AB524: Bill Text

LRB-3054/1

JK/RJM/MES:cjs&kjf:pg

2003 - 2004 LEGISLATURE

2003 Assembly BILL 524

September 18, 2003 - Introduced by Representatives McCormick, Nischke, Staskunas, Seratti, Hahn, Albers, Krawczyk, Friske, Gronemus, Weber, Gielow and Ott, cosponsored by Senators Kanavas, Stepp, Lassa, Reynolds and Roessler. Referred to Committee on Economic Development.

AB524,1,7 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 15.07 (1) (b) 23., 15.155 (5), 71.07 (2r), 71.07 (5d), 71.10 (4) (gc), 71.10 (4) (gx), 71.28 (2r), 71.30 (3) (eop), 71.47 (2r), 71.49 (1) (eop), 73.03 (35p), 73.03 (35r) and 560.20 of the statutes; relating to: creating an income and franchise tax credit for equity investments in a venture capital fund, creating an equity investment individual income tax credit, and granting rule-making authority.

Analysis by the Legislative Reference Bureau

This bill creates a nonrefundable income and franchise tax credit for equity investments in venture capital funds that are certified by the Wisconsin Capital Investment Board as described below. The amount of the tax credit is equal to 6% of the taxpayer's equity investment in venture capital funds in the taxable year, up to a maximum claim of $60,000 per claimant, but the total amount of all such credits awarded in any fiscal year may not exceed $5,000,000. If the credit claimed by a taxpayer exceeds the taxpayer's tax liability, the state will not issue a refund, but the taxpayer may carry forward any remaining credit to subsequent taxable years.

This bill creates a Wisconsin Capital Investment Board (board), consisting of five members with expertise in venture capital and financial investments. The members are appointed by the governor, with the advice and consent of the senate. Under this bill, the board must promulgate rules establishing a procedure for the board to certify venture capital funds as eligible to receive equity investments that qualify for the tax credits 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 maintains a physical presence in Wisconsin, and the venture capital fund makes a commitment to consider making equity investments in businesses located in Wisconsin. The bill requires the board, upon request of any person, to issue a written notice indicating whether a venture capital fund is certified as eligible to receive equity investments that qualify for the tax credits described above. Each such notice that indicates a venture capital fund is certified must include the following statement: "The Wisconsin Capital Investment Board 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 board, upon issuing or discontinuing a certification, to notify the Department of Revenue and give the Department of Revenue a copy of the certification or discontinuance.

This bill also creates a nonrefundable individual income tax credit that is equal to 20% of the taxpayer's cash investment in a community-based seed capital fund or in a business that, generally, has been operating for no more than three years and has a net worth not exceeding $3,000,000. No individual may claim a credit for more than $50,000 in a taxable year and the total amount of all credits for all individuals who claim credits may not exceed $3,000,000 in a state fiscal year.

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:

AB524, s. 1 Section 1. 15.07 (1) (b) 23. of the statutes is created to read:

AB524,2,2 15.07 (1) (b) 23. Wisconsin capital investment board.

AB524, s. 2 Section 2. 15.155 (5) of the statutes is created to read:

AB524,3,3 15.155 (5) Wisconsin capital investment board. There is created a Wisconsin capital investment board attached to the department of commerce under s. 15.03. The Wisconsin capital investment board shall consist of 5 members appointed for 5-year terms. Each member of the Wisconsin capital investment board shall have expertise concerning venture capital and financial investments. Any person having a financial interest in a venture capital fund certified under s. 560.20 (2) may not be a member and any member who acquires such an interest shall thereupon vacate his or her membership.

AB524, s. 3 Section 3. 71.05 (6) (a) 15. of the statutes is amended to read:

AB524,3,9 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), (3g), and (3s) 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).

AB524, s. 4 Section 4. 71.07 (2r) of the statutes is created to read:

AB524,3,12 71.07 (2r) Equity investment in venture capital fund credit. (a) In this subsection:

AB524,3,13 1. "Board" means the Wisconsin capital investment board.

AB524,3,16 2. "Claimant" means a sole proprietor, a partner, a member of a limited liability company, or a shareholder of a tax-option corporation who files a claim under this subsection.

AB524,3,17 3. "Equity investment" means the purchase of an ownership interest.

AB524,3,19 4. "Venture capital fund" means a venture capital fund certified under s. 560.20 (2).

AB524,3,23 (b) Subject to the limitations provided under 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 6% of the claimant's equity investment in a venture capital fund in the taxable year.

AB524,4,2 (c) 1. The maximum credit that a claimant may claim under this subsection may not exceed $60,000 in a taxable year and the total amount of the claims for all claimants under this subsection, s. 71.28 (2r), and s. 71.47 (2r) may not exceed $5,000,000 in any fiscal year.

AB524,4,6 2. No credit may be allowed under this subsection unless the claimant submits with the claimant's return a notice issued by the board under s. 560.20 (3) indicating that the board has certified the venture capital fund as eligible to receive equity investments that qualify for the credit.

AB524,4,8 3. 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.

AB524,4,16 4. Partnerships, limited liability companies, and tax-option corporations may not claim the credit under par. (b), but the eligibility for, and the amount of, the credit are based on their payment of an equity investment, as described in this subsection. 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.

AB524, s. 5 Section 5. 71.07 (5d) of the statutes is created to read:

AB524,4,18 71.07 (5d) Equity investment credit. (a) Definitions. In this subsection:

AB524,4,19 1. "Claimant" means an individual who files a claim under this subsection.

AB524,4,21 2. "Community-based seed capital fund" means a fund certified under s. 560.20 (2) (b).

AB524,4,22 3. "Qualifying business" means a business certified under s. 560.20 (2) (c).

AB524,5,2 (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 20% of the claimant's cash investment in the taxable year to which the claim relates in a qualifying business or in a community-based seed capital fund.

AB524,5,6 (c) Limitations. 1. The maximum credit that a claimant may claim under this subsection may not exceed $50,000 in a taxable year and the total amount of the claims for all claimants under this subsection may not exceed $3,000,000 in any fiscal year.

AB524,5,8 2. No credit may be allowed under this subsection unless it is claimed within the time period under s. 71.75 (2).

AB524,5,18 3. For a claimant 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.

AB524,5,24 (d) Administration. 1. If a credit computed under this subsection is not entirely offset against income taxes otherwise due, the unused balance may be carried forward and credited against income taxes otherwise due for the following 5 taxable years to the extent not offset by those taxes otherwise due in all intervening years between the year in which the investment under par. (b) was paid and the year in which the carry-forward credit is claimed.

AB524,6,2 2. Section 71.07 (9e) (d), to the extent that it applies to the credit under that subsection, applies to the credit under this subsection.

AB524,6,5 3. Community-based seed capital funds and qualifying businesses shall submit to the department any information that the department considers necessary to administer this subsection.

AB524, s. 6 Section 6. 71.10 (4) (gc) of the statutes is created to read:

AB524,6,7 71.10 (4) (gc) Equity investment credit under s. 71.07 (5d).

AB524, s. 7 Section 7. 71.10 (4) (gx) of the statutes is created to read:

AB524,6,10 71.10 (4) (gx) Equity investment in venture capital fund credit under s. 71.07 (2r).

AB524, s. 8 Section 8. 71.21 (4) of the statutes is amended to read:

AB524,6,14 71.21 (4) Credits computed by a partnership under s. 71.07 (2dd), (2de), (2di), (2dj), (2dL), (2dm), (2ds), (2dx), (2r), (3g), and (3s) and passed through to partners shall be added to the partnership's income.

AB524, s. 9 Section 9. 71.26 (2) (a) of the statutes is amended to read:

AB524,7,5 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), (2r), and (3g) 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).