LRB-3325/1
JK/MES/RJM:kmg/jld:rs
2003 - 2004 LEGISLATURE
September 25, 2003 - Introduced by Representatives Nischke, McCormick,
Ladwig, Musser, Montgomery, Towns, Owens, M. Lehman, Weber, Van Roy,
Krawczyk, Olsen
and Ott, cosponsored by Senators Kanavas, Stepp, Leibham,
Welch, Darling, Zien
and Lassa. Referred to Committee on Economic
Development.
AB538,1,9 1An Act to amend 71.05 (6) (a) 15., 71.21 (4), 71.26 (2) (a), 71.34 (1) (g), 71.45 (2)
2(a) 10. and 77.92 (4); and to create 71.05 (6) (b) 34., 71.05 (24), 71.07 (5d), 71.10
3(4) (gx), 71.28 (5d), 71.30 (3) (eop), 71.47 (5d), 71.49 (1) (eop) and 560.03 (24) to
4(27) of the statutes; relating to: creating a qualified new business venture tax
5credit and a capital gains tax exemption regarding investments in certified
6venture capital funds and qualified new business ventures, requiring a study
7of new Wisconsin businesses, facilitating the development of certain investor
8networks, excluding from taxable income gains from a start-up technology
9business, and granting rule-making authority.
Analysis by the Legislative Reference Bureau
This bill 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 bill requires a business desiring certification as a new business venture
for purposes of this tax credit to apply to the Department of Commerce. 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. In addition, if the
taxpayer is a broker-dealer, the taxpayer may claim a tax credit in amount equal to
ten percent of the first $500,000 raised in an offering of a new business venture in
the taxable year. Under current law, a broker-dealer is, generally, any person
engaged in the business of effecting transactions in securities.
This bill 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 bill 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 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 elect to defer the
payment of income taxes on the gain realized from the sale of any asset held more
than one year, to the extent that the gain is not already excluded from taxation, or
any asset that is an investment in a venture capital fund (original asset), if the
claimant completes a number of requirements.
Under the bill, the claimant must place the gain from the original asset in a
segregated account in a financial institution, purchase another capital asset that is
an investment in a venture capital fund or in a qualified new business venture
(replacement asset) within 90 days after the sale of the original asset that generated
the gain, and notify the Department of Revenue (DOR) on a form prepared by DOR
that the claimant is deferring the payment of income tax on the gain from the original
asset because the proceeds have been reinvested. The cost of the replacement asset
must be equal to or greater than the gain generated by the sale of the original asset.
The bill also specifies that the basis of the replacement asset shall be its cost
minus the gain generated by the sale of the original asset. If a claimant defers the
payment of income taxes on the gain generated by the sale of the original asset, 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 elect to defer the payment of taxes on the gain.
In addition, under the bill, the capital gain realized from the sale of an asset
that is an investment in a start-up technology business may be excluded from
taxation, if the business has its principal operations in this state, it has been in
operation for more than three years, its owner has three years of relevant business
experience or education, it is engaged primarily in a technology field, its net worth
does not exceed $3,000,000, and it secures financing equal to at least $250,000.

Under this bill, 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 make equity
investments in businesses located in Wisconsin. The bill 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 bill 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.
This bill will be referred to the Joint Survey Committee on Tax Exemptions for
a detailed analysis, which will be printed as an appendix to this bill.
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:
AB538, s. 1 1Section 1. 71.05 (6) (a) 15. of the statutes is amended to read:
AB538,3,62 71.05 (6) (a) 15. The amount of the credits computed under s. 71.07 (2dd), (2de),
3(2di), (2dj), (2dL), (2dm), (2dr), (2ds), (2dx), (3g), and (3s), and (5d) and not passed
4through by a partnership, limited liability company, or tax-option corporation that
5has added that amount to the partnership's, company's, or tax-option corporation's
6income under s. 71.21 (4) or 71.34 (1) (g).
AB538, s. 2 7Section 2. 71.05 (6) (b) 34. of the statutes is created to read:
AB538,4,38 71.05 (6) (b) 34. To the extent that the gains are not excluded from taxation
9under subd. 9. or sub. (24), 100 percent of the capital gain as computed under the
10Internal Revenue Code if the gain is realized from the sale of an asset that is an
11investment in a start-up technology business. For purposes of this subdivision, the

1capital gains and capital losses for all assets shall be netted before application of the
2percentage. In this subdivision, a "start-up technology business" is a business that
3satisfies all of the following conditions:
AB538,4,44 a. Its principal business operations are located in this state.
AB538,4,55 b. It has been in operation for no more than 3 years.
AB538,4,126 c. Its owner has at least 3 years of relevant business or technology experience,
7or any other experience that the department determines is sufficient to increase the
8likelihood of the success of the business, or its owner has successfully completed an
9entrepreneurial venture development curriculum; a degree in business
10management, business administration, or a related field or a degree in a technology
11field; or any other training that the department determines is sufficient to increase
12the likelihood of the success of the business.
AB538,4,1313 d. It is a business engaged primarily in a technology field.
AB538,4,1414 e. Its net worth does not exceed $3,000,000.
AB538,4,1815 f. In the taxable year in which cash investments are first made in the business,
16it secures total equity financing or near equity financing equal to at least $250,000.
17"Near equity" means debt that may be converted to equity at the option of the debt
18holder and royalty agreements.
AB538, s. 3 19Section 3. 71.05 (24) of the statutes is created to read:
AB538,4,2120 71.05 (24) Income tax deferral; investments in certain venture capital funds
21and qualified new business ventures.
(a) In this subsection:
AB538,4,2422 1. "Claimant" means an individual; an individual partner or member of a
23partnership, limited liability company, or limited liability partnership; or an
24individual shareholder of a tax-option corporation.
AB538,4,2525 2. "Financial institution" has the meaning given in s. 69.30 (1) (b).
AB538,5,2
13. "Long-term capital gain" means the gain realized from the sale of any asset
2held more than one year.
AB538,5,83 (b) To the extent that the gains are not excluded from taxation under sub. (6)
4(b) 9., a claimant may subtract from federal adjusted gross income any amount of a
5long-term capital gain, or any gain realized from the sale of an asset that is an
6investment in a qualified new business venture that is certified under s. 560.03 (26)
7or a venture capital fund that is certified under s. 560.03 (27), if the claimant does
8all of the following:
AB538,5,109 1. Immediately deposits the gain in a segregated account in a financial
10institution.
AB538,5,1511 2. Within 90 days after the sale of the asset that generated the gain, purchases
12another capital asset, which is an investment in a qualified new business venture
13that is certified under s. 560.03 (26) or a venture capital fund that is certified under
14s. 560.03 (27), of equal or greater value using all of the proceeds in the account
15described under subd. 1.
AB538,5,1916 3. After purchasing a capital asset as described under subd. 2., immediately
17notifies the department, on a form prepared by the department, that the claimant
18will not declare on the claimant's income tax return the gain described under subd.
191. because the claimant has reinvested the capital gain as described under subd. 2.
AB538,5,2220 (c) The basis of the purchased capital asset described in par. (b) 2. shall be
21calculated by subtracting the gain described in par. (b) 1. from the cost of the
22purchased asset described in par. (b) 2.
AB538,5,2523 (d) If a claimant defers the payment of income taxes on a capital gain under this
24subsection, the claimant may not use the gain described under par. (b) 1. to net
25capital gains and losses, as described under sub. (10) (c).
AB538, s. 4
1Section 4. 71.07 (5d) of the statutes is created to read:
AB538,6,22 71.07 (5d) Qualified new business venture credit. (a) In this subsection:
AB538,6,33 1. "Broker-dealer" has the meaning given in s. 551.02 (3).
AB538,6,44 2. "Claimant" means a person who files a claim under this subsection.
AB538,6,65 3. "Qualified new business venture" means a business that is certified under
6s. 560.03 (26).
AB538,6,97 (b) Subject to the limitations provided in this subsection and in s. 560.03 (26),
8a claimant may claim as a credit against the tax imposed under s. 71.02, up to the
9amount of those taxes, any of the following:
AB538,6,1310 1. An amount equal to 20 percent of the claimant's investment in a qualified
11new business venture in the taxable year, except that if the claimant's investment
12exceeds $100,000 in the taxable year the claimant may claim 20 percent of $100,000
13plus 10 percent of the amount of the investment that exceeds $100,000.
AB538,6,1514 2. If the claimant is a broker-dealer, an amount equal to 10 percent of the first
15$500,000 raised in an offering of a qualified new business venture in the taxable year.
AB538,6,1716 (c) The carry-over provisions of s. 71.28 (4) (e) and (f), as they apply to the credit
17under s. 71.28 (4), apply to the credit under this subsection.
AB538,6,2518 (d) Partnerships, limited liability companies, and tax-option corporations may
19not claim the credit under this subsection, but the eligibility for, and the amount of,
20the credit are based on the amounts described under par. (b) that are attributable to
21their business operations. A partnership, limited liability company, or tax-option
22corporation shall compute the amount of credit that each of its partners, members,
23or shareholders may claim and shall provide that information to each of them.
24Partners, members of limited liability companies, and shareholders of tax-option
25corporations may claim the credit in proportion to their ownership interest.
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