LRB-3741/1
KSH&JS:jlg:jf
1997 - 1998 LEGISLATURE
October 29, 1997 - Introduced by Senators Moore, Plache, Darling, Fitzgerald,
Breske, Grobschmidt, Wirch, Huelsman, C. Potter, George, Roessler and
Rude, cosponsored by Representatives
Ward, Hoven, R. Potter, Green, Plale,
Kedzie, Lazich, Schafer, Notestein, Gunderson, Ladwig, Goetsch, Plouff,
Porter, Lorge, Hasenohrl, Freese, F. Lasee, Brandemuehl and Staskunas.
Referred to Committee on Economic Development, Housing and Government
Operations.
SB333,1,6
1An Act to create 20.143 (1) (hm), 76.635 and subchapter II of chapter 560
2[precedes 560.30] of the statutes;
relating to: creating a certified capital
3company program for companies that make certain types of investments,
4providing tax credits to persons who make certain investments in certified
5capital corporations, granting rule-making authority and making an
6appropriation.
Analysis by the Legislative Reference Bureau
This bill allows insurers that pay a fee based on their gross premiums, rather
than an income tax or franchise tax, to claim as a credit against their license fees
their investments in certified capital companies. The insurers that are eligible for
the credit are life insurers, out-of-state accident and health insurers, mortgage
guarantee insurers, out-of-state fire insurers, out-of-state ocean marine insurers
and out-of-state companies that sell other kinds of property and casualty insurance.
Under the bill, a "certified capital company" is subject to a range of requirements
designed to ensure that the company is engaged in providing venture capital
financing to certain types of qualified businesses. In order for an insurer to be
eligible for the credit, the insurer's investment in a certified capital company must
be made in a lump sum, but only 10% of the amount of the investment may be claimed
as a credit in any year. Credits that are not used to offset the license fees may be
carried forward. Unused credits may also be sold to another insurer that is subject
to the premiums tax, if the seller notifies the department of revenue of the sale and
provides the department a copy of the sale documents.
Under the bill, certain types of entities may apply to the department of
commerce for certification as a certified capital company. The department of
commerce may certify an applicant as a certified capital company if, among other
things, the applicant is engaged in investing cash in qualified businesses, has a net
worth of at least $500,000, meets certain requirements regarding experience in the
venture capital industry and pays a $7,500 application fee. In order to remain
certified as a certified capital company, the company must invest a specified
percentage of its capital in certain types of small businesses, called "qualified
businesses". The certified capital company have must placed 30% of its capital in
qualified businesses within 3 years and 50% of its capital in qualified businesses
within 5 years. The bill requires the department of commerce to promulgate rules
governing the extent to which short-term investments may be counted toward these
percentage requirements, as well as the extent to which the reinvestment of the
proceeds of an investment in a qualified business may be counted. The remaining
capital of a certified capital company may generally be invested as the company sees
fit, except that it may not invest in an insurer or an affiliate of an insurer and except
that no more than 15% of the company's capital may be placed in any one qualified
business.
In general, a qualified business must be headquartered and have its principal
business operations in Wisconsin. A qualified business must be in need of venture
capital and must be unable to obtain conventional financing. The qualified business
must have no more than 300 employes (at least 75% of whom must be employed in
Wisconsin), must have had not more than $6,000,000 in average annual net income
over its most recent 2 fiscal years, and must have a net worth of no more than
$18,000,000. Generally, a business is not a qualified business if it is engaged in
banking, lending, the development of real estate for resale, or professional services
provided by accountants, lawyers or physicians. Even if a business does not meet
these requirements, it may be considered a qualified business if the department of
commerce determines that an investment in the business will further state economic
development and the department issues a written opinion to that effect.
The bill subjects certified capital companies to a variety of reporting
requirements and requires them to pay an annual fee of $5,000. The bill also limits
the ability of certified capital companies to make distributions. A certified capital
company may make a distribution only if the distribution will not adversely affect
the ability of the certified capital company to place 100% of its initial capital in
qualified businesses, if the distribution is used to pay debt or certain management
fees or if the distribution is to pay the increased taxes of an investor resulting from
the investor's investment in the certified capital company.
The bill requires the department of commerce to conduct an annual review of
a certified capital company to determine whether the company is in compliance with
the bill's provisions. The bill contains provisions for disqualifying a certified capital
company's investment pool or decertifying the certified capital company, if the
company violates certain of the bill's requirements. If the certified capital company
is decertified or the investment pool is disqualified, the insurance company tax
credits claimed for the investment in that certified capital company or pool are
subject to recapture or forfeiture.
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:
SB333, s. 1
1Section
1. 20.143 (1) (hm) of the statutes is created to read:
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20.143
(1) (hm)
Certified capital companies. All moneys received under subch.
3II of ch. 560 for the cost of administering subch. II of ch. 560.
SB333, s. 2
4Section
2. 76.635 of the statutes is created to read:
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576.635 Credit. (1) Definitions. In this section:
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(a) "Certified capital company" has the meaning given in s. 560.30 (2).
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(b) "Certified capital investment" has the meaning given in s. 560.30 (4).
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(c) "Investment date" has the meaning given in s. 560.30 (6).
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(d) "Investment pool" has the meaning given in s. 560.30 (7).
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(e) "Qualified investment" has the meaning given in s. 560.30 (11).
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11(2) Credit. An insurer that makes a certified capital investment may credit
12against the fees due under s. 76.60, 76.63, 76.65 or 76.66, for 10 years beginning with
13the year of the investment, either 10% of that investment or the amount by which
14the sum of the insurer's certified capital investments and the insurer's qualified
15investments exceeds the insurer's qualified investments in the taxable year before
16the insurer first claimed the credit under this section, whichever is less.
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17(3) Carry-forward. If the credit under sub. (2) is not entirely offset against the
18fees under s. 76.60, 76.63, 76.65 or 76.66 otherwise due, the unused balance may be
19carried forward and credited against those fees in the following years to the extent
1that it is not offset by those fees otherwise due in all the years between the year in
2which the investment was made and the year in which the carry-forward credit is
3claimed.
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4(4) Recapture. (a) If a certified capital company is decertified, or an
5investment pool is disqualified, under s. 560.37 before the certified capital company
6fulfills the investment requirement under s. 560.34 (1) (a) 1. with respect to the
7investment pool; any insurer that has received a credit under this section with
8respect to that investment pool shall repay that credit to the department of revenue,
9for deposit in the general fund, and may not claim more credit in respect to that
10investment pool.
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(b) If a certified capital company fulfills the investment requirement under s.
12560.34 (1) (a) 1. with respect to an investment pool but the certified capital company
13is decertified, or an investment pool is disqualified, under s. 560.37 before the
14certified capital company fulfills the investment requirement under s. 560.34 (1) (a)
152. for that investment pool, any insurer that has received a credit under this section
16with respect to that investment pool shall repay all credits that were claimed for
17taxable years after the taxable year that includes the 3rd anniversary of the
18investment date of the investment pool and may claim no more credits for taxable
19years after the taxable year that includes the 3rd anniversary of the investment date
20of the investment pool.
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21(5) Sale of credit. An insurer may sell a credit under this section to another
22insurer that is subject to taxation under this subchapter if the insurer notifies the
23department of revenue of the sale and includes with that notification a copy of the
24transfer documents.
SB333, s. 3
1Section
3. Subchapter II of chapter 560 [precedes 560.30] of the statutes is
2created to read:
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CERTIFIED CAPITAL COMPANIES
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6560.30 Definitions. In this subchapter:
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7(1) "Affiliate" means, with respect to a certified capital company or a certified
8investor, any of the following:
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(a) A person who, directly or indirectly, owns, controls, or holds power to vote,
1010% or more of the outstanding voting securities or other voting ownership interests
11of the certified capital company or certified investor.
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(b) A person, 10% of whose outstanding voting securities or other voting
13ownership interests are directly or indirectly owned, controlled or held with power
14to vote by the certified capital company or certified investor.
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(c) A person directly or indirectly controlling, controlled by, or under common
16control with, the certified capital company or certified investor.
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(d) A partnership in which the certified capital company or certified investor
18is a general partner.
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(e) A person who is an officer, director or agent of the certified capital company
20or certified investor, or is an immediate family member of such an officer, director or
21agent.
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22(2) "Certified capital company" means a person certified by the department
23under s. 560.31.
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24(3) "Certified capital company tax credit" means the tax credit under s. 76.635.
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1(4) "Certified capital investment" means an investment in a certified capital
2company that is certified under s. 560.32 (2) and that fully funds either the investor's
3equity interest in a certified capital company, a qualified debt instrument that a
4certified capital company issues, or both.
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5(5) "Certified investor" means a person who makes a certified capital
6investment.
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7(6) "Investment date" means, with respect to each investment pool, the date
8on which the last certified capital that is part of that investment pool was invested
9in the certified capital company.
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10(7) "Investment pool" means the aggregate of all investments of certified
11capital in a certified capital company that are made as part of the same transaction,
12except that investments received more than 30 days apart may not be considered
13part of the same investment pool.
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14(8) "Qualified business" means a business which is a qualified business under
15s. 560.33.
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16(9) "Qualified debt instrument" means a debt instrument that a certified
17capital company issues at par value or at a premium; that has an original maturity
18date of at least 5 years from the date on which it was issued; that has a repayment
19schedule that is no faster than a level principal amortization and, until the certified
20capital company may make distributions other than qualified distributions, the
21interest, distribution or payment features of which are not related to the certified
22capital company's profitability or the performance of its investment portfolio.
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23(10) "Qualified distribution" means a distribution or payment by a certified
24capital company to its equity holders for any of the following:
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1(a) The costs of forming, syndicating, managing or operating the certified
2capital company.
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(b) An annual management fee that does not exceed 2.5% of the certified capital
4company's total certified capital.
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(c) Reasonable and necessary fees paid for professional services related to the
6operation of the certified capital company.
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(d) A projected increase in federal or state taxes, including penalties and
8interest on those taxes, of the equity owners of the certified capital company if those
9amounts are related to the certified capital company's ownership, management or
10operation.
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11(11) "Qualified investment" means an investment of cash in a qualified
12business for the purchase of any of the following: