102ND GENERAL ASSEMBLY
State of Illinois
2021 and 2022
HB0445

 

Introduced 2/8/2021, by Rep. Mark L. Walker

 

SYNOPSIS AS INTRODUCED:
 
35 ILCS 5/220

    Amends the Illinois Income Tax Act. In a Section concerning the angel investment credit, provides that: (1) the Department of Commerce and Economic Opportunity may charge an application fee of $500; (2) increases the maximum credit amount that may be awarded from $10,000,000 to $20,000,000; (3) of the maximum credit amount that may be awarded, $10,000,000 shall be reserved for priority industries; (4) the term "priority industry" means an industry determined by the Department to have high potential for growth; (5) a person may be considered a "related member" if the person has at least a 33% ownership interest in the qualified new business venture (currently, 50%); (6) an investment that is part of a refinancing of a prior investment in a qualified new business venture is not eligible for the credit; and (7) if the investment is made in a disenfranchised community business, the amount of the credit shall be equal to 40% (currently, 25%) of the claimant's investment. Defines terms.


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FISCAL NOTE ACT MAY APPLY

 

 

A BILL FOR

 

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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    "Disenfranchised community" means an area of severe
22economic distress, which includes, but is not limited to,
23census tracts with poverty rates greater than 30%. Additional

 

 

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1criteria may be established by the Department by rule.
2    "Disenfranchised community business" means a qualified new
3business venture that is located in a disenfranchised
4community. Procedures for determining whether a qualified new
5business venture is located within a disenfranchised community
6shall be established by rule.
7    "Investment" means money (or its equivalent) given to a
8qualified new business venture, at a risk of loss, in
9consideration for an equity interest of the qualified new
10business venture, the proceeds of which are used for
11legitimate business purposes. An investment that is part of a
12refinancing of a prior investment in a qualified new business
13venture is not considered an investment under this Section.
14The Department may adopt rules to permit certain forms of
15contingent equity investments to be considered eligible for a
16tax credit under this Section.
17    "Legitimate business purposes" means that the investment
18proceeds are used for normal operations of the business and
19are not used for activities including refinancing any prior
20investments, paying dividends to shareholders, or other cash
21distributions to investors, stock repurchases, or other uses
22as determined by Department by rule.
23    "Priority industries" means industries determined by the
24Department to have high potential for growth.
25    "Qualified new business venture" means a business that is
26registered with the Department under this Section.

 

 

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1    "Related member" means a person that, with respect to the
2applicant, is any one of the following:
3        (1) An individual, if the individual and the members
4    of the individual's family (as defined in Section 318 of
5    the Internal Revenue Code) own directly, indirectly,
6    beneficially, or constructively, in the aggregate, at
7    least 33% 50% of the value of the outstanding profits,
8    capital, stock, or other ownership interest in the
9    qualified new business venture that is the recipient of
10    the applicant's investment.
11        (2) A partnership, estate, or trust and any partner or
12    beneficiary, if the partnership, estate, or trust and its
13    partners or beneficiaries own directly, indirectly,
14    beneficially, or constructively, in the aggregate, at
15    least 33% 50% of the profits, capital, stock, or other
16    ownership interest in the qualified new business venture
17    that is the recipient of the applicant's investment.
18        (3) A corporation, and any party related to the
19    corporation in a manner that would require an attribution
20    of stock from the corporation under the attribution rules
21    of Section 318 of the Internal Revenue Code, if the
22    applicant and any other related member own, in the
23    aggregate, directly, indirectly, beneficially, or
24    constructively, at least 33% 50% of the value of the
25    outstanding stock of the qualified new business venture
26    that is the recipient of the applicant's investment.

 

 

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1        (4) A corporation and any party related to that
2    corporation in a manner that would require an attribution
3    of stock from the corporation to the party or from the
4    party to the corporation under the attribution rules of
5    Section 318 of the Internal Revenue Code, if the
6    corporation and all such related parties own, in the
7    aggregate, at least 33% 50% of the profits, capital,
8    stock, or other ownership interest in the qualified new
9    business venture that is the recipient of the applicant's
10    investment.
11        (5) A person to or from whom there is attribution of
12    ownership of stock in the qualified new business venture
13    that is the recipient of the applicant's investment in
14    accordance with Section 1563(e) of the Internal Revenue
15    Code, except that for purposes of determining whether a
16    person is a related member under this paragraph, "20%"
17    shall be substituted for "5%" whenever "5%" appears in
18    Section 1563(e) of the Internal Revenue Code.
19        (6) A person who receives or has received compensation
20    from the applicant in exchange for services provided to
21    the applicant as an employee, officer, director, manager,
22    or independent contractor within one year before the date
23    of the investment or whose family member (as defined in
24    Section 318 of the Internal Revenue Code) or an entity
25    affiliated with the person has received such compensation.
26    (b) For taxable years beginning after December 31, 2010,

 

 

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1and ending on or before December 31, 2021, subject to the
2limitations provided in this Section, a claimant may claim, as
3a credit against the tax imposed under subsections (a) and (b)
4of Section 201 of this Act, an amount equal to 25% of the
5claimant's investment made directly in a qualified new
6business venture. However, if the investment is made in a
7disenfranchised community business, the amount of the credit
8shall be equal to 40% of the claimant's investment for an
9investment made directly in a business that registers as a
10disenfranchised community business. In order for an investment
11in a qualified new business venture to be eligible for tax
12credits, the business must have applied for and received
13certification under subsection (e) for the taxable year in
14which the investment was made prior to the date on which the
15investment was made. The credit under this Section may not
16exceed the taxpayer's Illinois income tax liability for the
17taxable year. If the amount of the credit exceeds the tax
18liability for the year, the excess may be carried forward and
19applied to the tax liability of the 5 taxable years following
20the excess credit year. The credit shall be applied to the
21earliest year for which there is a tax liability. If there are
22credits from more than one tax year that are available to
23offset a liability, the earlier credit shall be applied first.
24In the case of a partnership or Subchapter S Corporation, the
25credit is allowed to the partners or shareholders in
26accordance with the determination of income and distributive

 

 

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

 

 

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1investment to person who is not a related member, the claimant
2shall pay to the Department of Revenue, in the manner
3prescribed by the Department of Revenue, the aggregate amount
4of the disqualified credits that the claimant received related
5to the subject investment.
6    If the Department determines that a qualified new business
7venture failed to maintain a minimum employment threshold in
8the State through the date which is 3 years from the issue date
9of the last tax credit certificate issued by the Department
10with respect to the subject business pursuant to this Section,
11the claimant or claimants shall pay to the Department of
12Revenue, in the manner prescribed by the Department of
13Revenue, the aggregate amount of the disqualified credits that
14claimant or claimants received related to investments in that
15business. If the Department determines that a disenfranchised
16community business has relocated within the State of Illinois
17but outside of a disenfranchised community within 3 years of
18the investment, the claimant shall pay to the Department of
19Revenue, in the manner prescribed by the Department of
20Revenue, the amount by which aggregate amount of the
21disqualified credits that claimant or claimants received
22related to the investment in that business exceed 25% of the of
23the investment.
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, speculative
20    investing or property trading, lobbying, political
21    consulting, professional services provided by attorneys,
22    accountants, business consultants, physicians, or health
23    care consultants, wholesale or retail trade, leisure,
24    hospitality, transportation, or construction, except
25    construction of power production plants that derive energy
26    from a renewable energy resource, as defined in Section 1

 

 

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

 

 

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1minority-owned businesses, women-owned businesses, or
2businesses owned by a person with a disability (as those terms
3are used and defined in the Business Enterprise for
4Minorities, Women, and Persons with Disabilities Act), and an
5additional $500,000 shall be reserved for investments made in
6qualified new business ventures with their principal place of
7business in counties with a population of not more than
8250,000. The foregoing annual allowable amounts shall be
9allocated by the Department, on a per calendar quarter basis
10and prior to the commencement of each calendar year, in such
11proportion as determined by the Department, provided that: (i)
12the amount initially allocated by the Department for any one
13calendar quarter shall not exceed 35% of the total allowable
14amount; (ii) any portion of the allocated allowable amount
15remaining unused as of the end of any of the first 3 calendar
16quarters of a given calendar year shall be rolled into, and
17added to, the total allocated amount for the next available
18calendar quarter; and (iii) the reservation of tax credits for
19investments in priority industries, minority-owned businesses,
20women-owned businesses, businesses owned by a person with a
21disability, and in businesses in counties with a population of
22not more than 250,000 is limited to the first 3 calendar
23quarters of a given calendar year, after which they may be
24claimed by investors in any qualified new business venture.
25    (g) A claimant may not sell or otherwise transfer a credit
26awarded under this Section to another person.

 

 

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1    (h) On or before March 1 of each year, the Department shall
2report to the Governor and to the General Assembly on the tax
3credit certificates awarded under this Section for the prior
4calendar year.
5        (1) This report must include, for each tax credit
6    certificate awarded:
7            (A) the name of the claimant and the amount of
8        credit awarded or allocated to that claimant;
9            (B) the name and address (including the county) of
10        the qualified new business venture that received the
11        investment giving rise to the credit, the North
12        American Industry Classification System (NAICS) code
13        applicable to that qualified new business venture, and
14        the number of employees of the qualified new business
15        venture; and
16            (C) the date of approval by the Department of each
17        claimant's tax credit certificate.
18        (2) The report must also include:
19            (A) the total number of applicants and the total
20        number of claimants, including the amount of each tax
21        credit certificate awarded to a claimant under this
22        Section in the prior calendar year;
23            (B) the total number of applications from
24        businesses seeking registration under this Section,
25        the total number of new qualified business ventures
26        registered by the Department, and the aggregate amount

 

 

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1        of investment upon which tax credit certificates were
2        issued in the prior calendar year; and
3            (C) the total amount of tax credit certificates
4        sought by applicants, the amount of each tax credit
5        certificate issued to a claimant, the aggregate amount
6        of all tax credit certificates issued in the prior
7        calendar year and the aggregate amount of tax credit
8        certificates issued as authorized under this Section
9        for all calendar years.
10    (i) For each business seeking registration under this
11Section after December 31, 2016, the Department shall require
12the business to include in its application the North American
13Industry Classification System (NAICS) code applicable to the
14business and the number of employees of the business at the
15time of application. Each business registered by the
16Department as a qualified new business venture that receives
17an investment giving rise to the issuance of a tax credit
18certificate pursuant to this Section shall, for each of the 3
19years following the issue date of the last tax credit
20certificate issued by the Department with respect to such
21business pursuant to this Section, report to the Department
22the following:
23        (1) the number of employees and the location at which
24    those employees are employed, both as of the end of each
25    year;
26        (2) the amount of additional new capital investment

 

 

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1    raised as of the end of each year, if any; and
2        (3) the terms of any liquidity event occurring during
3    such year; for the purposes of this Section, a "liquidity
4    event" means any event that would be considered an exit
5    for an illiquid investment, including any event that
6    allows the equity holders of the business (or any material
7    portion thereof) to cash out some or all of their
8    respective equity interests.
9(Source: P.A. 100-328, eff. 1-1-18; 100-686, eff. 1-1-19;
10100-863, eff. 8-14-18; 101-81, eff. 7-12-19.)