97TH GENERAL ASSEMBLY
State of Illinois
2011 and 2012
SB0011

 

Introduced 1/27/2011, by Sen. Dan Kotowski

 

SYNOPSIS AS INTRODUCED:
 
35 ILCS 5/221 new
35 ILCS 5/222 new

    Amends the Illinois Income Tax Act. Creates income tax credits for amounts invested by a taxpayer in a qualified new business venture, including investments made through an investment fund manager. Provides that the credit shall be equal to 25% of the amount invested. Provides that the credits may be carried forward for a period of 5 years. Provides that not more than $10,000,000 in angel investment credits may be issued per calendar year. Provides that the credits are exempt from the Act's automatic sunset provisions. Provides that the Department of Commerce and Economic Opportunity shall certify the qualified business ventures and investment fund managers. Sets forth certain criteria for the certification of the business venture. Effective immediately.


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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 adding
5Sections 221 and 222 as follows:
 
6    (35 ILCS 5/221 new)
7    Sec. 221. Early stage seed investment credit.
8    (a) As used in this Section:
9    "Claimant" means a person who files a claim for a credit
10under this Section.
11    "Department" means the Department of Commerce and Economic
12Opportunity.
13    "Fund manager" means an investment fund manager certified
14under subsection (e) of this Section.
15    (b) For taxable years beginning after December 31, 2011,
16subject to the limitations provided under this Section, a
17claimant may claim, as a credit against the tax imposed under
18subsections (a) and (b) of Section 201 of this Act, an amount
19equal to 25% of the amount invested by the claimant with a fund
20manager and invested by the fund manager in a business
21certified under Section 222 of this Act. The credit under this
22Section may not exceed the taxpayer's Illinois income tax
23liability for the taxable year. If the amount of the credit

 

 

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1exceeds the tax liability for the year, the excess may be
2carried forward and applied to the tax liability of the 5
3taxable years following the excess credit year. The credit
4shall be applied to the earliest year for which there is a tax
5liability. If there are credits from more than one tax year
6that are available to offset a liability, the earlier credit
7shall be applied first.
8    In the case of a partnership or limited liability company,
9the computation of the 25% limitation under this subsection
10shall be determined at the entity level rather than the
11claimant level and may be allocated among the claimants who
12make investments in the manner set forth in the entity's
13organizational documents. The partnership or limited liability
14company shall provide to the Department and the Department of
15Revenue the names and tax identification numbers of the
16claimants, the amounts of the credits allocated to the
17claimants, and the computation of the allocations.
18    (c) The Illinois adjusted basis of any investment for which
19a credit is claimed under this Section shall be reduced by the
20amount of the credit that is offset against Illinois income
21taxes. The Illinois basis of a partner's interest in a
22partnership, a member's interest in a limited liability
23company, or stock in an S corporation shall be adjusted to
24reflect adjustments made under this subsection.
25    (d) If an investment for which a claimant claims a credit
26under subsection (b) is held by the claimant for less than 3

 

 

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1years, the claimant shall pay to the Department, in the manner
2prescribed by the Department, the amount of the credit that the
3claimant received related to the investment.
4    (e) The Department shall implement a program to certify
5investment fund managers for purposes of this Section. An
6investment fund manager desiring certification shall submit an
7application to the Department. The investment fund manager
8shall specify in the application the investment amount that the
9manager wishes to raise, and the Department may certify the
10manager and determine the amount that qualifies for purposes of
11this Section. In determining whether to certify an investment
12fund manager, the Department shall consider the investment fund
13manager's experience in managing venture capital funds, the
14past performance of investment funds managed by the applicant,
15the expected level of investment in the investment fund to be
16managed by the applicant, and any other relevant factors. The
17Department may certify only investment fund managers that
18commit to consider placing investments in businesses certified
19under Section 222 of this Act.
20    The Department shall maintain a list of businesses
21certified under Section 222 of this Act and investment fund
22managers certified under this subsection, and shall permit
23public access to the lists through the Department's Internet
24website.
25    The Department shall notify the Department of Revenue of
26every certification issued under this subsection and under

 

 

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1Section 222 of this Act and the date on which any such
2certification is revoked or expires.
3    (f) The Department, in consultation with the Department of
4Revenue, shall adopt rules to administer this Section. The
5rules shall limit the aggregate amount of the tax credits under
6this Section that may be claimed for investments paid to fund
7managers certified under subsection (e) at $10,000,000 per
8calendar year. The rules shall also provide that no claimant
9may receive a credit under this Section unless the claimant's
10investment is kept in a certified business, or with a certified
11fund manager, for no less than 3 years.
12    (g) A claimant may sell or otherwise transfer a credit
13awarded under this Section to another person who is subject to
14the taxes or fees imposed under subsections (a) or (b) of
15Section 201, if the transferee receives prior authorization
16from the Department and the Department of Revenue and the
17Department then notifies the investment fund manager of the
18transfer. The Department may charge any person selling or
19otherwise transferring a credit under this subsection a fee
20equal to 1% of the credit amount sold or transferred.
21    (h) This Section is exempt from the provisions of Section
22250.
 
23    (35 ILCS 5/222 new)
24    Sec. 222. Angel investment credit.
25    (a) As used in this Section:

 

 

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1    "Bona fide angel investment" means a purchase of an equity
2interest, or any other expenditure, as determined by rule under
3this Section, that is made by:
4        (1) a person who reviews new businesses or proposed new
5    businesses for potential investment of the person's money;
6    or
7        (2) a network of persons each of whom satisfies item
8    (1).
9    "Claimant" means an individual who files a claim for a
10credit under this Section.
11    "Department" means the Department of Commerce and Economic
12Opportunity.
13    "Person" means a partnership or limited liability company
14that is a non-operating entity, as determined by the
15Department, a natural person, or fiduciary.
16    "Qualified new business venture" means a business that is
17certified under this Section.
18    (b) For taxable years beginning after December 31, 2011,
19subject to the limitations provided in this Section, a claimant
20may claim, as a credit against the tax imposed under
21subsections (a) and (b) of Section 201 of this Act, an amount
22equal to 25% of the claimant's bona fide angel investment made
23directly in a qualified new business venture. The credit under
24this Section may not exceed the taxpayer's Illinois income tax
25liability for the taxable year. If the amount of the credit
26exceeds the tax liability for the year, the excess may be

 

 

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1carried forward and applied to the tax liability of the 5
2taxable years following the excess credit year. The credit
3shall be applied to the earliest year for which there is a tax
4liability. If there are credits from more than one tax year
5that are available to offset a liability, the earlier credit
6shall be applied first.
7    (c) The maximum amount of a claimant's investment that may
8be used as the basis for a credit under this Section is
9$2,000,000 for each investment made directly in a business
10certified under this Section.
11    (d) If an investment for which a claimant claims a credit
12under subsection (b) is held by the claimant for less than 3
13years, the claimant shall pay to the Department, in the manner
14prescribed by the Department, the amount of the credit that the
15claimant received related to the investment.
16    (e) The Illinois adjusted basis of any investment for which
17a credit is claimed under subsection (b) shall be reduced by
18the amount of the credit that is offset against Illinois income
19taxes.
20    (f) The Department shall implement a program to certify
21businesses for purposes of this Section. A business desiring
22certification shall submit an application to the Department in
23each taxable year for which the business desires certification.
24The business shall specify in its application the investment
25amount it wishes to raise, and the Department may certify the
26business and determine the amount that qualifies for purposes

 

 

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1of this Section. Unless otherwise provided under the rules of
2the Department, a business may be certified under this
3subsection, and may maintain such certification, only if the
4business satisfies all of the following conditions:
5        (1) it has its headquarters in this State;
6        (2) at least 51% of the employees employed by the
7    business are employed in this State;
8        (3) it has the potential for increasing jobs in this
9    State, increasing capital investment in this State, or
10    both, and any of the following apply:
11            (A) it is engaged in, or has committed to engage
12        in, innovation in any of the following: manufacturing;
13        biotechnology; nanotechnology; communications;
14        agriculture; clean energy creation or storage
15        technology; processing or assembling products,
16        including medical devices, pharmaceuticals, computer
17        software, computer hardware, semiconductors, other
18        innovative technology products, or other products that
19        are produced using manufacturing methods that are
20        enabled by applying proprietary technology; or
21        providing services that are enabled by applying
22        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 primarily 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) it has less than 100 employees;
13        (6) it has been in operation in Illinois for not more
14    than 10 consecutive years prior to the year of
15    certification; and
16        (7) prior to certification, it has received not more
17    than (i) $2,000,000 in investments that qualified for tax
18    credits under this Section, (ii) $10,000,000 in aggregate
19    private equity investment in cash, and (iii) $4,000,000 in
20    investments that qualified for tax credits under this
21    Section or Section 219 of this Act.
22    (g) The Department, in consultation with the Department of
23Revenue, shall adopt rules to administer this Section. The
24rules shall further define "bona fide angel investment" for
25purposes of this Section. The rules shall limit the aggregate
26amount of the tax credits that may be claimed under this

 

 

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1Section for investments made in qualified new business ventures
2at $10,000,000 per calendar year.
3    (h) A claimant may sell or otherwise transfer a credit
4awarded under this Section to another person who is subject to
5the taxes or fees imposed under subsections (a) or (b) of
6Section 201, if the transferee receives prior authorization
7from the Department and the Department of Revenue. The
8Department may charge any person selling or otherwise
9transferring a credit under this subsection a fee equal to 1%
10of the credit amount sold or transferred.
11    (i) This Section is exempt from the provisions of Section
12250.
 
13    Section 99. Effective date. This Act takes effect upon
14becoming law.