SB0011 97TH GENERAL ASSEMBLY

LRB097 06654 HLH 46740 b

97TH GENERAL ASSEMBLY
State of Illinois
2011 and 2012
SB0011

Introduced 1/27/2011, by Sen. Dan Kotowski

SYNOPSIS AS INTRODUCED:

35 ILCS 5/221 new
35 ILCS 5/222 new

Amends the Illinois Income Tax Act. Creates income tax credits for amounts invested by a taxpayer in a qualified new business venture, including investments made through an investment fund manager. Provides that the credit shall be equal to 25% of the amount invested. Provides that the credits may be carried forward for a period of 5 years. Provides that not more than $10,000,000 in angel investment credits may be issued per calendar year. Provides that the credits are exempt from the Act's automatic sunset provisions. Provides that the Department of Commerce and Economic Opportunity shall certify the qualified business ventures and investment fund managers. Sets forth certain criteria for the certification of the business venture. Effective immediately.

FISCAL NOTE ACT MAY APPLY

A BILL FOR

AN ACT concerning revenue.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 5. The Illinois Income Tax Act is amended by adding Sections 221 and 222 as follows:

(35 ILCS 5/221 new)

Sec. 221. Early stage seed investment credit.

(a) As used in this Section:

"Claimant" means a person who files a claim for a credit under this Section.

"Department" means the Department of Commerce and Economic Opportunity.

"Fund manager" means an investment fund manager certified under subsection (e) of this Section.

(b) For taxable years beginning after December 31, 2011, subject to the limitations provided under this Section, a claimant may claim, as a credit against the tax imposed under subsections (a) and (b) of Section 201 of this Act, an amount equal to 25% of the amount invested by the claimant with a fund manager and invested by the fund manager in a business certified under Section 222 of this Act. The credit under this Section may not exceed the taxpayer's Illinois income tax liability for the taxable year. If the amount of the credit exceeds the tax liability for the year, the excess may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit year. The credit shall be applied to the earliest year for which there is a tax liability. If there are credits from more than one tax year that are available to offset a liability, the earlier credit shall be applied first.

In the case of a partnership or limited liability company, the computation of the 25% limitation under this subsection shall be determined at the entity level rather than the claimant level and may be allocated among the claimants who make investments in the manner set forth in the entity's organizational documents. The partnership or limited liability company shall provide to the Department and the Department of Revenue the names and tax identification numbers of the claimants, the amounts of the credits allocated to the claimants, and the computation of the allocations.

(c) The Illinois adjusted basis of any investment for which a credit is claimed under this Section shall be reduced by the amount of the credit that is offset against Illinois income taxes. The Illinois basis of a partner's interest in a partnership, a member's interest in a limited liability company, or stock in an S corporation shall be adjusted to reflect adjustments made under this subsection.

(d) If an investment for which a claimant claims a credit under subsection (b) is held by the claimant for less than 3 years, the claimant shall pay to the Department, in the manner prescribed by the Department, the amount of the credit that the claimant received related to the investment.

(e) The Department shall implement a program to certify investment fund managers for purposes of this Section. An investment fund manager desiring certification shall submit an application to the Department. The investment fund manager shall specify in the application the investment amount that the manager wishes to raise, and the Department may certify the manager and determine the amount that qualifies for purposes of this Section. In determining whether to certify an investment fund manager, the Department shall consider the investment fund manager's experience in managing venture capital funds, the past performance of investment funds managed by the applicant, the expected level of investment in the investment fund to be managed by the applicant, and any other relevant factors. The Department may certify only investment fund managers that commit to consider placing investments in businesses certified under Section 222 of this Act.

The Department shall maintain a list of businesses certified under Section 222 of this Act and investment fund managers certified under this subsection, and shall permit public access to the lists through the Department's Internet website.

The Department shall notify the Department of Revenue of every certification issued under this subsection and under Section 222 of this Act and the date on which any such certification is revoked or expires.

(f) The Department, in consultation with the Department of Revenue, shall adopt rules to administer this Section. The rules shall limit the aggregate amount of the tax credits under this Section that may be claimed for investments paid to fund managers certified under subsection (e) at $10,000,000 per calendar year. The rules shall also provide that no claimant may receive a credit under this Section unless the claimant's investment is kept in a certified business, or with a certified fund manager, for no less than 3 years.

(g) A claimant may sell or otherwise transfer a credit awarded under this Section to another person who is subject to the taxes or fees imposed under subsections (a) or (b) of Section 201, if the transferee receives prior authorization from the Department and the Department of Revenue and the Department then notifies the investment fund manager of the transfer. The Department may charge any person selling or otherwise transferring a credit under this subsection a fee equal to 1% of the credit amount sold or transferred.

(h) This Section is exempt from the provisions of Section 250.

(35 ILCS 5/222 new)

Sec. 222. Angel investment credit.

(a) As used in this Section:

"Bona fide angel investment" means a purchase of an equity interest, or any other expenditure, as determined by rule under this Section, that is made by:

(1) a person who reviews new businesses or proposed new businesses for potential investment of the person's money; or

(2) a network of persons each of whom satisfies item (1).

"Claimant" means an individual who files a claim for a credit under this Section.

"Department" means the Department of Commerce and Economic Opportunity.

"Person" means a partnership or limited liability company that is a non-operating entity, as determined by the Department, a natural person, or fiduciary.

"Qualified new business venture" means a business that is certified under this Section.

(b) For taxable years beginning after December 31, 2011, subject to the limitations provided in this Section, a claimant may claim, as a credit against the tax imposed under subsections (a) and (b) of Section 201 of this Act, an amount equal to 25% of the claimant's bona fide angel investment made directly in a qualified new business venture. The credit under this Section may not exceed the taxpayer's Illinois income tax liability for the taxable year. If the amount of the credit exceeds the tax liability for the year, the excess may be carried forward and applied to the tax liability of the 5 taxable years following the excess credit year. The credit shall be applied to the earliest year for which there is a tax liability. If there are credits from more than one tax year that are available to offset a liability, the earlier credit shall be applied first.

(c) The maximum amount of a claimant's investment that may be used as the basis for a credit under this Section is $2,000,000 for each investment made directly in a business certified under this Section.

(d) If an investment for which a claimant claims a credit under subsection (b) is held by the claimant for less than 3 years, the claimant shall pay to the Department, in the manner prescribed by the Department, the amount of the credit that the claimant received related to the investment.

(e) The Illinois adjusted basis of any investment for which a credit is claimed under subsection (b) shall be reduced by the amount of the credit that is offset against Illinois income taxes.

(f) The Department shall implement a program to certify businesses for purposes of this Section. A business desiring certification shall submit an application to the Department in each taxable year for which the business desires certification. The business shall specify in its application the investment amount it wishes to raise, and the Department may certify the business and determine the amount that qualifies for purposes of this Section. Unless otherwise provided under the rules of the Department, a business may be certified under this subsection, and may maintain such certification, only if the business satisfies all of the following conditions:

(1) it has its headquarters in this State;

(2) at least 51% of the employees employed by the business are employed in this State;

(3) it has the potential for increasing jobs in this State, increasing capital investment in this State, or both, and any of the following apply:

(A) it is engaged in, or has committed to engage in, innovation in any of the following: manufacturing; biotechnology; nanotechnology; communications; agriculture; clean energy creation or storage technology; processing or assembling products, including medical devices, pharmaceuticals, computer software, computer hardware, semiconductors, other innovative technology products, or other products that are produced using manufacturing methods that are enabled by applying proprietary technology; or providing services that are enabled by applying proprietary technology; or

(B) it is undertaking pre-commercialization activity related to proprietary technology that includes conducting research, developing a new product or business process, or developing a service that is principally reliant on applying proprietary technology.

(4) it is not primarily engaged in real estate development, insurance, banking, lending, lobbying, political consulting, professional services provided by attorneys, accountants, business consultants, physicians, or health care consultants, wholesale or retail trade, leisure, hospitality, transportation, or construction, except construction of power production plants that derive energy from a renewable energy resource, as defined in Section 1 of the Illinois Power Agency Act;

(5) it has less than 100 employees;

(6) it has been in operation in Illinois for not more than 10 consecutive years prior to the year of certification; and

(7) prior to certification, it has received not more than (i) $2,000,000 in investments that qualified for tax credits under this Section, (ii) $10,000,000 in aggregate private equity investment in cash, and (iii) $4,000,000 in investments that qualified for tax credits under this Section or Section 219 of this Act.

(g) The Department, in consultation with the Department of Revenue, shall adopt rules to administer this Section. The rules shall further define "bona fide angel investment" for purposes of this Section. The rules shall limit the aggregate amount of the tax credits that may be claimed under this Section for investments made in qualified new business ventures at $10,000,000 per calendar year.

(h) A claimant may sell or otherwise transfer a credit awarded under this Section to another person who is subject to the taxes or fees imposed under subsections (a) or (b) of Section 201, if the transferee receives prior authorization from the Department and the Department of Revenue. The Department may charge any person selling or otherwise transferring a credit under this subsection a fee equal to 1% of the credit amount sold or transferred.

(i) This Section is exempt from the provisions of Section 250.

Section 99. Effective date. This Act takes effect upon becoming law.