HB5378 101ST GENERAL ASSEMBLY

LRB101 08132 HLH 53198 b

101ST GENERAL ASSEMBLY
State of Illinois
2019 and 2020
HB5378

Introduced , by Rep. Dave Severin - Terri Bryant - Patrick Windhorst - Avery Bourne

SYNOPSIS AS INTRODUCED:

New Act
35 ILCS 5/229 new

Creates the Rural Job Creation Tax Credit Act. Provides that a taxpayer may claim a nonrefundable income tax credit for rural job creation equal to a percentage of the taxpayer's purchase of an equity interest in a rural investment company or purchase of a debt instrument issued by the rural investment company. 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 1. Short title. This Act may be cited as the Rural Job Creation Tax Credit Act.

Section 5. Nonrefundable rural job creation tax credit.

(a) For taxable years beginning on or after January 1, 2020, a taxpayer may claim a nonrefundable tax credit against the tax imposed by subsections (a) and (b) of Section 201 of the Illinois Income Tax Act for rural job creation as provided in this Section.

(b) The tax credit under this Section is the amount listed as the tax credit amount on a tax credit certificate issued by the Department to the taxpayer for the taxable year.

(c) A taxpayer may carry forward a tax credit under this Section for the next 7 taxable years if the amount of the tax credit exceeds the taxpayer's tax liability under the Illinois Income Tax Act for the taxable year in which the taxpayer claims the tax credit.

Section 10. Definitions. As used in this Act:

Affiliate" means a person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with another person. For the purposes of this part, a person controls another person if the person holds, directly or indirectly, the majority voting or ownership interest in the controlled person or has control over the day-to-day operations of the controlled person by contract or by law.

"Claimant" means a resident or nonresident person that has taxable income under the Illinois Income Tax Act.

"Closing date" means the date on which a rural investment company has collected all of the investments.

"Credit-eligible contribution" means an investment of cash by a claimant in a rural investment company that is or will be eligible for a tax credit as evidenced by notification issued by the Department under this Act. The investment shall purchase an equity interest in the rural investment company or purchase, at par value or premium, a debt instrument issued by the rural investment company that has a maturity date at least five years after the closing date.

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

"Eligible small business" means a business that at the time of an initial growth investment in the business by a rural investment company:

(1) has fewer than 150 employees;

(2) has less than $10,000,000 in net income for the preceding taxable year;

(3) maintains the business's principal business operations in the State; and

(4) is engaged in an industry related to:

(A) aerospace;

(B) defense;

(C) energy and natural resources;

(D) financial services;

(E) life sciences;

(F) outdoor products;

(G) software development;

(H) information technology;

(I) manufacturing; or

(J) agribusiness.

"Excess return" means the difference between: (i) the present value of all growth investments made by a rural investment company on the day the rural investment company applies to exit the program under Section 63N-4-309, including the present value of all distributions and gains from the growth investments; and (ii) the sum of the amount of the original growth investment and an amount equal to any projected increase in the equity holder's federal or State tax liability, including penalties and interest, related to the equity holder's ownership, management, or operation of the rural investment company. If this calculation is less than zero, then the excess return is equal to zero.

"Federally licensed rural business investment company" means a person licensed as a rural business investment company under 7 U.S.C. 2009cc.

"Federally licensed small business investment company" means a person licensed as a small business investment company under 15 U.S.C. 681.

"Investment authority" means the minimum amount of investment a rural investment company must make in eligible small businesses in order for credit-eligible contributions to the rural investment company to qualify for a rural job creation tax credit.

"Rural county" means a county designated as a rural county by the Department.

"Rural investment company" means a company approved by the Department.

"State reimbursement amount" means the difference between: (i) 50% of the rural investment company's credit-eligible capital contributions; and (ii) the product of: (A) the total sum of new annual jobs reported to the State in the rural investment company's exit report; and (B) $20,000. If the amount calculated is less than zero, the State reimbursement amount is equal to zero.

Section 15. Application, approval, and allocations.

(a) A person seeking approval as a rural investment company shall submit an application to the Department.

(b) The Department shall begin accepting applications on November 1, 2019. Applications shall be in the form and manner required by the Department, by rule, and shall include the following:

(1) the total investment authority sought by the applicant, which may not exceed $42,000,000;

(2) a copy of the applicant's or an affiliate of the applicant's license as a federally licensed rural business investment company or as a federally licensed small business investment company;

(3) evidence that, before the date the application is submitted, the applicant or affiliates of the applicant have invested at least $50,000,000 in nonpublic companies located in counties in the United States with fewer than 50,000 inhabitants;

(4) a signed affidavit from each claimant that commits to make a credit-eligible capital contribution to the applicant, stating the amount of that commitment; and

(5) the sum of all credit-eligible capital contribution commitments under paragraph (4), which must equal 58% of the total investment authority sought by the applicant.

(c) The Department shall:

(1) review and evaluate the applications submitted under this Section within 30 days of receipt in the order in which the applications are received; and

(2) consider applications received on the same day to have been received simultaneously.

(d) If, after review and evaluation of an application, the Department determines that the application does not meet the requirements of subsection (b), the Department shall: (i) deny the application; or (ii) notify the applicant that the application was inadequate and allow the applicant to provide additional information to the Department to complete, clarify, or cure defects identified by the Department in the application and inform the applicant that the additional information must be received by the Department within 5 days of the notice in order to be considered.

If an applicant submits additional information to the Department, the Department shall consider the application to have been received on the date it was originally received by the Department and review and evaluate the additional information within 10 days of receiving the additional information. If, after review and evaluation of an application submitted under this Section and any additional information submitted, the Department determines that the application meets the requirements of subsection (b), the Department shall: (i) determine the amount of investment authority to award the applicant, (ii) provide to the applicant a written notice of approval as a rural investment company specifying the amount of the applicant's investment authority, and (iii) notify each claimant whose affidavit was included in the application that the claimant qualifies for a tax credit.

(e) The Department may not approve more than $42,000,000 in total investment authority and not more than $24,360,000 in total credit-eligible contributions under this Section. Subject to the provisions of this subsection, if an application is approved, the Department shall approve the amount of investment authority requested on the application. The Department may continue to accept applications under this Section until the amount of approved investment authority reaches $42,000,000. If the Department approves multiple applications received simultaneously and the total amount of investment authority requested on those applications exceeds the amount of investment authority remaining, the Department shall proportionally reduce the investment authority and credit-eligible capital contributions for each of these applications as necessary to avoid exceeding the amount of investment authority and credit-eligible capital contributions remaining.

(f) Within 65 days after the day on which a rural investment company receives approval of an application under this Section, the rural investment company shall:

(1) collect the total amount of committed credit-eligible capital contributions from each claimant whose affidavit was included in the application;

(2) collect one or more cash equity investments contributed by affiliates of the rural investment company, including employees, officers, and directors of such affiliates, that equal at least 10% of the rural investment company's investment authority;

(3) collect one or more cash investments that, when added to the amounts collected under paragraphs (1) and (2), equal the rural investment company's investment authority; and

(4) send sufficient documentation to the Department to prove that the amounts described in this subsection have been collected.

(g) If the rural investment company fails to fully comply with subsection (f), the rural investment company's approval shall lapse and the corresponding investment authority and credit-eligible capital contributions shall not count toward the limits on the program size. If the Department awards lapsed investment authority to a rural investment company, the Department shall first award lapsed investment authority pro rata to each rural investment company that was awarded less than the requested investment authority, which a rural investment company may allocate to the rural investment company's investors at the company's discretion. The Department may award any remaining investment authority to new applicants.

Section 20. Tax credit.

(a) On the closing date, a claimant whose affidavit was included in an approved application submitted under Section 15 shall earn a credit against the taxes imposed by subsections (a) and (b) of Section 201 equal to the amount of the claimant's credit-eligible capital contribution to the rural investment company.

(b) In each of the taxable years that includes the fourth through seventh anniversaries of the closing date, the Department shall issue a tax credit certificate to each approved claimant, specifying a tax credit amount for the taxable year equal to 25% of the claimant's total credit-eligible capital contribution.

(c) A claimant may not claim a tax credit under this Section unless the claimant has a tax credit certificate issued by the Department. A claimant claiming a credit under this Section shall retain a tax credit certificate the claimant receives from the Department for the same time period a person is required to keep books and records under the Illinois Income Tax Act. The Department shall adopt rules for the administration of this program.

Section 25. Revocation of tax credit certificates.

(a) Except as provided in subsection (b), the Department shall revoke a tax credit certificate issued under Section 20 if the rural investment company in which the credit-eligible capital contribution was made does any of the following before the rural investment company exits the program in accordance with Section 30:

(1) fails to invest 100% of the rural investment company's investment authority in growth investments in this state within three years of the closing date;

(2) fails to maintain growth investments in this State equal to 100% of the rural investment company's investment authority until the seventh anniversary of the closing date in accordance with this section;

(3) makes a distribution or payment that results in the rural investment company having less than 100% of the rural investment company's investment authority invested in growth investments in this state or available for investment in growth investments and held in cash and other marketable securities;

(4) fails to maintain growth investments equal to 70% of the rural investment company's investment authority in eligible small businesses that maintain their principal business operations in a rural county;

(5) invests more than $5,000,000 from the investment authority in the same eligible small business, including amounts invested in affiliates of the eligible small business, exclusive of growth investments made with repaid or redeemed growth investments or interest or profits realized on the repaid or redeemed growth investments; or

(6) makes a growth investment in an eligible small business that directly, or indirectly through an affiliate: (i) owns or has the right to acquire an ownership interest in the rural investment company, an affiliate of the rural investment company, or an investor in the rural investment company; or (ii) makes a loan to or an investment in the rural investment company, an affiliate of the rural investment company, or an investor in the rural investment company.

(b) For the purposes of subsection (a), an investment is maintained even if the investment is sold or repaid if the rural investment company reinvests an amount equal to the capital returned or recovered by the fund from the original investment, exclusive of any profits realized, in other growth investments in this State within 12 months of the receipt of such capital. Amounts received periodically by a rural investment company are treated as continually invested in growth investments if the amounts are reinvested in one or more growth investments by the end of the following calendar year. A rural investment company is not required to reinvest capital returned from growth investments after the sixth anniversary of the closing date and such growth investments are considered as being held continuously by the rural investment company through the seventh anniversary of the closing date. Paragraph (6) of subsection (a) does not apply to investments in publicly-traded securities by an eligible small business or an owner or affiliate of an eligible small business. A rural investment company is not considered an affiliate of a business concern solely as a result of the rural investment company's growth investment. A growth investment in an eligible small business that is not located in a rural county may count toward the requirements of paragraph (4) of subsection (a) if the Department determines that the eligible small business is located in an economically disadvantaged rural area, as defined by rules adopted by the Department.

(c) Before revoking one or more tax credit certificates under this section, the Department shall notify the rural investment company of the reasons for the pending revocation. If the rural investment company corrects any violation outlined in the notice to the satisfaction of the Department within 90 days after the day on which the notice was sent, the Department may not revoke the tax credit certificate. If tax credit certificates are revoked under this Section, the rural investment company shall make a cash distribution to the Department in an amount equal to the sum of all tax credits awarded to persons that have made credit-eligible contributions to the rural investment company, if the rural investment company is able to provide documentation to the Department that proves that a tax credit has not been claimed, the amount owed shall be reduced by the amount of the unclaimed tax credit. The rural investment company's investment authority and credit-eligible capital contributions will not count toward the limits on the program size.

Section 30. Exit. On or after the seventh anniversary of the closing date, a rural investment company may apply to the Department to exit the program and no longer be subject to this Act. An application submitted this Section shall be in a form and in accordance with procedures prescribed by the Department and shall include a calculation of the State reimbursement amount. In evaluating the exit application, if no tax credit certificates have been revoked and the rural investment company has not received a notice of revocation that has remained uncorrected, the rural investment company is eligible for exit. The Department shall respond to the application within 30 days of receipt and include confirmation of the State reimbursement amount. The Department shall not unreasonably deny an application submitted under this Section. If the Department denies the application, the Department shall provide the reasons for the determination to the rural investment company. Within 60 days after the day on which the confirmation of the State reimbursement amount is received by the rural investment company, the rural investment company shall make a cash distribution to the State in an amount equal to the lesser of: (i) the State reimbursement amount; or (ii) the excess return. The Department shall notify the rural investment company once payments have been received. Any amounts collected under this Section shall be deposited into the General Revenue Fund.

Section 900. The Illinois Income Tax Act is amended by adding Section 229 as follows:

(35 ILCS 5/229 new)

Sec. 229. Rural Job Creation Tax Credit Act. A taxpayer is entitled to a credit against the taxes imposed by subsections (a) and (b) of Section 201 as provided in the Rural Job Creation Tax Credit Act.

Section 999. Effective date. This Act takes effect upon becoming law.