HF 2750

as introduced - 86th Legislature (2009 - 2010) Posted on 02/09/2010 11:32pm

A bill for an act
relating to taxation; providing an investment tax credit; requiring reports;
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.8737] SMALL BUSINESS INVESTMENT TAX CREDIT.
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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.
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new text begin (b) "Qualified small business" means a business that satisfies all of the following
conditions:
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new text begin (1) the business has its headquarters in Minnesota;
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new text begin (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;
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new text begin (3) the business is engaged in, or is committed to engage in, innovation in Minnesota
in one of the following:
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new text begin (i) using proprietary technology to add value to a product, process, or service in a
qualified high-technology field;
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new text begin (ii) researching or developing a proprietary product, process, or service in a qualified
high-technology field;
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new text begin (iii) researching, developing, or producing a new proprietary technology for use in
the fields of tourism, forestry, mining, or transportation; or
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new text begin (iv) qualified green manufacturing;
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new text begin (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;
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new text begin (5) the business has fewer than 25 employees;
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new text begin (6) if the business has five or more employees as measured on a full-time equivalent
basis, the business must pay its employees in excess of the first five annual wages at least
175 percent of the federal poverty guideline for the year for a family of four;
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new text begin (7) the business has not been in operation for more than ten consecutive years;
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new text begin (8) the business has not received more than $4,000,000 in qualifying investments
that have qualified for and received tax credits under this section;
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new text begin (9) the business is not a member of a unitary group that employs more than 100
employees; and
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new text begin (10) the business has not previously received private equity investments of more
than $2,000,000.
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new text begin (c) "Qualified high-technology field" includes, but is not limited to, aerospace,
agricultural processing, alternative energy, environmental engineering, food technology,
cellulosic ethanol, information technology, materials science technology, nanotechnology,
telecommunications, biotechnology, medical device products, pharmaceuticals,
diagnostics, biologicals, and veterinary science.
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new text begin (d) "Proprietary technology" means the technical innovations that are unique and
legally owned or licensed by a business and includes, without limitation, those innovations
that are patented, patent pending, a subject of trade secrets, or copyrighted.
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new text begin (e) "Qualified green manufacturing" means a business whose primary business
activity is production of products, processes, methods, technologies, or services, excluding
consulting, intended to do one or more of the following:
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new text begin (1) increase the use of energy from renewable sources, as defined in section
216B.1691;
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new text begin (2) increase the energy efficiency of the electric utility-producing infrastructure
system or to increase energy conservation related to electricity or other utility use, as
provided in sections 216B.2401 and 216B.241;
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new text begin (3) reduce greenhouse gas emissions, as defined in section 216H.01, subdivision 2,
or to mitigate greenhouse gas emissions or other waste products through, but not limited
to, carbon capture, storage, or sequestration;
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new text begin (4) monitor, protect, restore, and preserve the quality of surface waters; and
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new text begin (5) expand use of biofuels, including expanding the feasibility or reducing the cost
of producing biofuels or the types of equipment, machinery, and vehicles that can use
biofuels.
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new text begin (f) "Qualified taxpayer" means an accredited investor, within the meaning of
Regulation D of the Securities and Exchange Commission, Code of Federal Regulations,
title 17, section 230.501(a), who:
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new text begin (1) does not own, control, or hold power to vote 20 percent or more of the outstanding
securities of the qualified small business in which the eligible investment is proposed; or
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new text begin (2) does not receive more than 50 percent of the taxpayer's gross annual income from
the qualified small business in which the eligible investment is proposed.
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new text begin A member of the family of a taxpayer disqualified by this subdivision is not eligible
for a credit under this section.
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new text begin (g)(1) "Qualified angel investment network fund" means a pooled investment fund
that:
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new text begin (i) invests in qualified small businesses;
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new text begin (ii) is organized as a pass-through entity; and
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new text begin (iii) has at least three separate investors, all of whom are qualified taxpayers
as defined in paragraph (f), and that own no more than 50 percent of the outstanding
ownership interests in the fund; and
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new text begin (2) for purposes of determining the number of investors and the ownership interest
of an investor under this paragraph, the ownership interests of an investor include those of
the investor's family, and any corporation, limited liability company, partnership, or trust
in which the investor or the investor's family has a controlling equity interest or exercises
management control. Investments in the fund may consist of equity investments or notes
that pay interest or other fixed amounts, or any combination of both.
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new text begin (h) "Qualified investment" means either a cash investment of a minimum of:
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new text begin (1) $10,000 in a calendar year by a qualified taxpayer; or
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new text begin (2) $50,000 in a calendar year by a qualified angel investment network fund.
new text end

new text begin The qualified investment in a qualified small business must be 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.
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new text begin (i) "Family" means a family member within the meaning of the Internal Revenue
Code, section 267(c)(4).
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new text begin Subd. 2. new text end

new text begin Certification of small businesses. new text end

new text begin (a) Businesses may apply to the
commissioner for certification as a qualified small business. The application must be in the
form and be made under the procedures specified by the commissioner, accompanied by
an application fee of $150. The application for certification 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. Application fees collected are appropriated to the commissioner to be used for
personnel and administrative expenses related to administering the program.
new text end

new text begin (b) A business seeking certification must submit an application for each taxable
year for which the business desires certification. If a qualified small business receives
a qualified investment for which tax credits are allocated, the business must annually
submit a certified small business report in the form required by the commissioner with
the required fee no later than February 1 for the two years subsequent to the last qualified
investment. Failure to file an annual report as required under this subdivision results in a
fine of $500 and revocation of certification.
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new text begin (c) The commissioner must maintain a list of businesses certified under this
subdivision 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 Certification of qualified taxpayers. new text end

new text begin (a) Taxpayers may apply to the
commissioner for certification as a qualified taxpayer. The application must be in the
form and be made under the procedures specified by the commissioner, accompanied by
an application fee of $350. The application for certification of qualified taxpayers 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. Application fees are appropriated to the commissioner
for personnel and administrative expenses related to administering the program.
new text end

new text begin (b) A qualified taxpayer seeking certification must submit an application for each
taxable year in which the qualified taxpayer seeks certification. If a qualified taxpayer
receives tax credits under this section, a qualified taxpayer must submit an angel investor
annual report in the form required by the commissioner with the required fee no later than
February 1 of each year for two years subsequent to the last allocation of tax credits.
Failure to file an angel investor annual report as required under this subdivision results
in the revocation of tax credits. Once a qualified taxpayer has filed the required annual
reports and accompanying fees for two subsequent years following allocation of tax
credits and complied with all other requirements for that allocation, the tax credits are
no longer subject to revocation.
new text end

new text begin Subd. 4. new text end

new text begin Certification of qualified angel investment network funds. new text end

new text begin (a)
Angel investment network funds may apply to the commissioner of employment and
economic development for certification as a qualified angel investment network fund.
The application must be in the form and be made under the procedures specified by
the commissioner, accompanied by an application fee of $1,000. The application for
certification of qualified angel investor network funds must be made available on the
department's Web site by August 1, 2010. Applications for subsequent years' certification
must be made available by November 1 of the preceding year. Application fees collected
are appropriated to the commissioner to be used for personnel and administrative expenses
related to administering the program.
new text end

new text begin (b) A qualified angel investment network fund seeking certification must submit an
application for each taxable year for which the angel investment network fund seeks
certification. If any member of a qualified angel investment network fund receives tax
credits under this section for qualified investments made by the fund, the qualified angel
investment network fund must annually submit an angel investor annual report in the
form required by the commissioner with the required fee no later than February 1 of
each year for two years subsequent to the last allocation of credits. Failure to file an
angel investor annual report as required under this subdivision results in revocation of
tax credits. Once a qualified angel investment network fund has filed the required annual
reports and accompanying fees for two subsequent years following allocation of tax
credits and complied with all other requirements for that allocation, the tax credits are
no longer subject to revocation.
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new text begin new text end

new text begin Subd. 5. new text end

new text begin Credit allowed. new text end

new text begin (a) A qualified taxpayer or angel investor network
fund is allowed a credit in the amount determined by the certification allocated by the
commissioner against the tax imposed by chapter 290. The commissioner must not allocate
more than $10,000,000 in credits to qualified taxpayers or angel investment network funds
for taxable years beginning after December 31, 2009, and before January 1, 2012, and
must not allocate more than $12,000,000 in credits per year for taxable years beginning
after December 31, 2011. Any portion of a taxable year's credits that is not allocated by
the commissioner does not cancel and may be carried forward to the subsequent taxable
year until all credits have been allocated. Applications for tax investment credits 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.
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new text begin (b) Tax investment credits must be allocated to qualified taxpayers or angel investor
network funds in the order that the tax credit request applications are filed with the
department. 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 credits are
deemed revoked. A qualified taxpayer or angel investor network fund that fails to invest
as specified in the application, within 60 days from allocation of the credits, must notify
the department of the failure to invest within five business days of the expiration of the
60-day investment period.
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new text begin (c) All tax credit request applications filed with the department on the same day must
be treated as having been filed contemporaneously. In the event that two or more qualified
taxpayers or angel investment network funds file tax credit request applications on the
same day, and the aggregate amount of credit allocation claims exceeds the aggregate limit
of credit under this section or the lesser amount of credits that remain unallocated on that
day, then the credits must be allocated among the qualified taxpayers or angel investment
network 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 taxpayer or angel investment network 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 taxpayer 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 fiscal year.
new text end

new text begin (d) The commissioner must notify the commissioner of revenue of every credit
allocated and every credit revoked under this section.
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new text begin Subd. 6. new text end

new text begin Annual reports. new text end

new text begin (a) By February 1 of each year for two years subsequent
to the last allocation of credits, certified small businesses, qualified taxpayers, and
qualified angel investment network funds must submit an annual report and a filing fee of
$100. All report fees collected are appropriated to the commissioner for personnel and
administrative expense related to administering the program.
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new text begin (b) Certified businesses must certify to the department in the form required by the
commissioner that it satisfies the following requirements:
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new text begin (1) the business has its headquarters in Minnesota;
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new text begin (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;
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new text begin (3) that the business is engaged in, or is committed to engage in, innovation in
Minnesota as defined under subdivision 1; and
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new text begin (4) that the business meets the payroll requirements in subdivision 1, paragraph
(b), clause (6).
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new text begin (c) Certified taxpayers must certify to the department in the form required by the
commissioner that the investor satisfies the following requirements:
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new text begin (1) the taxpayer continues to meet the requirements of subdivision 1, paragraph
(f); and
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new text begin (2) that the taxpayer continues to remain invested in the qualified small business as
required by section 290.0692, subdivision 3.
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new text begin (d) Certified angel investment network funds must certify to the department in the
form required by the commissioner that the investor satisfies the following requirements:
new text end

new text begin (1) the taxpayer continues to meet the requirements of subdivision 1, paragraph
(g); and
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new text begin (2) that the angel investment network fund continues to remain invested in the
qualified small business as required by section 290.0692, subdivision 3.
new text end

new text begin Subd. 7. new text end

new text begin Rulemaking. new text end

new text begin The commissioner's actions in establishing procedures and
requirements and in making determinations and certifications to administer this section are
not a rule for purposes of chapter 14, are not subject to the Administrative Procedure Act
contained in chapter 14, and are not subject to section 14.386.
new text end

new text begin Subd. 8. new text end

new text begin Report. new text end

new text begin Beginning in 2011, the commissioner must annually report by
March 15 to the chairs of the committees having jurisdiction over taxes and economic
development in the senate and the house of representatives on the tax credits issued under
this section. The report must include:
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new text begin (1) the number and amount of the credits issued;
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new text begin (2) the recipients of the credits;
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new text begin (3) the number and type of each business certified as a qualified small business;
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new text begin (4) to the extent determinable, the total amount of investment generated by these
credits; and
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new text begin (5) any other information relevant to evaluating the effect of these credits.
new text end

new text begin EFFECTIVE DATE. new text end

new text begin This section is effective for investments made after July
1, 2010, for taxable years beginning after December 31, 2009, and only applies to
investments made after the qualified business and the qualified taxpayer or qualified angel
investment network fund have been certified by the commissioner of employment and
economic development.
new text end

Sec. 2.

new text begin [290.0692] SMALL BUSINESS INVESTMENT CREDIT; CREDIT
ALLOWED; LIMITATIONS; HOLDING PERIOD; AND CARRYOVER.
new text end

new text begin Subdivision 1. new text end

new text begin Credit allowed. new text end

new text begin A qualified taxpayer is allowed a credit against the
tax imposed under this chapter for investments made in the year in a qualified small
business as defined under section 116J.8737. The credit equals 25 percent of the qualified
taxpayer's investment in the business, but not to exceed the lesser of:
new text end

new text begin (1) the liability for tax under this chapter, including the applicable alternative
minimum tax, but excluding the minimum fee under section 290.0922; and
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new text begin (2) the amount of the certificate provided to the qualified taxpayer under section
116J.8737.
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new text begin Subd. 2. new text end

new text begin Limitations. new text end

new text begin No taxpayer may receive more than $125,000 in credits
under this section in any one year.
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new text begin Subd. 3. new text end

new text begin Holding periods. new text end

new text begin The credit is allowed only for investments made after
the qualified taxpayer or qualified angel investment network fund has been certified by
the commissioner of employment and economic development under section 116J.8737.
Any credit taken by a taxpayer must be repaid, and any unused credits must be canceled,
if the investment in the qualified small business is not held for at least three years. The
three-year holding period does not apply if:
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new text begin (1) the investment by the qualified taxpayer becomes worthless before the end
of the three-year period;
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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;
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new text begin (3) the qualified small business is sold before the end of the three-year period; or
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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 Subd. 4. 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 assets at the time of
the qualified investment.
new text end

new text begin Subd. 5. new text end

new text begin Carryover. new text end

new text begin If the amount of the credit under this subdivision for any
taxable year exceeds the liability for tax, the excess is a credit carryover to each of the ten
succeeding taxable years. The entire amount of the excess unused credit for the taxable
year must be carried first to the earliest of the taxable years to which the credit may be
carried. The amount of the unused credit that may be added under this subdivision may
not exceed the taxpayer's liability for tax less the credit for the taxable year.
new text end

new text begin Subd. 6. new text end

new text begin Transfer of credits. new text end

new text begin Any taxpayer who has not had liability under this
chapter for the immediate past three taxable years and does not have anticipated liability
for the current taxable year may transfer the entirety of the credit to any natural person of
net worth, as defined in the Code of Federal Regulations, title 17, section 230.501(a). No
person is entitled to a refund for the interest created under this subdivision. Only the full
credit for any one taxpayer may be transferred and the interest may be transferred only one
time. A credit acquired by transfer is subject to the limitations prescribed in this section.
Documentation of any credit acquired by transfer must be provided by the taxpayer in
the form required by the commissioner.
new text end

new text begin Subd. 7. new text end

new text begin Audit powers. new text end

new text begin Notwithstanding the certification eligibility issued by the
commissioner of employment and economic development under section 116J.8737, the
commissioner may utilize any audit and examination powers under chapters 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 for investments made after July
1, 2010, for taxable years beginning after December 31, 2009, and only applies to
investments made after the qualified taxpayer has been certified by the commissioner of
employment and economic development.
new text end