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.


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FISCAL NOTE ACT MAY APPLY

 

 

A BILL FOR

 

HB5378LRB101 08132 HLH 53198 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 1. Short title. This Act may be cited as the Rural
5Job Creation Tax Credit Act.
 
6    Section 5. Nonrefundable rural job creation tax credit.
7    (a) For taxable years beginning on or after January 1,
82020, a taxpayer may claim a nonrefundable tax credit against
9the tax imposed by subsections (a) and (b) of Section 201 of
10the Illinois Income Tax Act for rural job creation as provided
11in this Section.
12    (b) The tax credit under this Section is the amount listed
13as the tax credit amount on a tax credit certificate issued by
14the Department to the taxpayer for the taxable year.
15    (c) A taxpayer may carry forward a tax credit under this
16Section for the next 7 taxable years if the amount of the tax
17credit exceeds the taxpayer's tax liability under the Illinois
18Income Tax Act for the taxable year in which the taxpayer
19claims the tax credit.
 
20    Section 10. Definitions. As used in this Act:
21    Affiliate" means a person that directly, or indirectly
22through one or more intermediaries, controls, is controlled by,

 

 

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1or is under common control with another person. For the
2purposes of this part, a person controls another person if the
3person holds, directly or indirectly, the majority voting or
4ownership interest in the controlled person or has control over
5the day-to-day operations of the controlled person by contract
6or by law.
7    "Claimant" means a resident or nonresident person that has
8taxable income under the Illinois Income Tax Act.
9    "Closing date" means the date on which a rural investment
10company has collected all of the investments.
11    "Credit-eligible contribution" means an investment of cash
12by a claimant in a rural investment company that is or will be
13eligible for a tax credit as evidenced by notification issued
14by the Department under this Act. The investment shall purchase
15an equity interest in the rural investment company or purchase,
16at par value or premium, a debt instrument issued by the rural
17investment company that has a maturity date at least five years
18after the closing date.
19    "Department" means the Department of Commerce and Economic
20Opportunity.
21    "Eligible small business" means a business that at the time
22of an initial growth investment in the business by a rural
23investment company:
24        (1) has fewer than 150 employees;
25        (2) has less than $10,000,000 in net income for the
26    preceding taxable year;

 

 

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1        (3) maintains the business's principal business
2    operations in the State; and
3        (4) is engaged in an industry related to:
4            (A) aerospace;
5            (B) defense;
6            (C) energy and natural resources;
7            (D) financial services;
8            (E) life sciences;
9            (F) outdoor products;
10            (G) software development;
11            (H) information technology;
12            (I) manufacturing; or
13            (J) agribusiness.
14    "Excess return" means the difference between: (i) the
15present value of all growth investments made by a rural
16investment company on the day the rural investment company
17applies to exit the program under Section 63N-4-309, including
18the present value of all distributions and gains from the
19growth investments; and (ii) the sum of the amount of the
20original growth investment and an amount equal to any projected
21increase in the equity holder's federal or State tax liability,
22including penalties and interest, related to the equity
23holder's ownership, management, or operation of the rural
24investment company. If this calculation is less than zero, then
25the excess return is equal to zero.
26    "Federally licensed rural business investment company"

 

 

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1means a person licensed as a rural business investment company
2under 7 U.S.C. 2009cc.
3    "Federally licensed small business investment company"
4means a person licensed as a small business investment company
5under 15 U.S.C. 681.
6    "Investment authority" means the minimum amount of
7investment a rural investment company must make in eligible
8small businesses in order for credit-eligible contributions to
9the rural investment company to qualify for a rural job
10creation tax credit.
11    "Rural county" means a county designated as a rural county
12by the Department.
13    "Rural investment company" means a company approved by the
14Department.
15    "State reimbursement amount" means the difference between:
16(i) 50% of the rural investment company's credit-eligible
17capital contributions; and (ii) the product of: (A) the total
18sum of new annual jobs reported to the State in the rural
19investment company's exit report; and (B) $20,000. If the
20amount calculated is less than zero, the State reimbursement
21amount is equal to zero.
 
22    Section 15. Application, approval, and allocations.
23    (a) A person seeking approval as a rural investment company
24shall submit an application to the Department.
25    (b) The Department shall begin accepting applications on

 

 

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1November 1, 2019. Applications shall be in the form and manner
2required by the Department, by rule, and shall include the
3following:
4        (1) the total investment authority sought by the
5    applicant, which may not exceed $42,000,000;
6        (2) a copy of the applicant's or an affiliate of the
7    applicant's license as a federally licensed rural business
8    investment company or as a federally licensed small
9    business investment company;
10        (3) evidence that, before the date the application is
11    submitted, the applicant or affiliates of the applicant
12    have invested at least $50,000,000 in nonpublic companies
13    located in counties in the United States with fewer than
14    50,000 inhabitants;
15        (4) a signed affidavit from each claimant that commits
16    to make a credit-eligible capital contribution to the
17    applicant, stating the amount of that commitment; and
18        (5) the sum of all credit-eligible capital
19    contribution commitments under paragraph (4), which must
20    equal 58% of the total investment authority sought by the
21    applicant.
22    (c) The Department shall:
23        (1) review and evaluate the applications submitted
24    under this Section within 30 days of receipt in the order
25    in which the applications are received; and
26        (2) consider applications received on the same day to

 

 

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1    have been received simultaneously.
2    (d) If, after review and evaluation of an application, the
3Department determines that the application does not meet the
4requirements of subsection (b), the Department shall: (i) deny
5the application; or (ii) notify the applicant that the
6application was inadequate and allow the applicant to provide
7additional information to the Department to complete, clarify,
8or cure defects identified by the Department in the application
9and inform the applicant that the additional information must
10be received by the Department within 5 days of the notice in
11order to be considered.
12    If an applicant submits additional information to the
13Department, the Department shall consider the application to
14have been received on the date it was originally received by
15the Department and review and evaluate the additional
16information within 10 days of receiving the additional
17information. If, after review and evaluation of an application
18submitted under this Section and any additional information
19submitted, the Department determines that the application
20meets the requirements of subsection (b), the Department shall:
21(i) determine the amount of investment authority to award the
22applicant, (ii) provide to the applicant a written notice of
23approval as a rural investment company specifying the amount of
24the applicant's investment authority, and (iii) notify each
25claimant whose affidavit was included in the application that
26the claimant qualifies for a tax credit.

 

 

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1    (e) The Department may not approve more than $42,000,000 in
2total investment authority and not more than $24,360,000 in
3total credit-eligible contributions under this Section.
4Subject to the provisions of this subsection, if an application
5is approved, the Department shall approve the amount of
6investment authority requested on the application. The
7Department may continue to accept applications under this
8Section until the amount of approved investment authority
9reaches $42,000,000. If the Department approves multiple
10applications received simultaneously and the total amount of
11investment authority requested on those applications exceeds
12the amount of investment authority remaining, the Department
13shall proportionally reduce the investment authority and
14credit-eligible capital contributions for each of these
15applications as necessary to avoid exceeding the amount of
16investment authority and credit-eligible capital contributions
17remaining.
18    (f) Within 65 days after the day on which a rural
19investment company receives approval of an application under
20this Section, the rural investment company shall:
21        (1) collect the total amount of committed
22    credit-eligible capital contributions from each claimant
23    whose affidavit was included in the application;
24        (2) collect one or more cash equity investments
25    contributed by affiliates of the rural investment company,
26    including employees, officers, and directors of such

 

 

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1    affiliates, that equal at least 10% of the rural investment
2    company's investment authority;
3        (3) collect one or more cash investments that, when
4    added to the amounts collected under paragraphs (1) and
5    (2), equal the rural investment company's investment
6    authority; and
7        (4) send sufficient documentation to the Department to
8    prove that the amounts described in this subsection have
9    been collected.
10    (g) If the rural investment company fails to fully comply
11with subsection (f), the rural investment company's approval
12shall lapse and the corresponding investment authority and
13credit-eligible capital contributions shall not count toward
14the limits on the program size. If the Department awards lapsed
15investment authority to a rural investment company, the
16Department shall first award lapsed investment authority pro
17rata to each rural investment company that was awarded less
18than the requested investment authority, which a rural
19investment company may allocate to the rural investment
20company's investors at the company's discretion. The
21Department may award any remaining investment authority to new
22applicants.
 
23    Section 20. Tax credit.
24    (a) On the closing date, a claimant whose affidavit was
25included in an approved application submitted under Section 15

 

 

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1shall earn a credit against the taxes imposed by subsections
2(a) and (b) of Section 201 equal to the amount of the
3claimant's credit-eligible capital contribution to the rural
4investment company.
5    (b) In each of the taxable years that includes the fourth
6through seventh anniversaries of the closing date, the
7Department shall issue a tax credit certificate to each
8approved claimant, specifying a tax credit amount for the
9taxable year equal to 25% of the claimant's total
10credit-eligible capital contribution.
11    (c) A claimant may not claim a tax credit under this
12Section unless the claimant has a tax credit certificate issued
13by the Department. A claimant claiming a credit under this
14Section shall retain a tax credit certificate the claimant
15receives from the Department for the same time period a person
16is required to keep books and records under the Illinois Income
17Tax Act. The Department shall adopt rules for the
18administration of this program.
 
19    Section 25. Revocation of tax credit certificates.
20    (a) Except as provided in subsection (b), the Department
21shall revoke a tax credit certificate issued under Section 20
22if the rural investment company in which the credit-eligible
23capital contribution was made does any of the following before
24the rural investment company exits the program in accordance
25with Section 30:

 

 

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1        (1) fails to invest 100% of the rural investment
2    company's investment authority in growth investments in
3    this state within three years of the closing date;
4        (2) fails to maintain growth investments in this State
5    equal to 100% of the rural investment company's investment
6    authority until the seventh anniversary of the closing date
7    in accordance with this section;
8        (3) makes a distribution or payment that results in the
9    rural investment company having less than 100% of the rural
10    investment company's investment authority invested in
11    growth investments in this state or available for
12    investment in growth investments and held in cash and other
13    marketable securities;
14        (4) fails to maintain growth investments equal to 70%
15    of the rural investment company's investment authority in
16    eligible small businesses that maintain their principal
17    business operations in a rural county;
18        (5) invests more than $5,000,000 from the investment
19    authority in the same eligible small business, including
20    amounts invested in affiliates of the eligible small
21    business, exclusive of growth investments made with repaid
22    or redeemed growth investments or interest or profits
23    realized on the repaid or redeemed growth investments; or
24        (6) makes a growth investment in an eligible small
25    business that directly, or indirectly through an
26    affiliate: (i) owns or has the right to acquire an

 

 

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1    ownership interest in the rural investment company, an
2    affiliate of the rural investment company, or an investor
3    in the rural investment company; or (ii) makes a loan to or
4    an investment in the rural investment company, an affiliate
5    of the rural investment company, or an investor in the
6    rural investment company.
7    (b) For the purposes of subsection (a), an investment is
8maintained even if the investment is sold or repaid if the
9rural investment company reinvests an amount equal to the
10capital returned or recovered by the fund from the original
11investment, exclusive of any profits realized, in other growth
12investments in this State within 12 months of the receipt of
13such capital. Amounts received periodically by a rural
14investment company are treated as continually invested in
15growth investments if the amounts are reinvested in one or more
16growth investments by the end of the following calendar year. A
17rural investment company is not required to reinvest capital
18returned from growth investments after the sixth anniversary of
19the closing date and such growth investments are considered as
20being held continuously by the rural investment company through
21the seventh anniversary of the closing date. Paragraph (6) of
22subsection (a) does not apply to investments in publicly-traded
23securities by an eligible small business or an owner or
24affiliate of an eligible small business. A rural investment
25company is not considered an affiliate of a business concern
26solely as a result of the rural investment company's growth

 

 

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1investment. A growth investment in an eligible small business
2that is not located in a rural county may count toward the
3requirements of paragraph (4) of subsection (a) if the
4Department determines that the eligible small business is
5located in an economically disadvantaged rural area, as defined
6by rules adopted by the Department.
7    (c) Before revoking one or more tax credit certificates
8under this section, the Department shall notify the rural
9investment company of the reasons for the pending revocation.
10If the rural investment company corrects any violation outlined
11in the notice to the satisfaction of the Department within 90
12days after the day on which the notice was sent, the Department
13may not revoke the tax credit certificate. If tax credit
14certificates are revoked under this Section, the rural
15investment company shall make a cash distribution to the
16Department in an amount equal to the sum of all tax credits
17awarded to persons that have made credit-eligible
18contributions to the rural investment company, if the rural
19investment company is able to provide documentation to the
20Department that proves that a tax credit has not been claimed,
21the amount owed shall be reduced by the amount of the unclaimed
22tax credit. The rural investment company's investment
23authority and credit-eligible capital contributions will not
24count toward the limits on the program size.
 
25    Section 30. Exit. On or after the seventh anniversary of

 

 

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1the closing date, a rural investment company may apply to the
2Department to exit the program and no longer be subject to this
3Act. An application submitted this Section shall be in a form
4and in accordance with procedures prescribed by the Department
5and shall include a calculation of the State reimbursement
6amount. In evaluating the exit application, if no tax credit
7certificates have been revoked and the rural investment company
8has not received a notice of revocation that has remained
9uncorrected, the rural investment company is eligible for exit.
10The Department shall respond to the application within 30 days
11of receipt and include confirmation of the State reimbursement
12amount. The Department shall not unreasonably deny an
13application submitted under this Section. If the Department
14denies the application, the Department shall provide the
15reasons for the determination to the rural investment company.
16Within 60 days after the day on which the confirmation of the
17State reimbursement amount is received by the rural investment
18company, the rural investment company shall make a cash
19distribution to the State in an amount equal to the lesser of:
20(i) the State reimbursement amount; or (ii) the excess return.
21The Department shall notify the rural investment company once
22payments have been received. Any amounts collected under this
23Section shall be deposited into the General Revenue Fund.
 
24    Section 900. The Illinois Income Tax Act is amended by
25adding Section 229 as follows:
 

 

 

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1    (35 ILCS 5/229 new)
2    Sec. 229. Rural Job Creation Tax Credit Act. A taxpayer is
3entitled to a credit against the taxes imposed by subsections
4(a) and (b) of Section 201 as provided in the Rural Job
5Creation Tax Credit Act.
 
6    Section 999. Effective date. This Act takes effect upon
7becoming law.