LRB-3266/3
JK/MES/RJM:kmg&jld:pg
2003 - 2004 LEGISLATURE
September 24, 2003 - Introduced by Senators Kanavas, Stepp, Leibham, Darling,
Brown, Welch, Zien, Lassa
and Roessler, cosponsored by Representatives
Nischke, McCormick, Ladwig, Musser, Montgomery, Towns, Owens, M.
Lehman, Weber, Van Roy, Krawczyk, Olsen
and Ott. Referred to Joint
Committee on Finance.
SB261,1,8 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 (24), 71.07 (5d), 71.10 (4) (gx), 71.28
3(5d), 71.30 (3) (eop), 71.47 (5d), 71.49 (1) (eop) and 560.03 (24) to (27) of the
4statutes; relating to: creating a qualified new business venture tax credit and
5a capital gains tax exemption regarding investments in certified venture
6capital funds and qualified new business ventures, requiring a study of new
7Wisconsin businesses, facilitating the development of certain investor
8networks, 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.
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:
SB261, s. 1 1Section 1. 71.05 (6) (a) 15. of the statutes is amended to read:
SB261,3,62 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).
SB261, s. 2 7Section 2. 71.05 (24) of the statutes is created to read:
SB261,3,98 71.05 (24) Income tax deferral; investments in certain venture capital funds
9and qualified new business ventures.
(a) In this subsection:
SB261,3,1210 1. "Claimant" means an individual; an individual partner or member of a
11partnership, limited liability company, or limited liability partnership; or an
12individual shareholder of a tax-option corporation.
SB261,3,1313 2. "Financial institution" has the meaning given in s. 69.30 (1) (b).
SB261,3,1514 3. "Long-term capital gain" means the gain realized from the sale of any asset
15held more than one year.
SB261,4,6
1(b) To the extent that the gains are not excluded from taxation under sub. (6)
2(b) 9., a claimant may subtract from federal adjusted gross income any amount of a
3long-term capital gain, or any gain realized from the sale of an asset that is an
4investment in a qualified new business venture that is certified under s. 560.03 (26)
5or a venture capital fund that is certified under s. 560.03 (27), if the claimant does
6all of the following:
SB261,4,87 1. Immediately deposits the gain in a segregated account in a financial
8institution.
SB261,4,139 2. Within 90 days after the sale of the asset that generated the gain, purchases
10another capital asset, which is an investment in a qualified new business venture
11that is certified under s. 560.03 (26) or a venture capital fund that is certified under
12s. 560.03 (27), of equal or greater value using all of the proceeds in the account
13described under subd. 1.
SB261,4,1714 3. After purchasing a capital asset as described under subd. 2., immediately
15notifies the department, on a form prepared by the department, that the claimant
16will not declare on the claimant's income tax return the gain described under subd.
171. because the claimant has reinvested the capital gain as described under subd. 2.
SB261,4,2018 (c) The basis of the purchased capital asset described in par. (b) 2. shall be
19calculated by subtracting the gain described in par. (b) 1. from the cost of the
20purchased asset described in par. (b) 2.
SB261,4,2321 (d) If a claimant defers the payment of income taxes on a capital gain under this
22subsection, the claimant may not use the gain described under par. (b) 1. to net
23capital gains and losses, as described under sub. (10) (c).
SB261, s. 3 24Section 3. 71.07 (5d) of the statutes is created to read:
SB261,4,2525 71.07 (5d) Qualified new business venture credit. (a) In this subsection:
SB261,5,1
11. "Broker-dealer" has the meaning given in s. 551.02 (3).
SB261,5,22 2. "Claimant" means a person who files a claim under this subsection.
SB261,5,43 3. "Qualified new business venture" means a business that is certified under
4s. 560.03 (26).
SB261,5,75 (b) Subject to the limitations provided in this subsection and in s. 560.03 (26),
6a claimant may claim as a credit against the tax imposed under s. 71.02, up to the
7amount of those taxes, any of the following:
SB261,5,118 1. An amount equal to 20 percent of the claimant's investment in a qualified
9new business venture in the taxable year, except that if the claimant's investment
10exceeds $100,000 in the taxable year the claimant may claim 20 percent of $100,000
11plus 10 percent of the amount of the investment that exceeds $100,000.
SB261,5,1312 2. If the claimant is a broker-dealer, an amount equal to 10 percent of the first
13$500,000 raised in an offering of a qualified new business venture in the taxable year.
SB261,5,1514 (c) The carry-over provisions of s. 71.28 (4) (e) and (f), as they apply to the credit
15under s. 71.28 (4), apply to the credit under this subsection.
SB261,5,2316 (d) Partnerships, limited liability companies, and tax-option corporations may
17not claim the credit under this subsection, but the eligibility for, and the amount of,
18the credit are based on the amounts described under par. (b) that are attributable to
19their business operations. A partnership, limited liability company, or tax-option
20corporation shall compute the amount of credit that each of its partners, members,
21or shareholders may claim and shall provide that information to each of them.
22Partners, members of limited liability companies, and shareholders of tax-option
23corporations may claim the credit in proportion to their ownership interest.
SB261,5,2524 (e) Section 71.28 (4) (g) and (h), as it applies to the credit under s. 71.28 (4),
25applies to the credit under this subsection.
SB261, s. 4
1Section 4. 71.10 (4) (gx) of the statutes is created to read:
SB261,6,22 71.10 (4) (gx) Qualified new business venture credit under s. 71.07 (5d).
SB261, s. 5 3Section 5. 71.21 (4) of the statutes is amended to read:
SB261,6,64 71.21 (4) Credits computed by a partnership under s. 71.07 (2dd), (2de), (2di),
5(2dj), (2dL), (2dm), (2ds), (2dx), (3g), and (3s) , and (5d) and passed through to
6partners shall be added to the partnership's income.
SB261, s. 6 7Section 6. 71.26 (2) (a) of the statutes is amended to read:
SB261,6,228 71.26 (2) (a) Corporations in general. The "net income" of a corporation means
9the gross income as computed under the Internal Revenue Code as modified under
10sub. (3) minus the amount of recapture under s. 71.28 (1di) plus the amount of credit
11computed under s. 71.28 (1), (3), (4), and (5) plus the amount of the credit computed
12under s. 71.28 (1dd), (1de), (1di), (1dj), (1dL), (1dm), (1ds), (1dx), and (3g), and (5d)
13and not passed through by a partnership, limited liability company, or tax-option
14corporation that has added that amount to the partnership's, limited liability
15company's, or tax-option corporation's income under s. 71.21 (4) or 71.34 (1) (g) plus
16the amount of losses from the sale or other disposition of assets the gain from which
17would be wholly exempt income, as defined in sub. (3) (L), if the assets were sold or
18otherwise disposed of at a gain and minus deductions, as computed under the
19Internal Revenue Code as modified under sub. (3), plus or minus, as appropriate, an
20amount equal to the difference between the federal basis and Wisconsin basis of any
21asset sold, exchanged, abandoned, or otherwise disposed of in a taxable transaction
22during the taxable year, except as provided in par. (b) and s. 71.45 (2) and (5).
SB261, s. 7 23Section 7. 71.28 (5d) of the statutes is created to read:
SB261,6,2424 71.28 (5d) Qualified new business venture credit. (a) In this subsection:
SB261,6,2525 1. "Broker-dealer" has the meaning given in s. 551.02 (3).
SB261,7,1
12. "Claimant" means a person who files a claim under this subsection.
SB261,7,32 3. "Qualified new business venture" means a business that is certified under
3s. 560.03 (26).
SB261,7,64 (b) Subject to the limitations provided in this subsection and in s. 560.03 (26),
5a claimant may claim as a credit against the tax imposed under s. 71.23, up to the
6amount of those taxes, any of the following:
SB261,7,107 1. An amount equal to 20 percent of the claimant's investment in a qualified
8new business venture in the taxable year, except that if the claimant's investment
9exceeds $100,000 in the taxable year the claimant may claim 20 percent of $100,000
10plus 10 percent of the amount of the investment that exceeds $100,000.
SB261,7,1211 2. If the claimant is a broker-dealer, an amount equal to 10 percent of the first
12$500,000 raised in an offering of a qualified new business venture in the taxable year.
SB261,7,1413 (c) The carry-over provisions of sub. (4) (e) and (f), as they apply to the credit
14under sub. (4), apply to the credit under this subsection.
SB261,7,2215 (d) Partnerships, limited liability companies, and tax-option corporations may
16not claim the credit under this subsection, but the eligibility for, and the amount of,
17the credit are based on the amounts described under par. (b) that are attributable to
18their business operations. A partnership, limited liability company, or tax-option
19corporation shall compute the amount of credit that each of its partners, members,
20or shareholders may claim and shall provide that information to each of them.
21Partners, members of limited liability companies, and shareholders of tax-option
22corporations may claim the credit in proportion to their ownership interest.
SB261,7,2423 (e) Subsection (4) (g) and (h), as it applies to the credit under sub. (4), applies
24to the credit under this subsection.
SB261, s. 8 25Section 8. 71.30 (3) (eop) of the statutes is created to read:
SB261,8,1
171.30 (3) (eop) Qualified new business venture credit under s. 71.28 (5d).
SB261, s. 9 2Section 9. 71.34 (1) (g) of the statutes is amended to read:
SB261,8,53 71.34 (1) (g) An addition shall be made for credits computed by a tax-option
4corporation under s. 71.28 (1dd), (1de), (1di), (1dj), (1dL), (1dm), (1ds), (1dx), (3), and
5(3g), and (5d) and passed through to shareholders.
SB261, s. 10 6Section 10. 71.45 (2) (a) 10. of the statutes is amended to read:
SB261,8,127 71.45 (2) (a) 10. By adding to federal taxable income the amount of credit
8computed under s. 71.47 (1dd) to (1dx) and (5d) and not passed through by a
9partnership, limited liability company or tax-option corporation that has added that
10amount to the partnership's, limited liability company's or tax-option corporation's
11income under s. 71.21 (4) or 71.34 (1) (g) and the amount of credit computed under
12s. 71.47 (1), (3), (4) and (5).
SB261, s. 11 13Section 11. 71.47 (5d) of the statutes is created to read:
SB261,8,1414 71.47 (5d) Qualified new business venture credit. (a) In this subsection:
SB261,8,1515 1. "Broker-dealer" has the meaning given in s. 551.02 (3).
SB261,8,1616 2. "Claimant" means a person who files a claim under this subsection.
SB261,8,1817 3. "Qualified new business venture" means a business that is certified under
18s. 560.03 (26).
SB261,8,2119 (b) Subject to the limitations provided in this subsection and in s. 560.03 (26),
20a claimant may claim as a credit against the tax imposed under s. 71.43, up to the
21amount of those taxes, any of the following:
SB261,8,2522 1. An amount equal to 20 percent of the claimant's investment in a qualified
23new business venture in the taxable year, except that if the claimant's investment
24exceeds $100,000 in the taxable year the claimant may claim 20 percent of $100,000
25plus 10 percent of the amount of the investment that exceeds $100,000.
SB261,9,2
12. If the claimant is a broker-dealer, an amount equal to 10 percent of the first
2$500,000 raised in an offering of a qualified new business venture in the taxable year.
SB261,9,43 (c) The carry-over provisions of s. 71.28 (4) (e) and (f), as they apply to the credit
4under s. 71.28 (4), apply to the credit under this subsection.
SB261,9,125 (d) Partnerships, limited liability companies, and tax-option corporations may
6not claim the credit under this subsection, but the eligibility for, and the amount of,
7the credit are based on the amounts described under par. (b) that are attributable to
8their business operations. A partnership, limited liability company, or tax-option
9corporation shall compute the amount of credit that each of its partners, members,
10or shareholders may claim and shall provide that information to each of them.
11Partners, members of limited liability companies, and shareholders of tax-option
12corporations may claim the credit in proportion to their ownership interest.
SB261,9,1413 (e) Section 71.28 (4) (g) and (h), as it applies to the credit under s. 71.28 (4),
14applies to the credit under this subsection.
SB261, s. 12 15Section 12. 71.49 (1) (eop) of the statutes is created to read:
SB261,9,1616 71.49 (1) (eop) Qualified new business venture credit under s. 71.47 (5d).
Loading...
Loading...