103RD GENERAL ASSEMBLY
State of Illinois
2023 and 2024
SB3155

 

Introduced 2/6/2024, by Sen. Bill Cunningham

 

SYNOPSIS AS INTRODUCED:
 
35 ILCS 5/220

    Amends the Illinois Income Tax Act. In provisions requiring a qualified new business venture to repay certain amounts received under the angel investment tax credit if the qualified new business venture fails to maintain its minimum employment threshold, provides that, during the 3-year reporting period that includes March 13, 2020 to January 1, 2024, the repayment of any tax credits issued under those provisions shall be determined at the discretion of the Department of Commerce and Economic Opportunity. Effective immediately.


LRB103 37139 HLH 67258 b

 

 

A BILL FOR

 

SB3155LRB103 37139 HLH 67258 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
11investment in a qualified new business venture. The term
12"applicant" does not include (i) a corporation, partnership,
13limited liability company, or a natural person who has a
14direct or indirect ownership interest of at least 51% in the
15profits, capital, or value of the qualified new business
16venture receiving the investment 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
3considered eligible 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
9    of the individual's family (as defined in Section 318 of
10    the Internal Revenue Code) own directly, indirectly,
11    beneficially, or constructively, in the aggregate, at
12    least 50% of the value of the outstanding profits,
13    capital, stock, or other ownership interest in the
14    qualified new business venture that is the recipient of
15    the applicant's 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    outstanding stock of the qualified new business venture
5    that is the recipient of the applicant's investment.
6        (4) A corporation and any party related to that
7    corporation in a manner that would require an attribution
8    of stock from the corporation to the party or from the
9    party to the corporation under the attribution rules of
10    Section 318 of the Internal Revenue Code, if the
11    corporation and all such related parties own, in the
12    aggregate, at least 50% of the profits, capital, stock, or
13    other ownership interest in the qualified new business
14    venture that is the recipient of the applicant's
15    investment.
16        (5) A person to or from whom there is attribution of
17    ownership of stock in the qualified new business venture
18    that is the recipient of the applicant's investment in
19    accordance with Section 1563(e) of the Internal Revenue
20    Code, except that for purposes of determining whether a
21    person is a related member under this paragraph, "20%"
22    shall be substituted for "5%" whenever "5%" appears in
23    Section 1563(e) of the Internal Revenue Code.
24    (b) For taxable years beginning after December 31, 2010,
25and ending on or before December 31, 2026, subject to the
26limitations provided in this Section, a claimant may claim, as

 

 

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1a credit against the tax imposed under subsections (a) and (b)
2of Section 201 of this Act, an amount equal to 25% of the
3claimant's investment made directly in a qualified new
4business venture. However, the amount of the credit is 35% of
5the claimant's investment made directly in the qualified new
6business venture if the investment is made in: (1) a qualified
7new business venture that is a minority-owned business, a
8women-owned business, or a business owned a person with a
9disability (as those terms are used and defined in the
10Business Enterprise for Minorities, Women, and Persons with
11Disabilities Act); or (2) a qualified new business venture in
12which the principal place of business is located in a county
13with a population of not more than 250,000. In order for an
14investment in a qualified new business venture to be eligible
15for tax credits, the business must have applied for and
16received certification under subsection (e) for the taxable
17year in which the investment was made prior to the date on
18which the investment was made. The credit under this Section
19may not exceed the taxpayer's Illinois income tax liability
20for the taxable year. If the amount of the credit exceeds the
21tax liability for the year, the excess may be carried forward
22and applied to the tax liability of the 5 taxable years
23following the excess credit year. The credit shall be applied
24to the earliest year for which there is a tax liability. If
25there are credits from more than one tax year that are
26available to offset a liability, the earlier credit shall be

 

 

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1applied first. In the case of a partnership or Subchapter S
2Corporation, the credit is allowed to the partners or
3shareholders in accordance with the determination of income
4and distributive share of income under Sections 702 and 704
5and Subchapter S of the Internal Revenue Code.
6    (c) The minimum amount an applicant must invest in any
7single qualified new business venture in order to be eligible
8for a credit under this Section is $10,000. The maximum amount
9of an applicant's total investment made in any single
10qualified new business venture that may be used as the basis
11for a credit under this Section is $2,000,000.
12    (d) The Department shall implement a program to certify an
13applicant for an angel investment credit. Upon satisfactory
14review, the Department shall issue a tax credit certificate
15stating the amount of the tax credit to which the applicant is
16entitled. The Department shall annually certify that: (i) each
17qualified new business venture that receives an angel
18investment under this Section has maintained a minimum
19employment threshold, as defined by rule, in the State (and
20continues to maintain a minimum employment threshold in the
21State for a period of no less than 3 years from the issue date
22of the last tax credit certificate issued by the Department
23with respect to such business pursuant to this Section); and
24(ii) the claimant's investment has been made and remains,
25except in the event of a qualifying liquidity event, in the
26qualified new business venture for no less than 3 years.

 

 

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1    If an investment for which a claimant is allowed a credit
2under subsection (b) is held by the claimant for less than 3
3years, other than as a result of a permitted sale of the
4investment to person who is not a related member, the claimant
5shall pay to the Department of Revenue, in the manner
6prescribed by the Department of Revenue, the aggregate amount
7of the disqualified credits that the claimant received related
8to the subject investment.
9    If the Department determines that a qualified new business
10venture failed to maintain a minimum employment threshold in
11the State through the date which is 3 years from the issue date
12of the last tax credit certificate issued by the Department
13with respect to the subject business pursuant to this Section,
14except for any 3-year reporting period that includes March 13,
152020 to January 1, 2024, the claimant or claimants shall pay to
16the Department of Revenue, in the manner prescribed by the
17Department of Revenue, the aggregate amount of the
18disqualified credits that claimant or claimants received
19related to investments in that business. For tax credits under
20this Section involving a 3-year reporting period that includes
21March 13, 2020 to January 1, 2024, the repayment of any tax
22credits issued shall be determined at the discretion of the
23Department.
24    (e) The Department shall implement a program to register
25qualified new business ventures for purposes of this Section.
26A business desiring registration under this Section shall be

 

 

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1required to submit a full and complete application to the
2Department. A submitted application shall be effective only
3for the taxable year in which it is submitted, and a business
4desiring registration under this Section shall be required to
5submit a separate application in and for each taxable year for
6which the business desires registration. Further, if at any
7time prior to the acceptance of an application for
8registration under this Section by the Department one or more
9events occurs which makes the information provided in that
10application materially false or incomplete (in whole or in
11part), the business shall promptly notify the Department of
12the same. Any failure of a business to promptly provide the
13foregoing information to the Department may, at the discretion
14of the Department, result in a revocation of a previously
15approved application for that business, or disqualification of
16the business from future registration under this Section, or
17both. The Department may register the business only if all of
18the following conditions are satisfied:
19        (1) it has its principal place of business in this
20    State;
21        (2) at least 51% of the employees employed by the
22    business are employed in this State;
23        (3) the business has the potential for increasing jobs
24    in this State, increasing capital investment in this
25    State, or both, as determined by the Department, and
26    either of the following apply:

 

 

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1            (A) it is principally engaged in innovation in any
2        of the following: manufacturing; biotechnology;
3        nanotechnology; communications; agricultural
4        sciences; clean energy creation or storage technology;
5        processing or assembling products, including medical
6        devices, pharmaceuticals, computer software, computer
7        hardware, semiconductors, other innovative technology
8        products, or other products that are produced using
9        manufacturing methods that are enabled by applying
10        proprietary technology; or providing services that are
11        enabled by applying proprietary technology; or
12            (B) it is undertaking pre-commercialization
13        activity related to proprietary technology that
14        includes conducting research, developing a new product
15        or business process, or developing a service that is
16        principally reliant on applying proprietary
17        technology;
18        (4) it is not principally engaged in real estate
19    development, insurance, banking, lending, lobbying,
20    political consulting, professional services provided by
21    attorneys, accountants, business consultants, physicians,
22    or health care consultants, wholesale or retail trade,
23    leisure, hospitality, transportation, or construction,
24    except construction of power production plants that derive
25    energy from a renewable energy resource, as defined in
26    Section 1 of the Illinois Power Agency Act;

 

 

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1        (5) at the time it is first certified:
2            (A) it has fewer than 100 employees;
3            (B) it has been in operation in Illinois for not
4        more than 10 consecutive years prior to the year of
5        certification; and
6            (C) it has received not more than $10,000,000 in
7        aggregate investments;
8        (5.1) it agrees to maintain a minimum employment
9    threshold in the State of Illinois prior to the date which
10    is 3 years from the issue date of the last tax credit
11    certificate issued by the Department with respect to that
12    business pursuant to this Section;
13        (6) (blank); and
14        (7) it has received not more than $4,000,000 in
15    investments that qualified for tax credits under this
16    Section.
17    (f) The Department, in consultation with the Department of
18Revenue, shall adopt rules to administer this Section. For
19taxable years beginning before January 1, 2024, the aggregate
20amount of the tax credits that may be claimed under this
21Section for investments made in qualified new business
22ventures shall be limited to $10,000,000 per calendar year, of
23which $500,000 shall be reserved for investments made in
24qualified new business ventures which are minority-owned
25businesses, women-owned businesses, or businesses owned by a
26person with a disability (as those terms are used and defined

 

 

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1in the Business Enterprise for Minorities, Women, and Persons
2with Disabilities Act), and an additional $500,000 shall be
3reserved for investments made in qualified new business
4ventures with their principal place of business in counties
5with a population of not more than 250,000. For taxable years
6beginning on or after January 1, 2024, the aggregate amount of
7the tax credits that may be claimed under this Section for
8investments made in qualified new business ventures shall be
9limited to $15,000,000 per calendar year, of which $2,500,000
10shall be reserved for investments made in qualified new
11business ventures that are minority-owned businesses (as the
12term is defined in the Business Enterprise for Minorities,
13Women, and Persons with Disabilities Act), $1,250,000 shall be
14reserved for investments made in qualified new business
15ventures that are women-owned businesses or businesses owned
16by a person with a disability (as those terms are defined in
17the Business Enterprise for Minorities, Women, and Persons
18with Disabilities Act), and $1,250,000 shall be reserved for
19investments made in qualified new business ventures with their
20principal place of business in a county with a population of
21not more than 250,000. The annual allowable amounts set forth
22in this Section shall be allocated by the Department, on a per
23calendar quarter basis and prior to the commencement of each
24calendar year, in such proportion as determined by the
25Department, provided that: (i) the amount initially allocated
26by the Department for any one calendar quarter shall not

 

 

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1exceed 35% of the total allowable amount; (ii) any portion of
2the allocated allowable amount remaining unused as of the end
3of any of the first 3 calendar quarters of a given calendar
4year shall be rolled into, and added to, the total allocated
5amount for the next available calendar quarter; and (iii) the
6reservation of tax credits for investments in minority-owned
7businesses, women-owned businesses, businesses owned by a
8person with a disability, and in businesses in counties with a
9population of not more than 250,000 is limited to the first 3
10calendar quarters of a given calendar year, after which they
11may be claimed by investors in any qualified new business
12venture.
13    (g) A claimant may not sell or otherwise transfer a credit
14awarded under this Section to another person.
15    (h) On or before March 1 of each year, the Department shall
16report to the Governor and to the General Assembly on the tax
17credit certificates awarded under this Section for the prior
18calendar year.
19        (1) This report must include, for each tax credit
20    certificate awarded:
21            (A) the name of the claimant and the amount of
22        credit awarded or allocated to that claimant;
23            (B) the name and address (including the county) of
24        the qualified new business venture that received the
25        investment giving rise to the credit, the North
26        American Industry Classification System (NAICS) code

 

 

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

 

 

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1Industry Classification System (NAICS) code applicable to the
2business and the number of employees of the business at the
3time of application. Each business registered by the
4Department as a qualified new business venture that receives
5an investment giving rise to the issuance of a tax credit
6certificate pursuant to this Section shall, for each of the 3
7years following the issue date of the last tax credit
8certificate issued by the Department with respect to such
9business pursuant to this Section, report to the Department
10the following:
11        (1) the number of employees and the location at which
12    those employees are employed, both as of the end of each
13    year;
14        (2) the amount of additional new capital investment
15    raised as of the end of each year, if any; and
16        (3) the terms of any liquidity event occurring during
17    such year; for the purposes of this Section, a "liquidity
18    event" means any event that would be considered an exit
19    for an illiquid investment, including any event that
20    allows the equity holders of the business (or any material
21    portion thereof) to cash out some or all of their
22    respective equity interests.
23(Source: P.A. 102-16, eff. 6-17-21; 103-9, eff. 1-1-24.)
 
24    Section 99. Effective date. This Act takes effect upon
25becoming law.