Bill Text: IL HB3706 | 2019-2020 | 101st General Assembly | Introduced
Bill Title: 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) provides that, of the maximum credit amount that may be awarded, $10,000,000 shall be reserved for priority industries; (4) provides that the term "priority industry" means an industry determined by the Department to have high potential for growth; (5) provides that 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%); and (6) provides that 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) provides that, 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.
Spectrum: Partisan Bill (Democrat 4-0)
Status: (Introduced - Dead) 2020-06-23 - Rule 19(b) / Re-referred to Rules Committee [HB3706 Detail]
Download: Illinois-2019-HB3706-Introduced.html
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1 | AN ACT concerning revenue.
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2 | Be it enacted by the People of the State of Illinois,
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3 | represented in the General Assembly:
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4 | Section 5. The Illinois Income Tax Act is amended by | ||||||||||||||||||||||||
5 | changing Section 220 as follows:
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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 | ||||||||||||||||||||||||
10 | liability company, or a natural person that makes an investment | ||||||||||||||||||||||||
11 | in a qualified new business venture. The term "applicant" does | ||||||||||||||||||||||||
12 | not include (i) a corporation, partnership, limited liability | ||||||||||||||||||||||||
13 | company, or a natural person who has a direct or indirect | ||||||||||||||||||||||||
14 | ownership interest of at least 51% in the profits, capital, or | ||||||||||||||||||||||||
15 | value of the qualified new business venture receiving the | ||||||||||||||||||||||||
16 | investment or (ii) a related member. | ||||||||||||||||||||||||
17 | "Claimant" means an applicant certified by the Department | ||||||||||||||||||||||||
18 | who files a claim for a credit under this Section. | ||||||||||||||||||||||||
19 | "Department" means the Department of Commerce and Economic | ||||||||||||||||||||||||
20 | Opportunity. | ||||||||||||||||||||||||
21 | "Disenfranchised community" means an area of severe | ||||||||||||||||||||||||
22 | economic distress, which includes, but is not limited to, | ||||||||||||||||||||||||
23 | census tracts with poverty rates greater than 30%. Additional |
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1 | criteria may be established by the Department by rule. | ||||||
2 | "Disenfranchised community business" means a qualified new | ||||||
3 | business venture that is located in a disenfranchised | ||||||
4 | community. Procedures for determining whether a qualified new | ||||||
5 | business venture is located within a disenfranchised community | ||||||
6 | shall be established by rule. | ||||||
7 | "Investment" means money (or its equivalent) given to a | ||||||
8 | qualified new business venture, at a risk of loss, in | ||||||
9 | consideration for an equity interest of the qualified new | ||||||
10 | business venture , the proceeds of which are used for legitimate | ||||||
11 | business purposes. An investment that is part of a refinancing | ||||||
12 | of a prior investment in a qualified new business venture is | ||||||
13 | not considered an investment under this Section . The Department | ||||||
14 | may adopt rules to permit certain forms of contingent equity | ||||||
15 | investments to be considered eligible for a tax credit under | ||||||
16 | this Section. | ||||||
17 | "Legitimate business purposes" means that the investment | ||||||
18 | proceeds are used for normal operations of the business and are | ||||||
19 | not used for activities including refinancing any prior | ||||||
20 | investments, paying dividends to shareholders, or other cash | ||||||
21 | distributions to investors, stock repurchases, or other uses as | ||||||
22 | determined by Department by rule. | ||||||
23 | "Priority industries" means industries determined by the | ||||||
24 | Department to have high potential for growth. | ||||||
25 | "Qualified new business venture" means a business that is | ||||||
26 | registered with the Department under this Section. |
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1 | "Related member" means a person that, with respect to the
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2 | applicant, is any one of the following: | ||||||
3 | (1) An individual, if the individual and the members of | ||||||
4 | the individual's family (as defined in Section 318 of the | ||||||
5 | Internal Revenue Code) own directly, indirectly,
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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 the | ||||||
10 | 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
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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
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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, stock, | ||||||
8 | or other ownership interest in the qualified new business | ||||||
9 | 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 the | ||||||
21 | applicant as an employee, officer, director, manager, or | ||||||
22 | independent contractor within one year before the date of | ||||||
23 | 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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1 | and ending on or before December 31, 2021, subject to the | ||||||
2 | limitations provided in this Section, a claimant may claim, as | ||||||
3 | a credit against the tax imposed under subsections (a) and (b) | ||||||
4 | of Section 201 of this Act, an amount equal to 25% of the | ||||||
5 | claimant's investment made directly in a qualified new business | ||||||
6 | venture. However, if the investment is made in a | ||||||
7 | disenfranchised community business, the amount of the credit | ||||||
8 | shall be equal to 40% of the claimant's investment for an | ||||||
9 | investment made directly in a business that registers as a | ||||||
10 | disenfranchised community business. In order for an investment | ||||||
11 | in a qualified new business venture to be eligible for tax | ||||||
12 | credits, the business must have applied for and received | ||||||
13 | certification under subsection (e) for the taxable year in | ||||||
14 | which the investment was made prior to the date on which the | ||||||
15 | investment was made. The credit under this Section may not | ||||||
16 | exceed the taxpayer's Illinois income tax liability for the | ||||||
17 | taxable year. If the amount of the credit exceeds the tax | ||||||
18 | liability for the year, the excess may be carried forward and | ||||||
19 | applied to the tax liability of the 5 taxable years following | ||||||
20 | the excess credit year. The credit shall be applied to the | ||||||
21 | earliest year for which there is a tax liability. If there are | ||||||
22 | credits from more than one tax year that are available to | ||||||
23 | offset a liability, the earlier credit shall be applied first. | ||||||
24 | In the case of a partnership or Subchapter S Corporation, the | ||||||
25 | credit is allowed to the partners or shareholders in accordance | ||||||
26 | with the determination of income and distributive share of |
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1 | income under Sections 702 and 704 and Subchapter S of the | ||||||
2 | Internal Revenue Code. | ||||||
3 | (c) The minimum amount an applicant must invest in any | ||||||
4 | single qualified new business venture in order to be eligible | ||||||
5 | for a credit under this Section is $10,000. The maximum amount | ||||||
6 | of an applicant's total investment made in any single qualified | ||||||
7 | new business venture that may be used as the basis for a credit | ||||||
8 | under this Section is $2,000,000. | ||||||
9 | (d) The Department shall implement a program to certify an | ||||||
10 | applicant for an angel investment credit. Upon satisfactory | ||||||
11 | review, the Department shall issue a tax credit certificate | ||||||
12 | stating the amount of the tax credit to which the applicant is | ||||||
13 | entitled. The Department shall annually certify that: (i) each | ||||||
14 | qualified new business venture that receives an angel | ||||||
15 | investment under this Section has maintained a minimum | ||||||
16 | employment threshold, as defined by rule, in the State (and | ||||||
17 | continues to maintain a minimum employment threshold in the | ||||||
18 | State for a period of no less than 3 years from the issue date | ||||||
19 | of the last tax credit certificate issued by the Department | ||||||
20 | with respect to such business pursuant to this Section); and | ||||||
21 | (ii) the claimant's investment has been made and remains, | ||||||
22 | except in the event of a qualifying liquidity event, in the | ||||||
23 | qualified new business venture for no less than 3 years. | ||||||
24 | If an investment for which a claimant is allowed a credit | ||||||
25 | under subsection (b) is held by the claimant for less than 3 | ||||||
26 | years, other than as a result of a permitted sale of the |
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1 | investment to person who is not a related member, the claimant | ||||||
2 | shall pay to the Department of Revenue, in the manner | ||||||
3 | prescribed by the Department of Revenue, the aggregate amount | ||||||
4 | of the disqualified credits that the claimant received related | ||||||
5 | to the subject investment. | ||||||
6 | If the Department determines that a qualified new business | ||||||
7 | venture failed to maintain a minimum employment threshold in | ||||||
8 | the State through the date which is 3 years from the issue date | ||||||
9 | of the last tax credit certificate issued by the Department | ||||||
10 | with respect to the subject business pursuant to this Section, | ||||||
11 | the claimant or claimants shall pay to the Department of | ||||||
12 | Revenue, in the manner prescribed by the Department of Revenue, | ||||||
13 | the aggregate amount of the disqualified credits that claimant | ||||||
14 | or claimants received related to investments in that business. | ||||||
15 | If the Department determines that a disenfranchised community | ||||||
16 | business has relocated within the State of Illinois but outside | ||||||
17 | of a disenfranchised community within 3 years of the | ||||||
18 | investment, the claimant shall pay to the Department of | ||||||
19 | Revenue, in the manner prescribed by the Department of Revenue, | ||||||
20 | the amount by which aggregate amount of the disqualified | ||||||
21 | credits that claimant or claimants received related to the | ||||||
22 | investment in that business exceed 25% of the of the | ||||||
23 | investment. | ||||||
24 | (e) The Department shall implement a program to register | ||||||
25 | qualified new business ventures for purposes of this Section. A | ||||||
26 | business desiring registration under this Section shall be |
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1 | required to submit a full and complete application to the | ||||||
2 | Department. A submitted application shall be effective only for | ||||||
3 | the taxable year in which it is submitted, and a business | ||||||
4 | desiring registration under this Section shall be required to | ||||||
5 | submit a separate application in and for each taxable year for | ||||||
6 | which the business desires registration. Further, if at any | ||||||
7 | time prior to the acceptance of an application for registration | ||||||
8 | under this Section by the Department one or more events occurs | ||||||
9 | which makes the information provided in that application | ||||||
10 | materially false or incomplete (in whole or in part), the | ||||||
11 | business shall promptly notify the Department of the same. Any | ||||||
12 | failure of a business to promptly provide the foregoing | ||||||
13 | information to the Department may, at the discretion of the | ||||||
14 | Department, result in a revocation of a previously approved | ||||||
15 | application for that business, or disqualification of the | ||||||
16 | business from future registration under this Section, or both. | ||||||
17 | The Department may register the business only if all of the | ||||||
18 | 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 State, | ||||||
25 | or both, as determined by the Department, and either of the | ||||||
26 | 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 sciences; | ||||||
4 | 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 | ||||||
19 | Revenue, shall adopt rules to administer this Section. The | ||||||
20 | Department may charge an applicant an application fee of $500. | ||||||
21 | The aggregate amount of the tax credits that may be claimed | ||||||
22 | under this Section for investments made in qualified new | ||||||
23 | business ventures shall be limited at $20,000,000 $10,000,000 | ||||||
24 | per calendar year, of which $10,000,000 shall be reserved for | ||||||
25 | priority industries, $500,000 shall be reserved for | ||||||
26 | investments made in qualified new business ventures which are |
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1 | minority-owned businesses, women-owned female-owned | ||||||
2 | businesses, or businesses owned by a person with a disability | ||||||
3 | (as those terms are used and defined in the Business Enterprise | ||||||
4 | for Minorities, Women, and Persons with Disabilities Act), and | ||||||
5 | an additional $500,000 shall be reserved for investments made | ||||||
6 | in qualified new business ventures with their principal place | ||||||
7 | of business in counties with a population of not more than | ||||||
8 | 250,000. The foregoing annual allowable amounts shall be | ||||||
9 | allocated by the Department, on a per calendar quarter basis | ||||||
10 | and prior to the commencement of each calendar year, in such | ||||||
11 | proportion as determined by the Department, provided that: (i) | ||||||
12 | the amount initially allocated by the Department for any one | ||||||
13 | calendar quarter shall not exceed 35% of the total allowable | ||||||
14 | amount; (ii) any portion of the allocated allowable amount | ||||||
15 | remaining unused as of the end of any of the first 3 calendar | ||||||
16 | quarters of a given calendar year shall be rolled into, and | ||||||
17 | added to, the total allocated amount for the next available | ||||||
18 | calendar quarter; and (iii) the reservation of tax credits for | ||||||
19 | investments in priority industries, minority-owned businesses, | ||||||
20 | women-owned businesses, businesses owned by a person with a | ||||||
21 | disability, and in businesses in counties with a population of | ||||||
22 | not more than 250,000 is limited to the first 3 calendar | ||||||
23 | quarters of a given calendar year, after which they may be | ||||||
24 | claimed by investors in any qualified new business venture. | ||||||
25 | (g) A claimant may not sell or otherwise transfer a credit | ||||||
26 | awarded under this Section to another person. |
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1 | (h) On or before March 1 of each year, the Department shall | ||||||
2 | report to the Governor and to the General Assembly on the tax | ||||||
3 | credit certificates awarded under this Section for the prior | ||||||
4 | calendar 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.
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10 | (i) For each business seeking registration under this | ||||||
11 | Section after December 31, 2016, the Department shall require | ||||||
12 | the business to include in its application the North American | ||||||
13 | Industry Classification System (NAICS) code applicable to the | ||||||
14 | business and the number of employees of the business at the | ||||||
15 | time of application. Each business registered by the Department | ||||||
16 | as a qualified new business venture that receives an investment | ||||||
17 | giving rise to the issuance of a tax credit certificate | ||||||
18 | pursuant to this Section shall, for each of the 3 years | ||||||
19 | following the issue date of the last tax credit certificate | ||||||
20 | issued by the Department with respect to such business pursuant | ||||||
21 | to this Section, report to the Department the following: | ||||||
22 | (1) the number of employees and the location at which | ||||||
23 | those employees are employed, both as of the end of each | ||||||
24 | year; | ||||||
25 | (2) the amount of additional new capital investment | ||||||
26 | raised as of the end of each year, if any; and |
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1 | (3) the terms of any liquidity event occurring during | ||||||
2 | such year; for the purposes of this Section, a "liquidity | ||||||
3 | event" means any event that would be considered an exit for | ||||||
4 | an illiquid investment, including any event that allows the | ||||||
5 | equity holders of the business (or any material portion | ||||||
6 | thereof) to cash out some or all of their respective equity | ||||||
7 | interests. | ||||||
8 | (Source: P.A. 100-328, eff. 1-1-18; 100-686, eff. 1-1-19; | ||||||
9 | 100-863, eff. 8-14-18; revised 10-5-18.)
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