Amendment ASA1-AB538

LRBs0228/2

JK/MES/RJM:kg&jd:rs

2003 - 2004 LEGISLATURE

ASSEMBLY SUBSTITUTE AMENDMENT 1, TO 2003 ASSEMBLY BILL 538

November 5, 2003 - Offered by Representative Nischke.

AB538-ASA1,1,9 An Act to amend 71.05 (6) (a) 15., 71.08 (1) (intro.), 71.21 (4), 71.26 (2) (a), 71.34 (1) (g), 71.45 (2) (a) 10. and 77.92 (4); and to create 71.05 (6) (b) 9m., 71.07 (5d), 71.10 (4) (gx), 71.28 (5d), 71.30 (3) (eop), 71.47 (5d), 71.49 (1) (eop) and 560.03 (24) to (27) of the statutes; relating to: creating a qualified new business venture tax credit and increasing the capital gains exclusion regarding investments in certified venture capital funds and qualified new business ventures, requiring a study of new Wisconsin businesses, facilitating the development of certain investor networks, and granting rule-making authority.

Analysis by the Legislative Reference Bureau

This substitute amendment creates an income and franchise tax credit for investments in a new business venture that has its headquarters and the majority of its employees in this state. The substitute amendment requires a business desiring certification as a new business venture for purposes of this tax credit to apply to the Department of Commerce. To obtain certification, the business must be a corporation or limited liability company, must not be engaged in the transportation or construction business, and must satisfy certain other criteria. The Department of Commerce may certify only the first 1,000 businesses that apply for any taxable year and must process applications in the order in which they are received. The amount of the tax credit is equal to 20 percent of the taxpayer's investment in a new business venture in the taxable year, except that if the taxpayer's investment exceeds $100,000 in the taxable year the taxpayer may claim 20 percent of $100,000 plus ten percent of the amount of the investment that exceeds $100,000.

This substitute amendment also requires the Department of Commerce, in cooperation with the Department of Financial Institutions and the University of Wisconsin System, to annually conduct and publish the results of a study of Wisconsin businesses to determine new business formation trends and identify obstacles faced by new Wisconsin businesses and areas where changes in governmental policy may satisfy the needs of new Wisconsin businesses. In addition, the substitute amendment requires the Department of Commerce, in cooperation with the Department of Financial Institutions and the University of Wisconsin System, to provide education and other support to facilitate the development of networks of investors that review new businesses or proposed new businesses for potential investment (commonly called "angel capital networks").

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

Under this substitute amendment, for assets held more than one year, the income tax exclusion for capital gains is increased to 100 percent, to the extent that the gain is not already excluded from taxation, for gains realized on the sale of an investment in a certified venture capital fund or in a certified new business venture.

Under this substitute amendment, 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 maintain an average of 50 percent of its equity investments in businesses located in Wisconsin. The substitute amendment 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 substitute amendment 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.

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

AB538-ASA1, s. 1 Section 1. 71.05 (6) (a) 15. of the statutes is amended to read:

AB538-ASA1,3,6 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), and (3s), 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).

AB538-ASA1, s. 2 Section 2. 71.05 (6) (b) 9m. of the statutes is created to read:

AB538-ASA1,3,14 71.05 (6) (b) 9m. On assets held more than one year, to the extent that the gains are not excluded from taxation under subd. 9., 100 percent of the capital gain as computed under the Internal Revenue Code if the gain is realized from the sale of an asset that is an investment in a qualified new business venture that is certified under s. 560.03 (26) or a venture capital fund that is certified under s. 560.03 (27). For purposes of this subdivision, the capital gains and capital losses for all assets shall be netted before application of the percentage.

AB538-ASA1, s. 3 Section 3. 71.07 (5d) of the statutes is created to read:

AB538-ASA1,3,16 71.07 (5d) Qualified new business venture credit. (a) In this subsection:

AB538-ASA1,3,17 1. "Claimant" means a person who files a claim under this subsection.

AB538-ASA1,3,19 2. "Qualified new business venture" means a business that is certified under s. 560.03 (26).

AB538-ASA1,4,5 (b) Subject to the limitations provided in this subsection and in s. 560.03 (26), a claimant may claim as a credit against the tax imposed under s. 71.02 or 71.08, up to the amount of those taxes, an amount equal to 20 percent of the claimant's equity investment made directly in a qualified new business venture in the taxable year, except that if the claimant's investment exceeds $100,000 in the taxable year the claimant may claim 20 percent of $100,000 plus 10 percent of the amount of the investment that exceeds $100,000.

AB538-ASA1,4,9 (bm) If an investment for which a claimant claims a credit under par. (b) is held by the claimant for less than one year, the claimant shall pay to the department, in the manner prescribed by the department, the amount of the credit that the claimant received related to the investment.

AB538-ASA1,4,11 (c) The carry-over provisions of s. 71.28 (4) (e) and (f), as they apply to the credit under s. 71.28 (4), apply to the credit under this subsection.

AB538-ASA1,4,19 (d) 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 the amounts described under par. (b) that are attributable to their business operations. 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.

AB538-ASA1,4,21 (e) Section 71.28 (4) (g) and (h), as it applies to the credit under s. 71.28 (4), applies to the credit under this subsection.

AB538-ASA1, s. 4 Section 4. 71.08 (1) (intro.) of the statutes is amended to read:

AB538-ASA1,5,6 71.08 (1) Imposition. (intro.) If the tax imposed on a natural person, married couple filing jointly, trust or estate under s. 71.02, not considering the credits under ss. 71.07 (1), (2dd), (2de), (2di), (2dj), (2dL), (2dr), (2ds), (2dx), (2fd), (3m), (3s), (5d), (6), (6s), and (9e), 71.28 (1dd), (1de), (1di), (1dj), (1dL), (1ds), (1dx), (1fd), (2m) and (3) and 71.47 (1dd), (1de), (1di), (1dj), (1dL), (1ds), (1dx), (1fd), (2m) and (3) and subchs. VIII and IX and payments to other states under s. 71.07 (7), is less than the tax under this section, there is imposed on that natural person, married couple filing jointly, trust or estate, instead of the tax under s. 71.02, an alternative minimum tax computed as follows:

AB538-ASA1, s. 5 Section 5. 71.10 (4) (gx) of the statutes is created to read:

AB538-ASA1,5,8 71.10 (4) (gx) Qualified new business venture credit under s. 71.07 (5d).

AB538-ASA1, s. 6 Section 6. 71.21 (4) of the statutes is amended to read:

AB538-ASA1,5,12 71.21 (4) Credits computed by a partnership under s. 71.07 (2dd), (2de), (2di), (2dj), (2dL), (2dm), (2ds), (2dx), (3g), and (3s) , and (5d) and passed through to partners shall be added to the partnership's income.

AB538-ASA1, s. 7 Section 7. 71.26 (2) (a) of the statutes is amended to read:

AB538-ASA1,6,3 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) plus the amount of the credit computed under s. 71.28 (1dd), (1de), (1di), (1dj), (1dL), (1dm), (1ds), (1dx), and (3g), 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, 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).

AB538-ASA1, s. 8 Section 8. 71.28 (5d) of the statutes is created to read:

AB538-ASA1,6,5 71.28 (5d) Qualified new business venture credit. (a) In this subsection:

AB538-ASA1,6,6 1. "Claimant" means a person who files a claim under this subsection.

AB538-ASA1,6,8 2. "Qualified new business venture" means a business that is certified under s. 560.03 (26).

AB538-ASA1,6,15 (b) Subject to the limitations provided in this subsection and in s. 560.03 (26), a claimant may claim as a credit against the tax imposed under s. 71.23, up to the amount of those taxes, an amount equal to 20 percent of the claimant's equity investment made directly in a qualified new business venture in the taxable year, except that if the claimant's investment exceeds $100,000 in the taxable year the claimant may claim 20 percent of $100,000 plus 10 percent of the amount of the investment that exceeds $100,000.

AB538-ASA1,6,19 (bm) If an investment for which a claimant claims a credit under par. (b) is held by the claimant for less than one year, the claimant shall pay to the department, in the manner prescribed by the department, the amount of the credit that the claimant received related to the investment.

AB538-ASA1,6,21 (c) The carry-over provisions of sub. (4) (e) and (f), as they apply to the credit under sub. (4), apply to the credit under this subsection.

AB538-ASA1,7,4 (d) 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 the amounts described under par. (b) that are attributable to their business operations. 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.

AB538-ASA1,7,6 (e) Subsection (4) (g) and (h), as it applies to the credit under sub. (4), applies to the credit under this subsection.

AB538-ASA1, s. 9 Section 9. 71.30 (3) (eop) of the statutes is created to read:

AB538-ASA1,7,8 71.30 (3) (eop) Qualified new business venture credit under s. 71.28 (5d).

AB538-ASA1, s. 10 Section 10. 71.34 (1) (g) of the statutes is amended to read:

AB538-ASA1,7,12 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), and (3g), and (5d) and passed through to shareholders.

AB538-ASA1, s. 11 Section 11. 71.45 (2) (a) 10. of the statutes is amended to read:

AB538-ASA1,7,19 71.45 (2) (a) 10. By adding to federal taxable income the amount of credit computed under s. 71.47 (1dd) to (1dx) 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, 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), (4) and (5).