Under the bill, the claimant must place the gain from the original asset in a
segregated account in a financial institution, purchase another capital asset that is
an investment in a venture capital fund or in a qualified new business venture
(replacement asset) within 90 days after the sale of the original asset that generated
the gain, and notify the Department of Revenue (DOR) on a form prepared by DOR
that the claimant is deferring the payment of income tax on the gain from the original
asset because the proceeds have been reinvested. The cost of the replacement asset
must be equal to or greater than the gain generated by the sale of the original asset.
The bill also specifies that the basis of the replacement asset shall be its cost
minus the gain generated by the sale of the original asset. If a claimant defers the
payment of income taxes on the gain generated by the sale of the original asset, the
claimant may not use that gain to net the claimant's gains and losses as the claimant
could do if the claimant did not elect to defer the payment of taxes on the gain.
In addition, under the bill, the capital gain realized from the sale of an asset
that is an investment in a start-up technology business may be excluded from
taxation, if the business has its principal operations in this state, it has been in
operation for more than three years, its owner has three years of relevant business
experience or education, it is engaged primarily in a technology field, its net worth
does not exceed $3,000,000, and it secures financing equal to at least $250,000.

Under this bill, the Department of Commerce must promulgate rules
establishing a procedure for certifying venture capital funds for purposes of the
capital gains tax exemption described above. A venture capital fund may obtain a
certification only if the venture capital fund is a private seed and venture capital
partnership or entity fund, the venture capital fund has its principal place of
business in Wisconsin, and the venture capital fund commits to make equity
investments in businesses located in Wisconsin. The bill requires the Department
of Commerce, upon request of any person, to issue a written notice indicating
whether a venture capital fund is certified. Each such notice that indicates a venture
capital fund is certified must include the following statement: " The Wisconsin
Department of Commerce has not recommended or approved an investment in this
venture capital fund or assessed the merits or risks of such an investment.
Investors should rely solely on their own investigation and analysis and seek
investment, financial, legal, and tax advice before making their own decision
regarding investment in this enterprise.
" The bill also requires the Department of
Commerce, upon issuing or discontinuing a certification, to notify DOR and give
DOR a copy of the certification or discontinuance.
This bill will be referred to the Joint Survey Committee on Tax Exemptions for
a detailed analysis, which will be printed as an appendix to this bill.
For further information see the state fiscal estimate, which will be printed as
an appendix to this bill.
The people of the state of Wisconsin, represented in senate and assembly, do
enact as follows:
AB538, s. 1 1Section 1. 71.05 (6) (a) 15. of the statutes is amended to read:
AB538,3,62 71.05 (6) (a) 15. The amount of the credits computed under s. 71.07 (2dd), (2de),
3(2di), (2dj), (2dL), (2dm), (2dr), (2ds), (2dx), (3g), and (3s), and (5d) and not passed
4through by a partnership, limited liability company, or tax-option corporation that
5has added that amount to the partnership's, company's, or tax-option corporation's
6income under s. 71.21 (4) or 71.34 (1) (g).
AB538, s. 2 7Section 2. 71.05 (6) (b) 34. of the statutes is created to read:
AB538,4,38 71.05 (6) (b) 34. To the extent that the gains are not excluded from taxation
9under subd. 9. or sub. (24), 100 percent of the capital gain as computed under the
10Internal Revenue Code if the gain is realized from the sale of an asset that is an
11investment in a start-up technology business. For purposes of this subdivision, the

1capital gains and capital losses for all assets shall be netted before application of the
2percentage. In this subdivision, a "start-up technology business" is a business that
3satisfies all of the following conditions:
AB538,4,44 a. Its principal business operations are located in this state.
AB538,4,55 b. It has been in operation for no more than 3 years.
AB538,4,126 c. Its owner has at least 3 years of relevant business or technology experience,
7or any other experience that the department determines is sufficient to increase the
8likelihood of the success of the business, or its owner has successfully completed an
9entrepreneurial venture development curriculum; a degree in business
10management, business administration, or a related field or a degree in a technology
11field; or any other training that the department determines is sufficient to increase
12the likelihood of the success of the business.
AB538,4,1313 d. It is a business engaged primarily in a technology field.
AB538,4,1414 e. Its net worth does not exceed $3,000,000.
AB538,4,1815 f. In the taxable year in which cash investments are first made in the business,
16it secures total equity financing or near equity financing equal to at least $250,000.
17"Near equity" means debt that may be converted to equity at the option of the debt
18holder and royalty agreements.
AB538, s. 3 19Section 3. 71.05 (24) of the statutes is created to read:
AB538,4,2120 71.05 (24) Income tax deferral; investments in certain venture capital funds
21and qualified new business ventures.
(a) In this subsection:
AB538,4,2422 1. "Claimant" means an individual; an individual partner or member of a
23partnership, limited liability company, or limited liability partnership; or an
24individual shareholder of a tax-option corporation.
AB538,4,2525 2. "Financial institution" has the meaning given in s. 69.30 (1) (b).
AB538,5,2
13. "Long-term capital gain" means the gain realized from the sale of any asset
2held more than one year.
AB538,5,83 (b) To the extent that the gains are not excluded from taxation under sub. (6)
4(b) 9., a claimant may subtract from federal adjusted gross income any amount of a
5long-term capital gain, or any gain realized from the sale of an asset that is an
6investment in a qualified new business venture that is certified under s. 560.03 (26)
7or a venture capital fund that is certified under s. 560.03 (27), if the claimant does
8all of the following:
AB538,5,109 1. Immediately deposits the gain in a segregated account in a financial
10institution.
AB538,5,1511 2. Within 90 days after the sale of the asset that generated the gain, purchases
12another capital asset, which is an investment in a qualified new business venture
13that is certified under s. 560.03 (26) or a venture capital fund that is certified under
14s. 560.03 (27), of equal or greater value using all of the proceeds in the account
15described under subd. 1.
AB538,5,1916 3. After purchasing a capital asset as described under subd. 2., immediately
17notifies the department, on a form prepared by the department, that the claimant
18will not declare on the claimant's income tax return the gain described under subd.
191. because the claimant has reinvested the capital gain as described under subd. 2.
AB538,5,2220 (c) The basis of the purchased capital asset described in par. (b) 2. shall be
21calculated by subtracting the gain described in par. (b) 1. from the cost of the
22purchased asset described in par. (b) 2.
AB538,5,2523 (d) If a claimant defers the payment of income taxes on a capital gain under this
24subsection, the claimant may not use the gain described under par. (b) 1. to net
25capital gains and losses, as described under sub. (10) (c).
AB538, s. 4
1Section 4. 71.07 (5d) of the statutes is created to read:
AB538,6,22 71.07 (5d) Qualified new business venture credit. (a) In this subsection:
AB538,6,33 1. "Broker-dealer" has the meaning given in s. 551.02 (3).
AB538,6,44 2. "Claimant" means a person who files a claim under this subsection.
AB538,6,65 3. "Qualified new business venture" means a business that is certified under
6s. 560.03 (26).
AB538,6,97 (b) Subject to the limitations provided in this subsection and in s. 560.03 (26),
8a claimant may claim as a credit against the tax imposed under s. 71.02, up to the
9amount of those taxes, any of the following:
AB538,6,1310 1. An amount equal to 20 percent of the claimant's investment in a qualified
11new business venture in the taxable year, except that if the claimant's investment
12exceeds $100,000 in the taxable year the claimant may claim 20 percent of $100,000
13plus 10 percent of the amount of the investment that exceeds $100,000.
AB538,6,1514 2. If the claimant is a broker-dealer, an amount equal to 10 percent of the first
15$500,000 raised in an offering of a qualified new business venture in the taxable year.
AB538,6,1716 (c) The carry-over provisions of s. 71.28 (4) (e) and (f), as they apply to the credit
17under s. 71.28 (4), apply to the credit under this subsection.
AB538,6,2518 (d) Partnerships, limited liability companies, and tax-option corporations may
19not claim the credit under this subsection, but the eligibility for, and the amount of,
20the credit are based on the amounts described under par. (b) that are attributable to
21their business operations. A partnership, limited liability company, or tax-option
22corporation shall compute the amount of credit that each of its partners, members,
23or shareholders may claim and shall provide that information to each of them.
24Partners, members of limited liability companies, and shareholders of tax-option
25corporations may claim the credit in proportion to their ownership interest.
AB538,7,2
1(e) Section 71.28 (4) (g) and (h), as it applies to the credit under s. 71.28 (4),
2applies to the credit under this subsection.
AB538, s. 5 3Section 5. 71.10 (4) (gx) of the statutes is created to read:
AB538,7,44 71.10 (4) (gx) Qualified new business venture credit under s. 71.07 (5d).
AB538, s. 6 5Section 6. 71.21 (4) of the statutes is amended to read:
AB538,7,86 71.21 (4) Credits computed by a partnership under s. 71.07 (2dd), (2de), (2di),
7(2dj), (2dL), (2dm), (2ds), (2dx), (3g), and (3s) , and (5d) and passed through to
8partners shall be added to the partnership's income.
AB538, s. 7 9Section 7. 71.26 (2) (a) of the statutes is amended to read:
AB538,7,2410 71.26 (2) (a) Corporations in general. The "net income" of a corporation means
11the gross income as computed under the Internal Revenue Code as modified under
12sub. (3) minus the amount of recapture under s. 71.28 (1di) plus the amount of credit
13computed under s. 71.28 (1), (3), (4), and (5) plus the amount of the credit computed
14under s. 71.28 (1dd), (1de), (1di), (1dj), (1dL), (1dm), (1ds), (1dx), and (3g), and (5d)
15and not passed through by a partnership, limited liability company, or tax-option
16corporation that has added that amount to the partnership's, limited liability
17company's, or tax-option corporation's income under s. 71.21 (4) or 71.34 (1) (g) plus
18the amount of losses from the sale or other disposition of assets the gain from which
19would be wholly exempt income, as defined in sub. (3) (L), if the assets were sold or
20otherwise disposed of at a gain and minus deductions, as computed under the
21Internal Revenue Code as modified under sub. (3), plus or minus, as appropriate, an
22amount equal to the difference between the federal basis and Wisconsin basis of any
23asset sold, exchanged, abandoned, or otherwise disposed of in a taxable transaction
24during the taxable year, except as provided in par. (b) and s. 71.45 (2) and (5).
AB538, s. 8 25Section 8. 71.28 (5d) of the statutes is created to read:
AB538,8,1
171.28 (5d) Qualified new business venture credit. (a) In this subsection:
AB538,8,22 1. "Broker-dealer" has the meaning given in s. 551.02 (3).
AB538,8,33 2. "Claimant" means a person who files a claim under this subsection.
AB538,8,54 3. "Qualified new business venture" means a business that is certified under
5s. 560.03 (26).
AB538,8,86 (b) Subject to the limitations provided in this subsection and in s. 560.03 (26),
7a claimant may claim as a credit against the tax imposed under s. 71.23, up to the
8amount of those taxes, any of the following:
AB538,8,129 1. An amount equal to 20 percent of the claimant's investment in a qualified
10new business venture in the taxable year, except that if the claimant's investment
11exceeds $100,000 in the taxable year the claimant may claim 20 percent of $100,000
12plus 10 percent of the amount of the investment that exceeds $100,000.
AB538,8,1413 2. If the claimant is a broker-dealer, an amount equal to 10 percent of the first
14$500,000 raised in an offering of a qualified new business venture in the taxable year.
AB538,8,1615 (c) The carry-over provisions of sub. (4) (e) and (f), as they apply to the credit
16under sub. (4), apply to the credit under this subsection.
AB538,8,2417 (d) Partnerships, limited liability companies, and tax-option corporations may
18not claim the credit under this subsection, but the eligibility for, and the amount of,
19the credit are based on the amounts described under par. (b) that are attributable to
20their business operations. A partnership, limited liability company, or tax-option
21corporation shall compute the amount of credit that each of its partners, members,
22or shareholders may claim and shall provide that information to each of them.
23Partners, members of limited liability companies, and shareholders of tax-option
24corporations may claim the credit in proportion to their ownership interest.
AB538,9,2
1(e) Subsection (4) (g) and (h), as it applies to the credit under sub. (4), applies
2to the credit under this subsection.
AB538, s. 9 3Section 9. 71.30 (3) (eop) of the statutes is created to read:
AB538,9,44 71.30 (3) (eop) Qualified new business venture credit under s. 71.28 (5d).
AB538, s. 10 5Section 10. 71.34 (1) (g) of the statutes is amended to read:
AB538,9,86 71.34 (1) (g) An addition shall be made for credits computed by a tax-option
7corporation under s. 71.28 (1dd), (1de), (1di), (1dj), (1dL), (1dm), (1ds), (1dx), (3), and
8(3g), and (5d) and passed through to shareholders.
AB538, s. 11 9Section 11. 71.45 (2) (a) 10. of the statutes is amended to read:
AB538,9,1510 71.45 (2) (a) 10. By adding to federal taxable income the amount of credit
11computed under s. 71.47 (1dd) to (1dx) and (5d) and not passed through by a
12partnership, limited liability company or tax-option corporation that has added that
13amount to the partnership's, limited liability company's or tax-option corporation's
14income under s. 71.21 (4) or 71.34 (1) (g) and the amount of credit computed under
15s. 71.47 (1), (3), (4) and (5).
AB538, s. 12 16Section 12. 71.47 (5d) of the statutes is created to read:
AB538,9,1717 71.47 (5d) Qualified new business venture credit. (a) In this subsection:
AB538,9,1818 1. "Broker-dealer" has the meaning given in s. 551.02 (3).
AB538,9,1919 2. "Claimant" means a person who files a claim under this subsection.
AB538,9,2120 3. "Qualified new business venture" means a business that is certified under
21s. 560.03 (26).
AB538,9,2422 (b) Subject to the limitations provided in this subsection and in s. 560.03 (26),
23a claimant may claim as a credit against the tax imposed under s. 71.43, up to the
24amount of those taxes, any of the following:
AB538,10,4
11. An amount equal to 20 percent of the claimant's investment in a qualified
2new business venture in the taxable year, except that if the claimant's investment
3exceeds $100,000 in the taxable year the claimant may claim 20 percent of $100,000
4plus 10 percent of the amount of the investment that exceeds $100,000.
AB538,10,65 2. If the claimant is a broker-dealer, an amount equal to 10 percent of the first
6$500,000 raised in an offering of a qualified new business venture in the taxable year.
AB538,10,87 (c) The carry-over provisions of s. 71.28 (4) (e) and (f), as they apply to the credit
8under s. 71.28 (4), apply to the credit under this subsection.
AB538,10,169 (d) Partnerships, limited liability companies, and tax-option corporations may
10not claim the credit under this subsection, but the eligibility for, and the amount of,
11the credit are based on the amounts described under par. (b) that are attributable to
12their business operations. A partnership, limited liability company, or tax-option
13corporation shall compute the amount of credit that each of its partners, members,
14or shareholders may claim and shall provide that information to each of them.
15Partners, members of limited liability companies, and shareholders of tax-option
16corporations may claim the credit in proportion to their ownership interest.
AB538,10,1817 (e) Section 71.28 (4) (g) and (h), as it applies to the credit under s. 71.28 (4),
18applies to the credit under this subsection.
AB538, s. 13 19Section 13. 71.49 (1) (eop) of the statutes is created to read:
AB538,10,2020 71.49 (1) (eop) Qualified new business venture credit under s. 71.47 (5d).
AB538, s. 14 21Section 14. 77.92 (4) of the statutes is amended to read:
AB538,11,1122 77.92 (4) "Net business income", with respect to a partnership, means taxable
23income as calculated under section 703 of the Internal Revenue Code; plus the items
24of income and gain under section 702 of the Internal Revenue Code, including taxable
25state and municipal bond interest and excluding nontaxable interest income or

1dividend income from federal government obligations; minus the items of loss and
2deduction under section 702 of the Internal Revenue Code, except items that are not
3deductible under s. 71.21; plus guaranteed payments to partners under section 707
4(c) of the Internal Revenue Code; plus the credits claimed under s. 71.07 (2dd), (2de),
5(2di), (2dj), (2dL), (2dm), (2dr), (2ds), (2dx), and (3g), and (3s), and (5d); and plus or
6minus, as appropriate, transitional adjustments, depreciation differences, and basis
7differences under s. 71.05 (13), (15), (16), (17), and (19); but excluding income, gain,
8loss, and deductions from farming. "Net business income", with respect to a natural
9person, estate, or trust, means profit from a trade or business for federal income tax
10purposes and includes net income derived as an employee as defined in section 3121
11(d) (3) of the Internal Revenue Code.
AB538, s. 15 12Section 15. 560.03 (24) to (27) of the statutes are created to read:
AB538,11,1913 560.03 (24) In cooperation with the department of financial institutions and
14the Board of Regents of the University of Wisconsin System, annually conduct and
15publish the results of a study of Wisconsin businesses to determine new business
16formation trends and identify obstacles faced by new Wisconsin businesses and areas
17where changes in governmental policy may satisfy the needs of new Wisconsin
18businesses. As part of the study, the department of commerce shall conduct a survey
19of Wisconsin businesses.
AB538,11,23 20(25) In cooperation with the department of financial institutions and the Board
21of Regents of the University of Wisconsin System, provide education and other
22support to facilitate the development networks of investors that review new
23businesses or proposed new businesses for potential investment.
AB538,12,8 24(26) Certify businesses as qualified new business ventures for purposes of ss.
2571.05 (24), 71.07 (5d), 71.28 (5d), and 71.47 (5d). The department shall promulgate

1rules for the administration of this subsection. The rules shall require a business
2desiring certification to submit an application to the department. The department
3shall maintain a list of businesses certified under this subsection and shall permit
4public access to the list through the department's Internet website. The department
5shall notify the department of revenue of every business certified under this
6subsection and the date on which any such business is decertified. A business may
7be certified under this subsection, and may maintain such certification, only if the
8business satisfies all of the following conditions:
AB538,12,99 (a) It has its headquarters in this state.
AB538,12,1110 (b) At least 51 percent of the employees employed by the business are employed
11in this state.
AB538,12,1312 (c) Its average annual net income for each of the 2 taxable years immediately
13preceding the taxable year for which a credit is claimed does not exceed $20,000,000.
AB538,12,1514 (d) It's net worth in the taxable year for which a credit is claimed does not
15exceed $75,000,000.
AB538,12,1716 (e) It is not engaged predominantly in providing professional services by
17accountants, lawyers, or physicians.
AB538,12,1918 (f) It is not engaged predominantly in trade or in the leisure and hospitality
19industry.
AB538,12,2020 (g) It is not engaged in banking or lending or in developing real estate for resale.
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