to satisfy 
7.6 	any conditions under this subdivision or section 116J.8732 or any conditions consistent 
7.7 	with those requirements otherwise determined by the commissioner. The commissioner 
7.8 	has four years after the due date of the return or after the return was filed, whichever 
7.9 	period expires later, to audit the credit and assess additional tax that may be found due 
7.10 	to failure to comply with the provisions of this subdivision and section 116J.8732. The 
7.11 	amount of any credit disallowed by the commissioner that reduced the taxpayer's income 
7.12 	tax liability for any or all applicable tax years, plus penalty and interest as provided under 
7.13 	chapter 289A, must be paid by the taxpayer. 
7.14 	(h) A regional investment fund that invests in a qualified business is the taxpayer 
7.15 	for purposes of the investment limitations in this subdivision. The amount of the credit 
7.16 	allowed with respect to the fund's investment in a qualified business must be determined 
7.17 	at the fund level. The amount of the total credit determined at the regional investment 
7.18 	fund level must be allowed to the investors in the fund in proportion to the investor's 
7.19 	respective interests in the fund.
7.20 	(i) If the amount of the credit under this subdivision for any taxable year exceeds 
7.21 	the limitations under paragraph (a), clause (2), the excess is a credit carryover to each of 
7.22 	the four succeeding taxable years. The entire amount of the excess unused credit for the 
7.23 	taxable year must be carried first to the earliest of the taxable years to which the credit 
7.24 	may be carried. The amount of the unused credit that may be added under this paragraph 
7.25 	may not exceed the taxpayer's liability for tax, less the credit for the taxable year.
7.26 	(j) The aggregate amount of seed capital investment tax credit allowed for 
7.27 	investments under this subdivision is limited to $ ....... for each fiscal year. If investments 
7.28 	in qualified businesses reported to the commissioner exceed the limits on credits for 
7.29 	investments imposed by this subdivision, the credit must be allowed to taxpayers in the 
7.30 	chronological order of their investments in qualified businesses as determined from the 
7.31 	forms filed under section 116J.8732.

7.32 	EFFECTIVE DATE. This section is effective July 1, 2008, for taxable years 
7.33 	beginning after December 31, 2007, and only applies to investments made after the fund 
7.34 	has been certified by the commissioner of employment and economic development.