100TH GENERAL ASSEMBLY
State of Illinois
2017 and 2018
SB3302

 

Introduced 2/16/2018, by Sen. Chuck Weaver

 

SYNOPSIS AS INTRODUCED:
 
35 ILCS 5/220

    Amends the Illinois Income Tax Act. Changes the definition of "applicant" and "related member". Provides that the annual allowable amounts shall be allocated by the Department of Commerce and Economic Opportunity if any portion of the unused allocated amount at the end of the first 3 calendar quarters of a calendar year (rather than 2 calendar quarters) are rolled into the total allocated amount for the next calendar quarter. Provides that the annual allowable amounts shall be allocated by the Department if tax credits for investments in minority-owned businesses, women-owned businesses, businesses owned by a person with a disability, or a business in a county with a population of 250,000 or less are limited to the first 3 calendar quarters of a calendar year and after which investors may claim the tax credits of any qualified new business venture.


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FISCAL NOTE ACT MAY APPLY

 

 

A BILL FOR

 

SB3302LRB100 20816 HLH 36307 b

1    AN ACT concerning revenue.
 
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
 
4    Section 5. The Illinois Income Tax Act is amended by
5changing Section 220 as follows:
 
6    (35 ILCS 5/220)
7    Sec. 220. Angel investment credit.
8    (a) As used in this Section:
9    "Applicant" means a corporation, partnership, limited
10liability company, or a natural person that makes an investment
11in a qualified new business venture. The term "applicant" does
12not include (i) a corporation, partnership, limited liability
13company, or a natural person who has a direct or indirect
14ownership interest of at least 51% in the profits, capital, or
15value of the qualified new business venture receiving the
16investment or (ii) a related member.
17    "Claimant" means an applicant certified by the Department
18who files a claim for a credit under this Section.
19    "Department" means the Department of Commerce and Economic
20Opportunity.
21    "Investment" means money (or its equivalent) given to a
22qualified new business venture, at a risk of loss, in
23consideration for an equity interest of the qualified new

 

 

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1business venture. The Department may adopt rules to permit
2certain forms of contingent equity investments to be considered
3eligible for a tax credit under this Section.
4    "Qualified new business venture" means a business that is
5registered with the Department under this Section.
6    "Related member" means a person that, with respect to the
7applicant, is any one of the following:
8        (1) An individual, if the individual and the members of
9    the individual's family (as defined in Section 318 of the
10    Internal Revenue Code) own directly, indirectly,
11    beneficially, or constructively, in the aggregate, at
12    least 50% of the value of the outstanding profits, capital,
13    stock, or other ownership interest in the qualified new
14    business venture that is the recipient of the applicant's
15    investment.
16        (2) A partnership, estate, or trust and any partner or
17    beneficiary, if the partnership, estate, or trust and its
18    partners or beneficiaries own directly, indirectly,
19    beneficially, or constructively, in the aggregate, at
20    least 50% of the profits, capital, stock, or other
21    ownership interest in the qualified new business venture
22    that is the recipient of the applicant's investment.
23        (3) A corporation, and any party related to the
24    corporation in a manner that would require an attribution
25    of stock from the corporation under the attribution rules
26    of Section 318 of the Internal Revenue Code, if the

 

 

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1    applicant and any other related member own, in the
2    aggregate, directly, indirectly, beneficially, or
3    constructively, at least 50% of the value of the
4    corporation's outstanding stock of the qualified new
5    business venture that is the recipient of the applicant's
6    investment.
7        (4) A corporation and any party related to that
8    corporation in a manner that would require an attribution
9    of stock from the corporation to the party or from the
10    party to the corporation under the attribution rules of
11    Section 318 of the Internal Revenue Code, if the
12    corporation and all such related parties own, in the
13    aggregate, at least 50% of the profits, capital, stock, or
14    other ownership interest in the qualified new business
15    venture that is the recipient of the applicant's
16    investment.
17        (5) A person to or from whom there is attribution of
18    stock ownership of stock in the qualified new business
19    venture that is the recipient of the applicant's investment
20    in accordance with Section 1563(e) of the Internal Revenue
21    Code, except that for purposes of determining whether a
22    person is a related member under this paragraph, "20%"
23    shall be substituted for "5%" whenever "5%" appears in
24    Section 1563(e) of the Internal Revenue Code.
25    (b) For taxable years beginning after December 31, 2010,
26and ending on or before December 31, 2021, subject to the

 

 

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1limitations provided in this Section, a claimant may claim, as
2a credit against the tax imposed under subsections (a) and (b)
3of Section 201 of this Act, an amount equal to 25% of the
4claimant's investment made directly in a qualified new business
5venture. In order for an investment in a qualified new business
6venture to be eligible for tax credits, the business must have
7applied for and received certification under subsection (e) for
8the taxable year in which the investment was made prior to the
9date on which the investment was made. The credit under this
10Section may not exceed the taxpayer's Illinois income tax
11liability for the taxable year. If the amount of the credit
12exceeds the tax liability for the year, the excess may be
13carried forward and applied to the tax liability of the 5
14taxable years following the excess credit year. The credit
15shall be applied to the earliest year for which there is a tax
16liability. If there are credits from more than one tax year
17that are available to offset a liability, the earlier credit
18shall be applied first. In the case of a partnership or
19Subchapter S Corporation, the credit is allowed to the partners
20or shareholders in accordance with the determination of income
21and distributive share of income under Sections 702 and 704 and
22Subchapter S of the Internal Revenue Code.
23    (c) The minimum amount an applicant must invest in any
24single qualified new business venture in order to be eligible
25for a credit under this Section is $10,000. The maximum amount
26of an applicant's total investment made in any single qualified

 

 

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1new business venture that may be used as the basis for a credit
2under this Section is $2,000,000.
3    (d) The Department shall implement a program to certify an
4applicant for an angel investment credit. Upon satisfactory
5review, the Department shall issue a tax credit certificate
6stating the amount of the tax credit to which the applicant is
7entitled. The Department shall annually certify that: (i) each
8qualified new business venture that receives an angel
9investment under this Section has maintained a minimum
10employment threshold, as defined by rule, in the State (and
11continues to maintain a minimum employment threshold in the
12State for a period of no less than 3 years from the issue date
13of the last tax credit certificate issued by the Department
14with respect to such business pursuant to this Section); and
15(ii) the claimant's investment has been made and remains,
16except in the event of a qualifying liquidity event, in the
17qualified new business venture for no less than 3 years.
18    If an investment for which a claimant is allowed a credit
19under subsection (b) is held by the claimant for less than 3
20years, other than as a result of a permitted sale of the
21investment to person who is not a related member, the claimant
22shall pay to the Department of Revenue, in the manner
23prescribed by the Department of Revenue, the aggregate amount
24of the disqualified credits that the claimant received related
25to the subject investment.
26    If the Department determines that a qualified new business

 

 

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1venture failed to maintain a minimum employment threshold in
2the State through the date which is 3 years from the issue date
3of the last tax credit certificate issued by the Department
4with respect to the subject business pursuant to this Section,
5the claimant or claimants shall pay to the Department of
6Revenue, in the manner prescribed by the Department of Revenue,
7the aggregate amount of the disqualified credits that claimant
8or claimants received related to investments in that business.
9    (e) The Department shall implement a program to register
10qualified new business ventures for purposes of this Section. A
11business desiring registration under this Section shall be
12required to submit a full and complete application to the
13Department. A submitted application shall be effective only for
14the taxable year in which it is submitted, and a business
15desiring registration under this Section shall be required to
16submit a separate application in and for each taxable year for
17which the business desires registration. Further, if at any
18time prior to the acceptance of an application for registration
19under this Section by the Department one or more events occurs
20which makes the information provided in that application
21materially false or incomplete (in whole or in part), the
22business shall promptly notify the Department of the same. Any
23failure of a business to promptly provide the foregoing
24information to the Department may, at the discretion of the
25Department, result in a revocation of a previously approved
26application for that business, or disqualification of the

 

 

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1business from future registration under this Section, or both.
2The Department may register the business only if all of the
3following conditions are satisfied:
4        (1) it has its principal place of business in this
5    State;
6        (2) at least 51% of the employees employed by the
7    business are employed in this State;
8        (3) the business has the potential for increasing jobs
9    in this State, increasing capital investment in this State,
10    or both, as determined by the Department, and either of the
11    following apply:
12            (A) it is principally engaged in innovation in any
13        of the following: manufacturing; biotechnology;
14        nanotechnology; communications; agricultural sciences;
15        clean energy creation or storage technology;
16        processing or assembling products, including medical
17        devices, pharmaceuticals, computer software, computer
18        hardware, semiconductors, other innovative technology
19        products, or other products that are produced using
20        manufacturing methods that are enabled by applying
21        proprietary technology; or providing services that are
22        enabled by applying proprietary technology; or
23            (B) it is undertaking pre-commercialization
24        activity related to proprietary technology that
25        includes conducting research, developing a new product
26        or business process, or developing a service that is

 

 

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1        principally reliant on applying proprietary
2        technology;
3        (4) it is not principally engaged in real estate
4    development, insurance, banking, lending, lobbying,
5    political consulting, professional services provided by
6    attorneys, accountants, business consultants, physicians,
7    or health care consultants, wholesale or retail trade,
8    leisure, hospitality, transportation, or construction,
9    except construction of power production plants that derive
10    energy from a renewable energy resource, as defined in
11    Section 1 of the Illinois Power Agency Act;
12        (5) at the time it is first certified:
13            (A) it has fewer than 100 employees;
14            (B) it has been in operation in Illinois for not
15        more than 10 consecutive years prior to the year of
16        certification; and
17            (C) it has received not more than $10,000,000 in
18        aggregate investments;
19        (5.1) it agrees to maintain a minimum employment
20    threshold in the State of Illinois prior to the date which
21    is 3 years from the issue date of the last tax credit
22    certificate issued by the Department with respect to that
23    business pursuant to this Section;
24        (6) (blank); and
25        (7) it has received not more than $4,000,000 in
26    investments that qualified for tax credits under this

 

 

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1    Section.
2    (f) The Department, in consultation with the Department of
3Revenue, shall adopt rules to administer this Section. The
4aggregate amount of the tax credits that may be claimed under
5this Section for investments made in qualified new business
6ventures shall be limited at $10,000,000 per calendar year, of
7which $500,000 shall be reserved for investments made in
8qualified new business ventures which are "minority-owned
9minority owned businesses", "women-owned female owned
10businesses", or "businesses owned by a person with a
11disability" (as those terms are used and defined in the
12Business Enterprise for Minorities, Women Females, and Persons
13with Disabilities Act), and an additional $500,000 shall be
14reserved for investments made in qualified new business
15ventures with their principal place of business in counties
16with a population of not more than 250,000. The foregoing
17annual allowable amounts shall be allocated by the Department,
18on a per calendar quarter basis and prior to the commencement
19of each calendar year, in such proportion as determined by the
20Department, provided that: (i) the amount initially allocated
21by the Department for any one calendar quarter shall not exceed
2235% of the total allowable amount; and (ii) any portion of the
23allocated allowable amount remaining unused as of the end of
24any of the first 3 2 calendar quarters of a given calendar year
25shall be rolled into, and added to, the total allocated amount
26for the next available calendar quarter; and (iii) the

 

 

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1reservation of tax credits for investments in minority-owned
2businesses, women-owned businesses, businesses owned by a
3person with a disability, and in businesses in counties with a
4population of not more than 250,000 is limited to the first 3
5calendar quarters of a given calendar year, after which they
6may be claimed by investors in any qualified new business
7venture.
8    (g) A claimant may not sell or otherwise transfer a credit
9awarded under this Section to another person.
10    (h) On or before March 1 of each year, the Department shall
11report to the Governor and to the General Assembly on the tax
12credit certificates awarded under this Section for the prior
13calendar year.
14        (1) This report must include, for each tax credit
15    certificate awarded:
16            (A) the name of the claimant and the amount of
17        credit awarded or allocated to that claimant;
18            (B) the name and address (including the county) of
19        the qualified new business venture that received the
20        investment giving rise to the credit, the North
21        American Industry Classification System (NAICS) code
22        applicable to that qualified new business venture, and
23        the number of employees of the qualified new business
24        venture; and
25            (C) the date of approval by the Department of each
26        claimant's tax credit certificate.

 

 

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1        (2) The report must also include:
2            (A) the total number of applicants and the total
3        number of claimants, including the amount of each tax
4        credit certificate awarded to a claimant under this
5        Section in the prior calendar year;
6            (B) the total number of applications from
7        businesses seeking registration under this Section,
8        the total number of new qualified business ventures
9        registered by the Department, and the aggregate amount
10        of investment upon which tax credit certificates were
11        issued in the prior calendar year; and
12            (C) the total amount of tax credit certificates
13        sought by applicants, the amount of each tax credit
14        certificate issued to a claimant, the aggregate amount
15        of all tax credit certificates issued in the prior
16        calendar year and the aggregate amount of tax credit
17        certificates issued as authorized under this Section
18        for all calendar years.
19    (i) For each business seeking registration under this
20Section after December 31, 2016, the Department shall require
21the business to include in its application the North American
22Industry Classification System (NAICS) code applicable to the
23business and the number of employees of the business at the
24time of application. Each business registered by the Department
25as a qualified new business venture that receives an investment
26giving rise to the issuance of a tax credit certificate

 

 

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1pursuant to this Section shall, for each of the 3 years
2following the issue date of the last tax credit certificate
3issued by the Department with respect to such business pursuant
4to this Section, report to the Department the following:
5        (1) the number of employees and the location at which
6    those employees are employed, both as of the end of each
7    year;
8        (2) the amount of additional new capital investment
9    raised as of the end of each year, if any; and
10        (3) the terms of any liquidity event occurring during
11    such year; for the purposes of this Section, a "liquidity
12    event" means any event that would be considered an exit for
13    an illiquid investment, including any event that allows the
14    equity holders of the business (or any material portion
15    thereof) to cash out some or all of their respective equity
16    interests.
17(Source: P.A. 100-328, eff. 1-1-18; revised 12-14-17.)