SB261: Bill Text

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

SB261,3,6 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).

SB261, s. 2 Section 2. 71.05 (24) of the statutes is created to read:

SB261,3,9 71.05 (24) Income tax deferral; investments in certain venture capital funds and qualified new business ventures. (a) In this subsection:

SB261,3,12 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.

SB261,3,13 2. "Financial institution" has the meaning given in s. 69.30 (1) (b).

SB261,3,15 3. "Long-term capital gain" means the gain realized from the sale of any asset held more than one year.

SB261,4,6 (b) To the extent that the gains are not excluded from taxation under sub. (6) (b) 9., a claimant may subtract from federal adjusted gross income any amount of a long-term capital gain, or any gain 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), if the claimant does all of the following:

SB261,4,8 1. Immediately deposits the gain in a segregated account in a financial institution.

SB261,4,13 2. Within 90 days after the sale of the asset that generated the gain, purchases another capital asset, which 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), of equal or greater value using all of the proceeds in the account described under subd. 1.

SB261,4,17 3. After purchasing a capital asset as described under subd. 2., immediately notifies the department, 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. 1. because the claimant has reinvested the capital gain as described under subd. 2.

SB261,4,20 (c) The basis of the purchased capital asset described in par. (b) 2. shall be calculated by subtracting the gain described in par. (b) 1. from the cost of the purchased asset described in par. (b) 2.

SB261,4,23 (d) If a claimant defers the payment of income taxes on a capital gain under this subsection, the claimant may not use the gain described under par. (b) 1. to net capital gains and losses, as described under sub. (10) (c).

SB261, s. 3 Section 3. 71.07 (5d) of the statutes is created to read:

SB261,4,25 71.07 (5d) Qualified new business venture credit. (a) In this subsection:

SB261,5,1 1. "Broker-dealer" has the meaning given in s. 551.02 (3).

SB261,5,2 2. "Claimant" means a person who files a claim under this subsection.

SB261,5,4 3. "Qualified new business venture" means a business that is certified under s. 560.03 (26).

SB261,5,7 (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, up to the amount of those taxes, any of the following:

SB261,5,11 1. An amount equal to 20 percent of the claimant's investment 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.

SB261,5,13 2. If the claimant is a broker-dealer, an amount equal to 10 percent of the first $500,000 raised in an offering of a qualified new business venture in the taxable year.

SB261,5,15 (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.

SB261,5,23 (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.

SB261,5,25 (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.

SB261, s. 4 Section 4. 71.10 (4) (gx) of the statutes is created to read:

SB261,6,2 71.10 (4) (gx) Qualified new business venture credit under s. 71.07 (5d).

SB261, s. 5 Section 5. 71.21 (4) of the statutes is amended to read:

SB261,6,6 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.

SB261, s. 6 Section 6. 71.26 (2) (a) of the statutes is amended to read:

SB261,6,22 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).

SB261, s. 7 Section 7. 71.28 (5d) of the statutes is created to read:

SB261,6,24 71.28 (5d) Qualified new business venture credit. (a) In this subsection:

SB261,6,25 1. "Broker-dealer" has the meaning given in s. 551.02 (3).

SB261,7,1 2. "Claimant" means a person who files a claim under this subsection.

SB261,7,3 3. "Qualified new business venture" means a business that is certified under s. 560.03 (26).

SB261,7,6 (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, any of the following:

SB261,7,10 1. An amount equal to 20 percent of the claimant's investment 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.

SB261,7,12 2. If the claimant is a broker-dealer, an amount equal to 10 percent of the first $500,000 raised in an offering of a qualified new business venture in the taxable year.

SB261,7,14 (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.

SB261,7,22 (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.

SB261,7,24 (e) Subsection (4) (g) and (h), as it applies to the credit under sub. (4), applies to the credit under this subsection.

SB261, s. 8 Section 8. 71.30 (3) (eop) of the statutes is created to read:

SB261,8,1 71.30 (3) (eop) Qualified new business venture credit under s. 71.28 (5d).

SB261, s. 9 Section 9. 71.34 (1) (g) of the statutes is amended to read:

SB261,8,5 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.

SB261, s. 10 Section 10. 71.45 (2) (a) 10. of the statutes is amended to read:

SB261,8,12 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).

SB261, s. 11 Section 11. 71.47 (5d) of the statutes is created to read:

SB261,8,14 71.47 (5d) Qualified new business venture credit. (a) In this subsection:

SB261,8,15 1. "Broker-dealer" has the meaning given in s. 551.02 (3).

SB261,8,16 2. "Claimant" means a person who files a claim under this subsection.

SB261,8,18 3. "Qualified new business venture" means a business that is certified under s. 560.03 (26).

SB261,8,21 (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. 71.43, up to the amount of those taxes, any of the following:

SB261,8,25 1. An amount equal to 20 percent of the claimant's investment 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.

SB261,9,2 2. If the claimant is a broker-dealer, an amount equal to 10 percent of the first $500,000 raised in an offering of a qualified new business venture in the taxable year.

SB261,9,4 (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.

SB261,9,12 (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.

SB261,9,14 (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.

SB261, s. 12 Section 12. 71.49 (1) (eop) of the statutes is created to read:

SB261,9,16 71.49 (1) (eop) Qualified new business venture credit under s. 71.47 (5d).

SB261, s. 13 Section 13. 77.92 (4) of the statutes is amended to read:

SB261,9,25 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), and (3g), and (3s), and (5d); 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.

SB261, s. 14 Section 14. 560.03 (24) to (27) of the statutes are created to read:

SB261,10,15 560.03 (24) In cooperation with the department of financial institutions and the Board of Regents of the University of Wisconsin System, 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. As part of the study, the department of commerce shall conduct a survey of Wisconsin businesses.

SB261,10,19 (25) In cooperation with the department of financial institutions and the Board of Regents of the University of Wisconsin System, provide education and other support to facilitate the development networks of investors that review new businesses or proposed new businesses for potential investment.

SB261,11,4 (26) Certify businesses as qualified new business ventures for purposes of ss. 71.07 (5d), 71.28 (5d), and 71.47 (5d). The department shall promulgate rules for the administration of this subsection. The rules shall require a business desiring certification to submit an application to the department. The department shall maintain a list of businesses certified under this subsection and shall permit public access to the list through the department's Internet website. The department shall notify the department of revenue of every business certified under this subsection and the date on which any such business is decertified. A business may be certified under this subsection, and may maintain such certification, only if the business satisfies all of the following conditions:

SB261,11,5 (a) It has its headquarters in this state.

SB261,11,7 (b) At least 51 percent of the employees employed by the business are employed in this state.

SB261,11,9 (c) Its average annual net income for each of the 2 taxable years immediately preceding the taxable year for which a credit is claimed does not exceed $20,000,000.

SB261,11,11 (d) It's net worth in the taxable year for which a credit is claimed does not exceed $75,000,000.

SB261,11,13 (e) It is not engaged predominantly in providing professional services by accountants, lawyers, or physicians.

SB261,11,15 (f) It is not engaged predominantly in trade or in the leisure and hospitality industry.

SB261,11,16 (g) It is not engaged in banking or lending or in developing real estate for resale.

SB261,11,18 (h) It does not make loans to, or investments in, certified capital companies, as defined in s. 560.30 (2).

SB261,11,20 (i) It has been in operation in this state for at least 3 consecutive years but not more than 10 consecutive years.

SB261,11,21 (27) Certify venture capital funds as follows:

SB261,11,24 (a) The department shall promulgate rules establishing a procedure for the department to certify venture capital funds for purposes of the capital gains tax exemption under s. 71.05 (24). The rules shall do all of the following:

SB261,12,2 1. Require a venture capital fund that desires to obtain a certification to file an application with the department.

SB261,12,7 2. Permit a venture capital fund to 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, as described under sub. (26), that are located in Wisconsin.

SB261,12,11 3. Require an applicant for certification or a certified venture capital fund to provide the department with any information the department determines is necessary to ensure eligibility for certification and compliance with this subsection and rules promulgated under this subsection.

SB261,12,20 (b) Upon request of any person, the department shall issue a written notice indicating whether a venture capital fund is certified under this subsection for purposes of the capital gains tax exemption under s. 71.05 (24). Each notice under this paragraph that indicates a venture capital fund is certified shall 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."