SB566: Bill Text

SB566,1,9 An Act to repeal 180.0622 (2) (b); to renumber and amend 180.0622 (2) (a); to amend 71.05 (6) (a) 15., 71.21 (4), 71.26 (2) (a), 71.34 (1) (g), 71.45 (2) (a) 10., 77.92 (4), 551.23 (10), 551.23 (11) (a), 551.23 (11) (b), 551.23 (18) and 551.53 (1) (b); and to create 71.07 (5e), 71.07 (6g), 71.10 (4) (ce), 71.10 (4) (cg), 71.28 (5e), 71.30 (3) (epp), 71.47 (5e), 71.49 (1) (epp) and 551.02 (4w) of the statutes; relating to: creating income and franchise tax credits for the offering of a Wisconsin business; excluding from taxable income gains from a Wisconsin business; liability of shareholders; and exemptions from securities registration requirements.

Analysis by the Legislative Reference Bureau

Under current law, a person may claim certain income and franchise tax credits based on the amount that the person invests in qualified new business ventures, as certified by the Department of Commerce. A qualified new business venture is, generally, a business that has its headquarters and the majority of its employees in this state and has been in operation in this state for not more than seven consecutive years.

Under the bill, a broker-dealer may claim an income and franchise tax credit in an amount equal to 10 percent of the first $500,000 raised in an offering of a Wisconsin business in the taxable year. Under current law, a broker-dealer is, generally, any person engaged in the business of effecting transactions in securities.

Under current law, there is an income tax exclusion for individuals for 60 percent of the net capital gains realized from the sale of assets held for at least one year.

Under this bill, an individual; an individual partner or member of a partnership, limited liability company, or limited liability partnership; or an individual shareholder of a tax-option corporation (claimant) may claim a nonrefundable individual income tax credit that is calculated by multiplying the amount of capital gain the claimant would otherwise realize from the sale of an asset that is held for at least one year, to the extent that the gain is not excluded from taxation under the current law provision, by the claimant's marginal tax rate.

Under the bill, the claimant must place the gain from the original asset in a segregated account in a financial institution, must invest all of the proceeds in the account in a Wisconsin business within 180 days after the sale of the original asset that generated the gain, and must notify the Department of Revenue (DOR) on a form prepared by DOR that the claimant will not declare the gain from the original asset because the proceeds have been reinvested in a Wisconsin business. A "Wisconsin business" is defined as a business that is headquartered in Wisconsin; that employs at least 51 percent of its employees in this state; that is engaged in, or is committed to engage, in businesses such as manufacturing, agriculture, conducting research, or developing new products or business processes; that is not engaged in businesses such as real estate development, insurance, banking, lobbying, political consulting, professional services, retail, leisure, hospitality, transportation, or construction; that has less than 500 employees; and that has been in operation in this state for not more than seven consecutive years.

The bill also specifies that the basis of the investment shall be its cost minus the gain generated by the sale of the original asset. If a claimant claims the credit allowed under the bill, 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 claim the subtraction.

Current law imposes personal liability on each shareholder of a corporation organized under the laws of this state, including an insurance company that issues stock, for any amount owed by the corporation to its employees for up to six months of work per employee. The amount of a shareholder's personal liability is limited to the value of the shares that the shareholder owns. This bill eliminates those provisions of current law.

The bill also makes changes to exemptions from security registration requirements. Under current law, a person may not offer or sell a security unless the security is registered with the Division of Securities of the Department of Financial Institutions (division) or unless the security or transaction is exempt from registration.

One exemption under current law applies to a transaction in which the total number of security holders after the sale does not exceed 25. Certain financial institutions, institutional investors, broker-dealers, investment advisors, and other persons are not counted in determining whether that number is exceeded. In addition, other requirements must be satisfied for the exemption to apply, including the following: 1) no commissions for the sale must be paid to persons in this state who are not licensed broker-dealers and agents; and 2) no advertising for the sale may be published unless it is approved by the division. This bill changes the exemption so that it applies if the number of security holders does not exceed 100, without counting the persons who are not counted under current law. In addition, the exemption applies even if commissions are paid to a "finder," which the bill defines as a person whose activities are limited to identifying, introducing, or both, a potential investor to the issuer, or a broker-dealer, who subsequently sells the security to the potential investor. In addition, for a person to qualify as a "finder," the person may not, with respect to any particular issuer of securities, be involved in security sales that exceed $1,000,000 in any year. In addition, the bill eliminates the requirement that advertising must approved by the division. Instead, the bill requires the advertising to be filed with the division within three business days of its first use.

Another exemption under current law applies to a transaction pursuant to an offer directed to no more than 25 persons in this state during any 12-month period, except that the division may increase or decrease the number of persons to whom an offer is directed. In addition, certain other requirements, including requirements regarding compensation, must be satisfied for the exemption to apply. This bill changes the exemption so that it applies to an offer directed to no more than 300 persons in this state. The bill allows the division to increase the number of persons, but does not allow the division to decrease the number. Also, the bill allows compensation to be paid to a licensed broker-dealer or agent or a "finder," which the bill defines as described above. In addition, the bill requires that, for the exemption to apply, any advertising must be filed with the division within three business days of its first use.

Current law also allows the division, by order or rule, to exempt a transaction if the division finds that registration is not necessary or appropriate for the protection of investors. Based on this authority, the division has promulgated a rule that exempts transactions in which the aggregate offering price of the securities sold in the offering to persons in this state does not exceed $5,000,000. In addition, certain other requirements must be satisfied for the rule to apply. Under this bill, if the division exempts a transaction, and the exemption depends in whole or in part on the aggregate offering price of the securities sold in the offering to persons in this state, then the exemption must apply to a transaction in which such price does not exceed $20,000,000, or any greater amount specified by the division by rule or order.

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:

SB566, s. 1 Section 1. 71.05 (6) (a) 15. of the statutes is amended to read:

SB566,4,5 71.05 (6) (a) 15. The amount of the credits computed under s. 71.07 (2dd), (2de), (2di), (2dj), (2dL), (2dm), (2dr), (2ds), (2dx), (3g), (3n), (3s), (3t), (5b), and (5d), (5e), and (6g) 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).

SB566, s. 2 Section 2. 71.07 (5e) of the statutes is created to read:

SB566,4,8 71.07 (5e) Wisconsin business offerings credit. (a) Definitions. In this subsection:

SB566,4,9 1. "Agent" has the meaning given in s. 551.02 (2).

SB566,4,10 2. "Broker-dealer" has the meaning given in s. 551.02 (3).

SB566,4,12 3. "Claimant" means an agent or a broker-dealer who files a claim under this subsection.

SB566,4,13 4. "Wisconsin business" has the meaning given in sub. (6g) (a) 4.

SB566,4,17 (b) Filing claims. Subject to the limitations provided in this subsection, a claimant may claim as a credit against the tax imposed under s. 71.02, up to the amount of the tax, an amount equal to 10 percent of the first $500,000 raised in an offering of a Wisconsin business in the taxable year.

SB566,4,20 (c) Limitations. 1. The maximum amount of the credits that may be claimed in each taxable year under this subsection and ss. 71.28 (5e) and 71.47 (5e) is $3,000,000.

SB566,5,3 2. Partnerships, limited liability companies, and tax-option corporations may not claim the credit under this subsection, but the eligibility for, and the amount of, the credit are based on their payment of amounts described under par. (b). A partnership, limited liability company, or tax-option corporation shall compute the amount of credit that each of its partners, members, or shareholders may claim and shall provide that information to each of them. Partners, members of limited liability companies, and shareholders of tax-option corporations may claim the credit in proportion to their ownership interests.

SB566,5,5 (d) Administration. Section 71.28 (4) (e) to (h), as it applies to the credit under s. 71.28 (4), applies to the credit under this subsection.

SB566, s. 3 Section 3. 71.07 (6g) of the statutes is created to read:

SB566,5,8 71.07 (6g) Long-term capital gains credit; Wisconsin businesses. (a) Definitions. In this subsection:

SB566,5,11 1. "Claimant" means an individual; an individual partner or member of a partnership, limited liability company, or limited liability partnership; or an individual shareholder of a tax-option corporation.

SB566,5,12 2. "Financial institution" has the meaning given in s. 69.30 (1) (b).

SB566,5,14 3. "Long-term capital gain" means the gain realized from the sale of any asset held more than one year.

SB566,5,15 4. "Wisconsin business" means a business to which all of the following apply:

SB566,5,16 a. Its headquarters is in this state.

SB566,5,18 b. At least 51 percent of the employees employed by the business are employed in this state.

SB566,5,21 c. It is engaged in, or has committed to engage in, manufacturing, agriculture, processing or assembling products, conducting research and development, or developing a new product or business process.

SB566,5,25 d. It is not engaged in real estate development; insurance; banking; lending; lobbying; political consulting; professional services proved by attorneys, accountants, business consultants, physicians, or health care consultants; wholesale or retail trade; leisure; hospitality; transportation; or construction.

SB566,6,1 e. It has less than 500 employees.

SB566,6,2 f. It has been in operation in this state for not more than 7 consecutive years.

SB566,6,8 (b) Filing claims. Subject to the limitations provided in this subsection, a claimant may claim as a credit against the tax imposed under s. 71.02, up to the amount of those taxes, an amount equal to the long-term gain that is not excluded from taxation under s. 71.05 (6) (b), that is realized by the claimant in the taxable year to which the claim under this subsection relates, multiplied by the claimant's marginal tax rate.

SB566,6,10 (c) Limitations. 1. No credit may be allowed under this subsection unless it is claimed within the time period under s. 71.75 (2).

SB566,6,12 2. No credit may be allowed under this subsection unless the claimant immediately deposits the gain into a segregated account in a financial institution.

SB566,6,15 3. No credit may be allowed under this subsection unless the claimant, within 180 days after the sale of the asset that generated the gain, invests in a Wisconsin business using all of the proceeds in the account described under subd. 2.

SB566,6,20 4. No credit may be allowed under this subsection unless the claimant, after investing in a Wisconsin business as described under subd. 3., immediately notifies the department of revenue, on a form prepared by the department, that the claimant will not declare on the claimant's income tax return the gain described under subd. 2. because the claimant has reinvested the capital gain as described under subd. 3.

SB566,6,23 5. The basis of the investment described in subd. 3. shall be calculated by subtracting the gain described in subd. 2. from the cost of the investment described in subd. 3.

SB566,7,3 6. If a claimant claims the credit under this subsection, the claimant may not use the gain described under subd. 2. to net capital gains and losses, as described under s. 71.05 (10) (c).

SB566,7,13 7. For a claimant who is an individual, who is a nonresident or part-year resident of this state, and who is a single person or a married person filing a separate return, multiply the credit for which the claimant is eligible under par. (b) by a fraction the numerator of which is the individual's Wisconsin adjusted gross income and the denominator of which is the individual's federal adjusted gross income. If a claimant is married and files a joint return, and if the claimant or the claimant's spouse, or both, are nonresidents or part-year residents of this state, multiply the credit for which the claimant is eligible under par. (b) by a fraction the numerator of which is the couple's joint Wisconsin adjusted gross income and the denominator of which is the couple's joint federal adjusted gross income.

SB566,7,21 8. Partnerships, limited liability companies, and tax-option corporations may not claim the credit under this subsection, but the eligibility for, and the amount of, the credit are based on their receipt of interest under par. (b). A partnership, limited liability company, or tax-option corporation shall compute the amount of credit that each of its partners, members, or shareholders may claim and shall provide that information to each of them. Partners, members of limited liability companies, and shareholders of tax-option corporations may claim the credit in proportion to their ownership interest.

SB566,7,23 (d) Administration. Subsection (9e) (d), to the extent that it applies to the credit under that subsection, applies to the credit under this subsection.

SB566, s. 4 Section 4. 71.10 (4) (ce) of the statutes is created to read:

SB566,8,2 71.10 (4) (ce) The long-term capital gains; Wisconsin businesses tax credit under s. 71.07 (6g).

SB566, s. 5 Section 5. 71.10 (4) (cg) of the statutes is created to read:

SB566,8,4 71.10 (4) (cg) Wisconsin business offerings credit under s. 71.07 (5e).

SB566, s. 6 Section 6. 71.21 (4) of the statutes, as affected by 2005 Wisconsin Act 74, is amended to read:

SB566,8,9 71.21 (4) Credits computed by a partnership under s. 71.07 (2dd), (2de), (2di), (2dj), (2dL), (2dm), (2ds), (2dx), (3g), (3n), (3s), (3t), (5b), (5e), and (5g) and passed through to partners shall be added to the partnership's income.

SB566, s. 7 Section 7. 71.26 (2) (a) of the statutes, as affected by 2005 Wisconsin Act 74, is amended to read:

SB566,9,4 71.26 (2) (a) Corporations in general. The "net income" of a corporation means the gross income as computed under the Internal Revenue Code as modified under sub. (3) minus the amount of recapture under s. 71.28 (1di) plus the amount of credit computed under s. 71.28 (1), (3), (4), and (5) minus, as provided under s. 71.28 (3) (c) 7., the amount of the credit under s. 71.28 (3) that the taxpayer added to income under this paragraph at the time that the taxpayer first claimed the credit plus the amount of the credit computed under s. 71.28 (1dd), (1de), (1di), (1dj), (1dL), (1dm), (1ds), (1dx), (3g), (3n), (3t), (5b), (5e), and (5g) and not passed through by a partnership, limited liability company, or tax-option corporation that has added that amount to the partnership's, limited liability company's, or tax-option corporation's income under s. 71.21 (4) or 71.34 (1) (g) plus the amount of losses from the sale or other disposition of assets the gain from which would be wholly exempt income, as defined in sub. (3) (L), if the assets were sold or otherwise disposed of at a gain and minus deductions, as computed under the Internal Revenue Code as modified under sub. (3), plus or minus, as appropriate, an amount equal to the difference between the federal basis and Wisconsin basis of any asset sold, exchanged, abandoned, or otherwise disposed of in a taxable transaction during the taxable year, except as provided in par. (b) and s. 71.45 (2) and (5).

SB566, s. 8 Section 8. 71.28 (5e) of the statutes is created to read:

SB566,9,7 71.28 (5e) Wisconsin business offerings credit. (a) Definitions. In this subsection:

SB566,9,8 1. "Agent" has the meaning given in s. 551.02 (2).

SB566,9,9 2. "Broker-dealer" has the meaning given in s. 551.02 (3).

SB566,9,11 3. "Claimant" means an agent or a broker-dealer who files a claim under this subsection.

SB566,9,12 4. "Wisconsin business" has the meaning given in s. 71.07 (6g) (a) 4.

SB566,9,16 (b) Filing claims. Subject to the limitations provided in this subsection, a claimant may claim as a credit against the tax imposed under s. 71.23, up to the amount of the tax, an amount equal to 10 percent of the first $500,000 raised in an offering of a Wisconsin business in the taxable year.

SB566,9,19 (c) Limitations. 1. The maximum amount of the credits that may be claimed in each taxable year under this subsection and ss. 71.07 (5e) and 71.47 (5e) is $3,000,000.

SB566,9,25 2. Partnerships, limited liability companies, and tax-option corporations may not claim the credit under this subsection, but the eligibility for, and the amount of, the credit are based on their payment of amounts described under par. (b). A partnership, limited liability company, or tax-option corporation shall compute the amount of credit that each of its partners, members, or shareholders may claim and shall provide that information to each of them. Partners, members of limited liability companies, and shareholders of tax-option corporations may claim the credit in proportion to their ownership interests.

SB566,10,4 (d) Administration. Subsection (4) (e) to (h), as it applies to the credit under sub. (4), applies to the credit under this subsection.

SB566, s. 9 Section 9. 71.30 (3) (epp) of the statutes is created to read:

SB566,10,6 71.30 (3) (epp) Wisconsin business offerings credit under s. 71.28 (5e).

SB566, s. 10 Section 10. 71.34 (1) (g) of the statutes, as affected by 2005 Wisconsin Act 74, is amended to read:

SB566,10,11 71.34 (1) (g) An addition shall be made for credits computed by a tax-option corporation under s. 71.28 (1dd), (1de), (1di), (1dj), (1dL), (1dm), (1ds), (1dx), (3), (3g), (3n), (3t), (5b), (5e), and (5g) and passed through to shareholders.

SB566, s. 11 Section 11. 71.45 (2) (a) 10. of the statutes, as affected by 2005 Wisconsin Act 74, is amended to read:

SB566,10,19 71.45 (2) (a) 10. By adding to federal taxable income the amount of credit computed under s. 71.47 (1dd) to (1dx), (3n), (5b), (5e), and (5g) and not passed through by a partnership, limited liability company, or tax-option corporation that has added that amount to the partnership's, limited liability company's, or tax-option corporation's income under s. 71.21 (4) or 71.34 (1) (g) and the amount of credit computed under s. 71.47 (1), (3), (3t), (4), and (5).

SB566, s. 12 Section 12. 71.47 (5e) of the statutes is created to read:

SB566,10,22 71.47 (5e) Wisconsin business offerings credit. (a) Definitions. In this subsection:

SB566,10,23 1. "Agent" has the meaning given in s. 551.02 (2).

SB566,10,24 2. "Broker-dealer" has the meaning given in s. 551.02 (3).

SB566,11,2 3. "Claimant" means an agent or a broker-dealer who files a claim under this subsection.

SB566,11,3 4. "Wisconsin business" has the meaning given in s. 71.07 (6g) (a) 4.

SB566,11,7 (b) Filing claims. Subject to the limitations provided in this subsection, a claimant may claim as a credit against the tax imposed under s. 71.43, up to the amount of the tax, an amount equal to 10 percent of the first $500,000 raised in an offering of a Wisconsin business in the taxable year.

SB566,11,10 (c) Limitations. 1. The maximum amount of the credits that may be claimed in each taxable year under this subsection and ss. 71.07 (5e) and 71.28 (5e) is $3,000,000.

SB566,11,18 2. Partnerships, limited liability companies, and tax-option corporations may not claim the credit under this subsection, but the eligibility for, and the amount of, the credit are based on their payment of amounts described under par. (b). A partnership, limited liability company, or tax-option corporation shall compute the amount of credit that each of its partners, members, or shareholders may claim and shall provide that information to each of them. Partners, members of limited liability companies, and shareholders of tax-option corporations may claim the credit in proportion to their ownership interests.

SB566,11,20 (d) Administration. Section 71.28 (4) (e) to (h), as it applies to the credit under s. 71.28 (4), applies to the credit under this subsection.

SB566, s. 13 Section 13. 71.49 (1) (epp) of the statutes is created to read:

SB566,11,22 71.49 (1) (epp) Wisconsin business offerings credit under s. 71.47 (5e).

SB566, s. 14 Section 14. 77.92 (4) of the statutes, as affected by 2005 Wisconsin Act 74, is amended to read:

SB566,12,15 77.92 (4) "Net business income," with respect to a partnership, means taxable income as calculated under section 703 of the Internal Revenue Code; plus the items of income and gain under section 702 of the Internal Revenue Code, including taxable state and municipal bond interest and excluding nontaxable interest income or dividend income from federal government obligations; minus the items of loss and deduction under section 702 of the Internal Revenue Code, except items that are not deductible under s. 71.21; plus guaranteed payments to partners under section 707 (c) of the Internal Revenue Code; plus the credits claimed under s. 71.07 (2dd), (2de), (2di), (2dj), (2dL), (2dm), (2dr), (2ds), (2dx), (3g), (3s), (3n), (3t), (5b), (5e), and (5g); and plus or minus, as appropriate, transitional adjustments, depreciation differences, and basis differences under s. 71.05 (13), (15), (16), (17), and (19); but excluding income, gain, loss, and deductions from farming. "Net business income," with respect to a natural person, estate, or trust, means profit from a trade or business for federal income tax purposes and includes net income derived as an employee as defined in section 3121 (d) (3) of the Internal Revenue Code.