AB1177: Bill Text

LRB-2287/1

CTS&JK:wlj:rs

2005 - 2006 LEGISLATURE

2005 Assembly BILL 1177

April 11, 2006 - Introduced by Representatives McCormick, Strachota, Staskunas, Krawczyk, Nelson, Petrowski and Van Roy, cosponsored by Senator Hansen. Referred to Committee on Ways and Means.

AB1177,1,12 An Act to amend 71.05 (6) (a) 15., 71.21 (4), 71.26 (2) (a), 71.34 (1) (g), 71.45 (2) (a) 10. and 77.92 (4); and to create 15.155 (6), 20.143 (1) (kn), 20.505 (8) (hm) 6n., 25.17 (3) (h), 71.07 (2r), 71.07 (2s), 71.10 (4) (gwd), 71.10 (4) (gxx), 71.28 (2r), 71.28 (2s), 71.30 (3) (eor), 71.30 (3) (eos), 71.47 (2r), 71.47 (2s), 71.49 (1) (eor), 71.49 (1) (eos), 73.03 (35p), 560.20 and 560.203 of the statutes; relating to: creating a Wisconsin Economic Leadership Board and a Venture Capital Investment Program, creating income and franchise tax credits for venture capital investments, requiring the Investment Board to try to make certain investments in Wisconsin businesses, creating a tribal gaming compact investment rebate program, granting an exemption from emergency rule procedures, requiring the exercise of rule-making authority, and making an appropriation.

Analysis by the Legislative Reference Bureau

This bill creates a Venture Capital Investment Program and provides income and franchise tax credits for certain investments related to that program. Significant provisions of the bill include the following:

Wisconsin Economic Leadership Board

The bill creates the Wisconsin Economic Leadership Board, which consists of seven members as follows: the governor; two members appointed by the governor, one of whom represents the interests of Native Americans; the majority leader or minority leader of the senate (whichever is a member of a political party other than the party of which the governor is a member); an appointee of the speaker or minority leader of the assembly (whichever is a member of a political party other than the party of which the governor is a member); the executive director of the Investment Board; and the chairperson of the board of the capital investment corporation or partnership as described below. Under the bill, the board has two primary functions. First, the board selects a corporation or limited partnership organized under Wisconsin law to perform certain duties concerning the operation of the program. Second, the board certifies businesses as eligible to receive investments that qualify for the tax credits provided under the bill. In addition, the board promotes the purposes of the program, solicits institutional investors to invest with fund managers under the program, encourages fund managers to invest in businesses certified under the program, and solicits businesses to participate in the program. The board also must submit an annual report to the legislature concerning the operation of the program.

Capital investment corporation or partnership

As noted above, the bill requires the board to select a corporation or limited partnership to perform certain duties concerning the operation of the program. The bill terms this entity a "Capital Investment Corporation or Partnership" (CICP). The CICP must meet certain requirements specified under the bill. The CICP has three main functions: establishing mechanisms for investment; coordinating and facilitating investment; and gathering information to measure the effectiveness of the program.

Thus, the CICP establishes investment funds, including certain funds that invest in Native American businesses, that are managed by fund managers that the CICP selects. In addition, the CICP coordinates and facilitates private investment in the investment funds and investments by fund managers in businesses certified by the board. The CICP also seeks out and provides assistance to businesses that may qualify for certification by the board and works with certified businesses and fund managers to assist in expanding the businesses. Furthermore, the CICP coordinates and disseminates advertisements to promote the purposes of the program. Finally, the CICP monitors, analyzes, and reports to the board information requested by the board concerning the performance of fund managers and the economic impact, if any, the investments made by those fund managers have had on this state; establishes measurable standards for its fund managers and holds the fund managers accountable for meeting those standards; and oversees a group of economic advisors to measure the economic impact, if any, that the program has on this state. To this end, the CICP must utilize information technology to administer a management information system that tracks the business activities of the CICP and the investments made by fund managers.

Certification for tax credits

As noted above, the board must certify businesses for purposes of administering the tax credits under the program. Under the program, tax credits are available only for investments in these certified businesses. Four types of businesses may obtain a certification. First, the board may certify a business as eligible to receive early stage seed investments that qualify for tax credits. A business may obtain such a certification if all of the following apply: 1) The business is headquartered in this state and its principal business operations are located in this state; 2) the business is in need of seed capital and is unable to obtain conventional financing, as defined by the Department of Commerce by rule; 3) the business has no more than 100 employees, at least 75 percent of whom are employed in this state; 4) during its two most recent fiscal years, if any, the business had an average annual net income, after federal income taxes, of not more than $2,000,000; 5) the business has a net worth of not more than $5,000,000; 6) the business is not predominantly engaged in professional services provided by accountants, lawyers, or physicians; 7) the business is not engaged in the development of real estate for resale; and 8) the business is not engaged in commercial banking or lending. Requirement 4 does not apply to a Native American business.

Second, the board may certify a business as eligible to receive venture capital growth investments that qualify for tax credits. A business may obtain such a certification if all of the following apply: 1) The business is headquartered in this state and has significant business operations in this state ; 2) at least 51 percent of the business's employees are employed in this state or the business employs more than 500 employees in this state; 3) during its two most recent fiscal years, the business had an average annual net income, after federal income taxes and excluding any carry-over losses, of less than $20,000,000; 4) the business has a net worth of less than $75,000,000; 5) the business is not predominantly engaged in professional services provided by accountants, lawyers, or physicians; and 6) the business has been in existence for at least one year, but fewer than 10 years. Requirement 4 does not apply to a Native American business.

Third, the board may certify a business as eligible to receive what the bill terms "women-, minority-, and community-based investments" that qualify for tax credits. A business may obtain such a certification if at least one of the following applies: 1) The business is headquartered in this state, has significant business operations in this state, and is at least 51 percent owned, controlled, and actively managed by one or more women or minority group members, as defined by law; 2) the business is headquartered in this state, has significant business operations in this state, and facilitates access to savings and credit by low-income consumers; or 3) the investments are made as part of a community-based investment strategy implemented by the fund manager, and the business satisfies all of the requirements necessary to receive early stage seed investments that qualify for tax credits.

Fourth, the board may certify a business as eligible to receive investments by certain individuals (called "angel investors") that qualify for tax credits if the business satisfies all of the requirements necessary to receive early stage seed investments that qualify for tax credits.

Operation of the program

Under the program, a private investor places money with a fund manager selected by the CICP. The fund manager invests the money by any legal manner. If the money is invested in a business that is certified as eligible to receive early stage seed investments, venture capital growth investments, or women-, minority-, and community-based investments, the investment qualifies for a tax credit. The tax credit may be claimed as described below by the private investor who provided the capital. In addition, under the program, certain individuals (angel investors) may invest directly in a business certified as eligible to receive angel investments and may claim a tax credit as described below.

Amount of tax credits

As noted above, the bill creates tax credits for certain investments. For taxable years beginning after December 31, 2005, a taxpayer may claim as a tax credit, in each taxable year for four years, 15 percent of the initial amount that the taxpayer invests as an angel investor in a business certified by the board to receive such investments. The maximum amount of the tax credits that may be awarded for angel investments for all taxable years combined is $25,000,000.

For taxable years beginning after December 31, 2005, a taxpayer may claim as a tax credit, in each taxable year for six years, any of the following amounts invested in a business that is certified by the board to receive such investments: 1) 10 percent of the taxpayer's initial investment paid to a fund manager that the fund manager invests as an early stage seed investment; 2) 7 percent of the taxpayer's initial investment paid to a fund manager that the fund manager invests as a venture growth investment; and 3) 10 percent of the taxpayer's initial investment paid to a fund manager that the fund manager invests as a women-, minority-, and community-based investment. For early stage seed investments, the maximum amount of the tax credits that may be awarded for all taxable years combined is $70,000,000; for venture growth investments, the maximum amount of the tax credits that may be awarded for all taxable years combined is $42,000,000; and, for women-, minority-, and community-based investments, the maximum amount of the tax credits that may be awarded for all taxable years combined is $10,000,000. In addition, the maximum amount invested by an individual that may be used as the basis for a tax credit is $500,000 for each investment that is made directly or indirectly in a business that is certified to receive angel investments, early stage seed investments, or women-, minority-, and community-based investments.

The bill also creates an income and franchise tax credit that allows a Native American tribe that has entered into a gaming compact with this state to claim a tax credit equal to the amount of gaming compact fees the tribe pays to the state, not to exceed $10,000,000 in any taxable year. To receive the credit the tribe must make an investment in a business certified by the board.

Finally, for taxable years beginning after December 31, 2005, a taxpayer who is a broker-dealer or a finder may claim a tax credit in an amount equal to 10 percent of the first $500,000 raised in the taxable year in an offering of a business that is certified by the board to receive early stage seed investments. The maximum amount of such tax credits that may awarded for all taxable years combined is $3,000,000.

Tribal gaming compact investment rebates

This bill also creates a tribal gaming compact investment rebate program. The program requires the Department of Commerce to make an annual rebate to an Indian tribe in an amount equal to 5 percent of the tribe's gaming revenue payments to the state. Under the bill, the tribe must agree to use the rebate to invest in a fund established by the CICP. The bill imposes an annual cap on the rebates of $10,000,000 per tribe and $100,000,000 for all tribes.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

AB1177, s. 1 Section 1. 15.155 (6) of the statutes is created to read:

AB1177,5,14 15.155 (6) Wisconsin economic leadership board. There is created a Wisconsin economic leadership board attached to the department of commerce under s. 15.03. The board shall consist of 7 members. One member shall be the governor. Two members, one of whom shall represent the interests of federally recognized American Indian tribes and bands in this state, shall be appointed for one-year terms by the governor. One member shall be the majority leader or minority leader of the senate, whichever is a member of a political party other than the party of which the governor is a member. Notwithstanding s. 15.07 (1) (b), one member shall be appointed for a one-year term by the speaker or minority leader of the assembly, whichever is a member of a political party other than the party of which the governor is a member. One member shall be the executive director of the investment board. One member shall be the chairperson of the board of the capital investment corporation or partnership described in s. 560.20 (1) (c).

AB1177, s. 2 Section 2. 20.005 (3) (schedule) of the statutes: at the appropriate place, insert the following amounts for the purposes indicated: - See PDF for table

AB1177, s. 3 Section 3. 20.143 (1) (kn) of the statutes is created to read:

AB1177,6,7 20.143 (1) (kn) Tribal gaming compact investment rebates. The amounts in the schedule for tribal gaming compact investment rebates under s. 560.203. All moneys transferred from the appropriation account under s. 20.505 (8) (hm) 6n. shall be credited to this appropriation account. Notwithstanding s. 20.001 (3) (a), the unencumbered balance on June 30 of each year shall revert to the appropriation account under s. 20.505 (8) (hm).

AB1177, s. 4 Section 4. 20.505 (8) (hm) 6n. of the statutes is created to read:

AB1177,6,11 20.505 (8) (hm) 6n. The amount transferred to s. 20.143 (1) (kn) shall be the sum of the amounts calculated by the department of commerce under s. 560.203 (2) (a).

AB1177, s. 5 Section 5. 25.17 (3) (h) of the statutes is created to read:

AB1177,6,15 25.17 (3) (h) Make an effort to invest at least $100,000,000 with fund managers, as defined in s. 560.20 (1) (e). In making any investment under this paragraph, the board is subject to the standard of responsibility under s. 25.15 (2).

AB1177, s. 6 Section 6. 71.05 (6) (a) 15. of the statutes is amended to read:

AB1177,7,2 71.05 (6) (a) 15. The amount of the credits computed under s. 71.07 (2dd), (2de), (2di), (2dj), (2dL), (2dm), (2dr), (2ds), (2dx), (2r), (2s), (3g), (3n), (3s), (3t), (5b), and (5d) and not passed through by a partnership, limited liability company, or tax-option corporation that has added that amount to the partnership's, company's, or tax-option corporation's income under s. 71.21 (4) or 71.34 (1) (g).

AB1177, s. 7 Section 7. 71.07 (2r) of the statutes is created to read:

AB1177,7,5 71.07 (2r) Venture capital investment credits. (a) Definitions. In this subsection:

AB1177,7,6 1. "Broker-dealer" has the meaning given in s. 551.02 (3).

AB1177,7,7 2. "Claimant" means a person who files a claim under this subsection.

AB1177,7,8 3. "Fund manager" has the meaning given in s. 560.20 (1) (e).

AB1177,7,14 (b) Filing claims. For taxable years beginning on or after January 1, 2006, for amounts claimed under subd. 2., and beginning on or after January 1, 2007, for amounts claimed under subds. 1., 3., and 4., subject to the limitations provided under this subsection and ss. 73.03 (35p) and 560.20, a claimant may claim as a credit against the tax imposed under ss. 71.02 and 71.08, up to the amount of those taxes, any of the following amounts:

AB1177,7,18 1. In each taxable year for 6 years, beginning with the taxable year in which the claimant's initial investment is made, 10 percent of the claimant's initial investment paid to a fund manager that the fund manager invests, as an early stage seed investment, in a business certified under s. 560.20 (2) (b).

AB1177,7,22 2. In each taxable year for 4 years, beginning with the taxable year in which the claimant's initial investment is made, 15 percent of the claimant's initial investment that the claimant invests, as an angel investment, in a business certified under s. 560.20 (2) (e).

AB1177,8,2 3. In each taxable year for 6 years, beginning with the taxable year in which the claimant's initial investment is made, 7 percent of the claimant's initial investment paid to a fund manager that the fund manager invests, as a venture growth investment, in a business certified under s. 560.20 (2) (c).

AB1177,8,7 4. In each taxable year for 6 years, beginning with the taxable year in which the claimant's initial investment is made, 10 percent of the claimant's initial investment paid to a fund manager that the fund manager invests, as a women-, minority-, and community-based investment, in a business certified under s. 560.20 (2) (d).