Bill Text: IL SB2012 | 2017-2018 | 100th General Assembly | Engrossed


Bill Title: Amends the Illinois Income Tax Act. Makes the following changes with respect to the angel investment credit: (1) provides that the credit applies for taxable years ending on or before December 31, 2021 (currently, December 31, 2016); (2) increases the maximum aggregate amount of the angel investment credit from $10,000,000 to $20,000,000; (3) defines "investment" as equity, Simple Agreement for Future Equity (SAFE) Agreements, and convertible notes; (4) provides that each qualified new business venture must renew its registration on an annual basis; (5) provides that, for taxable years ending on or after December 31, 2017, applicants for the credit must make a minimum investment of $10,000 in a qualified new business venture (currently, there is no minimum investment requirement); (6) provides that the maximum amount of an applicant's total investment made directly in any single qualified new business venture that may be used as the basis for a credit under this Section is $2,000,000 (currently, that is the maximum for each investment made in a qualified new business venture); (7) contains recapture provisions; and (8) contains provisions concerning investments in minority-owned businesses, female-owned businesses, or businesses owned by a person with a disability. Effective immediately.

Spectrum: Bipartisan Bill

Status: (Engrossed) 2017-05-26 - Final Action Deadline Extended-9(b) May 31, 2017 [SB2012 Detail]

Download: Illinois-2017-SB2012-Engrossed.html



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1 AN ACT concerning revenue.
2 Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
4 Section 5. The Illinois Income Tax Act is amended by
5changing Section 220 as follows:
6 (35 ILCS 5/220)
7 Sec. 220. Angel investment credit.
8 (a) As used in this Section:
9 "Applicant" means a corporation, partnership, limited
10liability company, or a natural person that makes an investment
11in a qualified new business venture. The term "applicant" does
12not include a corporation, partnership, limited liability
13company, or a natural person who has a direct or indirect
14ownership interest of at least 51% in the profits, capital, or
15value of the investment or a related member.
16 "Claimant" means an applicant certified by the Department
17who files a claim for a credit under this Section.
18 "Department" means the Department of Commerce and Economic
19Opportunity.
20 "Investment" means money (or its equivalent) given to a
21qualified new business venture, at a risk of loss, in
22consideration for an equity interest of the qualified new
23business venture. The Department may adopt rules to permit

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1certain forms of contingent equity investments to be considered
2eligible for a tax credit under this Section.
3 "Qualified new business venture" means a business that is
4registered with the Department under this Section.
5 "Related member" means a person that, with respect to the
6applicant investment, is any one of the following:
7 (1) An individual, if the individual and the members of
8 the individual's family (as defined in Section 318 of the
9 Internal Revenue Code) own directly, indirectly,
10 beneficially, or constructively, in the aggregate, at
11 least 50% of the value of the outstanding profits, capital,
12 stock, or other ownership interest in the applicant.
13 (2) A partnership, estate, or trust and any partner or
14 beneficiary, if the partnership, estate, or trust and its
15 partners or beneficiaries own directly, indirectly,
16 beneficially, or constructively, in the aggregate, at
17 least 50% of the profits, capital, stock, or other
18 ownership interest in the applicant.
19 (3) A corporation, and any party related to the
20 corporation in a manner that would require an attribution
21 of stock from the corporation under the attribution rules
22 of Section 318 of the Internal Revenue Code, if the
23 applicant and any other related member own, in the
24 aggregate, directly, indirectly, beneficially, or
25 constructively, at least 50% of the value of the
26 corporation's outstanding stock.

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1 (4) A corporation and any party related to that
2 corporation in a manner that would require an attribution
3 of stock from the corporation to the party or from the
4 party to the corporation under the attribution rules of
5 Section 318 of the Internal Revenue Code, if the
6 corporation and all such related parties own, in the
7 aggregate, at least 50% of the profits, capital, stock, or
8 other ownership interest in the applicant.
9 (5) A person to or from whom there is attribution of
10 stock ownership in accordance with Section 1563(e) of the
11 Internal Revenue Code, except that for purposes of
12 determining whether a person is a related member under this
13 paragraph, "20%" shall be substituted for "5%" whenever
14 "5%" appears in Section 1563(e) of the Internal Revenue
15 Code.
16 (b) For taxable years beginning after December 31, 2010,
17and ending on or before December 31, 2021 December 31, 2016,
18subject to the limitations provided in this Section, a claimant
19may claim, as a credit against the tax imposed under
20subsections (a) and (b) of Section 201 of this Act, an amount
21equal to 25% of the claimant's investment made directly in a
22qualified new business venture. In order for an investment in a
23qualified new business venture to be eligible for tax credits,
24the business must have applied for and received certification
25under subsection (e) for the taxable year in which the
26investment was made prior to the date on which the investment

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1was made. The credit under this Section may not exceed the
2taxpayer's Illinois income tax liability for the taxable year.
3If the amount of the credit exceeds the tax liability for the
4year, the excess may be carried forward and applied to the tax
5liability of the 5 taxable years following the excess credit
6year. The credit shall be applied to the earliest year for
7which there is a tax liability. If there are credits from more
8than one tax year that are available to offset a liability, the
9earlier credit shall be applied first. In the case of a
10partnership or Subchapter S Corporation, the credit is allowed
11to the partners or shareholders in accordance with the
12determination of income and distributive share of income under
13Sections 702 and 704 and Subchapter S of the Internal Revenue
14Code.
15 (c) The minimum amount an applicant must invest in any
16single qualified new business venture in order to be eligible
17for a credit under this Section is $10,000. The maximum amount
18of an applicant's total investment made in any single qualified
19new business venture that may be used as the basis for a credit
20under this Section is $2,000,000 for each investment made
21directly in a qualified new business venture.
22 (d) The Department shall implement a program to certify an
23applicant for an angel investment credit. Upon satisfactory
24review, the Department shall issue a tax credit certificate
25stating the amount of the tax credit to which the applicant is
26entitled. The Department shall annually certify that: (i) each

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1qualified new business venture that receives an angel
2investment under this Section has maintained a minimum
3employment threshold, as defined by rule, in the State (and
4continues to maintain a minimum employment threshold in the
5State for a period of no less than 3 years from the issue date
6of the last tax credit certificate issued by the Department
7with respect to such business pursuant to this Section); and
8(ii) the claimant's investment has been made and remains,
9except in the event of a qualifying liquidity event, in the
10qualified new business venture for no less than 3 years.
11 If an investment for which a claimant is allowed a credit
12under subsection (b) is held by the claimant for less than 3
13years, other than as a result of a permitted sale of the
14investment to person who is not a related member, or, if within
15that period of time the qualified new business venture is moved
16from the State of Illinois, the claimant shall pay to the
17Department of Revenue, in the manner prescribed by the
18Department of Revenue, the aggregate amount of the disqualified
19credits credit that the claimant received related to the
20subject investment.
21 If the Department determines that a qualified new business
22venture failed to maintain a minimum employment threshold in
23the State through the date which is 3 years from the issue date
24of the last tax credit certificate issued by the Department
25with respect to the subject business pursuant to this Section,
26the claimant or claimants shall pay to the Department of

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1Revenue, in the manner prescribed by the Department of Revenue,
2the aggregate amount of the disqualified credits that claimant
3or claimants received related to investments in that business.
4 (e) The Department shall implement a program to register
5qualified new business ventures for purposes of this Section. A
6business desiring registration under this Section shall be
7required to submit a full and complete an application to the
8Department in each taxable year for which the business desires
9registration. A submitted application shall be effective only
10for the taxable year in which it is submitted, and a business
11desiring registration under this Section shall be required to
12submit a separate application in and for each taxable year for
13which the business desires registration. Further, if at any
14time prior to the acceptance of an application for registration
15under this Section by the Department one or more events occurs
16which makes the information provided in that application
17materially false or incomplete (in whole or in part), the
18business shall promptly notify the Department of the same. Any
19failure of a business to promptly provide the foregoing
20information to the Department may, at the discretion of the
21Department, result in a revocation of a previously approved
22application for that business, or disqualification of the
23business from future registration under this Section, or both.
24The Department may register the business only if the business
25satisfies all of the following conditions are satisfied:
26 (1) it has its principal place of business headquarters

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1 in this State;
2 (2) at least 51% of the employees employed by the
3 business are employed in this State;
4 (3) the business it has the potential for increasing
5 jobs in this State, increasing capital investment in this
6 State, or both, as determined by the Department, and either
7 of the following apply:
8 (A) it is principally engaged in innovation in any
9 of the following: manufacturing; biotechnology;
10 nanotechnology; communications; agricultural sciences;
11 clean energy creation or storage technology;
12 processing or assembling products, including medical
13 devices, pharmaceuticals, computer software, computer
14 hardware, semiconductors, other innovative technology
15 products, or other products that are produced using
16 manufacturing methods that are enabled by applying
17 proprietary technology; or providing services that are
18 enabled by applying proprietary technology; or
19 (B) it is undertaking pre-commercialization
20 activity related to proprietary technology that
21 includes conducting research, developing a new product
22 or business process, or developing a service that is
23 principally reliant on applying proprietary
24 technology;
25 (4) it is not principally engaged in real estate
26 development, insurance, banking, lending, lobbying,

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1 political consulting, professional services provided by
2 attorneys, accountants, business consultants, physicians,
3 or health care consultants, wholesale or retail trade,
4 leisure, hospitality, transportation, or construction,
5 except construction of power production plants that derive
6 energy from a renewable energy resource, as defined in
7 Section 1 of the Illinois Power Agency Act;
8 (5) at the time it is first certified:
9 (A) it has fewer than 100 employees;
10 (B) it has been in operation in Illinois for not
11 more than 10 consecutive years prior to the year of
12 certification; and
13 (C) it has received not more than $10,000,000 in
14 aggregate investments private equity investment in
15 cash;
16 (5.1) it agrees to maintain a minimum employment
17 threshold in the State of Illinois prior to the date which
18 is 3 years from the issue date of the last tax credit
19 certificate issued by the Department with respect to that
20 business pursuant to this Section;
21 (6) (blank); and
22 (7) it has received not more than $4,000,000 in
23 investments that qualified for tax credits under this
24 Section.
25 (f) The Department, in consultation with the Department of
26Revenue, shall adopt rules to administer this Section. The

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1aggregate amount of the tax credits that may be claimed under
2this Section for investments made in qualified new business
3ventures shall be limited at $10,000,000 per calendar year, of
4which $500,000 shall be reserved for investments made in
5qualified new business ventures which are "minority owned
6businesses", "female owned businesses", or "businesses owned
7by a person with a disability" (as those terms are used and
8defined in the Business Enterprise for Minorities, Females, and
9Persons with Disabilities Act), and an additional $500,000
10shall be reserved for investments made in qualified new
11business ventures with their principal place of business in
12counties with a population of not more than 250,000. The
13foregoing annual allowable amounts shall be allocated by the
14Department, on a per calendar quarter basis and prior to the
15commencement of each calendar year, in such proportion as
16determined by the Department, provided that: (i) the amount
17initially allocated by the Department for any one calendar
18quarter shall not exceed 35% of the total allowable amount; and
19(ii) any portion of the allocated allowable amount remaining
20unused as of the end of any of the first 2 calendar quarters of
21a given calendar year shall be rolled into, and added to, the
22total allocated amount for the next available calendar quarter.
23 (g) A claimant may not sell or otherwise transfer a credit
24awarded under this Section to another person.
25 (h) On or before March 1 of each year, the Department shall
26report to the Governor and to the General Assembly on the tax

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1credit certificates awarded under this Section for the prior
2calendar year.
3 (1) This report must include, for each tax credit
4 certificate awarded:
5 (A) the name of the claimant and the amount of
6 credit awarded or allocated to that claimant;
7 (B) the name and address (including the county) of
8 the qualified new business venture that received the
9 investment giving rise to the credit, the North
10 American Industry Classification System (NAICS) code
11 applicable to that qualified new business venture, and
12 the number of employees of the the qualified new
13 business venture that received the investment giving
14 rise to the credit and the county in which the
15 qualified new business venture is located; and
16 (C) the date of approval by the Department of each
17 claimant's the applications for the tax credit
18 certificate.
19 (2) The report must also include:
20 (A) the total number of applicants and the total
21 number of claimants, including the amount of each tax
22 credit certificate and amount for tax credit
23 certificates awarded to a claimant under this Section
24 in the prior calendar year;
25 (B) the total number of applications from
26 businesses seeking registration under this Section,

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1 the total number of new qualified business ventures
2 registered by the Department, and the aggregate amount
3 of investment upon which tax credit certificates were
4 issued in the prior calendar year the total number of
5 applications and amount for which tax credit
6 certificates were issued in the prior calendar year;
7 and
8 (C) the total amount of tax credit certificates
9 sought by applicants, the amount of each tax credit
10 certificate issued to a claimant, the aggregate amount
11 of all tax credit certificates issued in the prior
12 calendar year and the aggregate amount of tax credit
13 certificates issued as authorized under this Section
14 for all calendar years the total tax credit
15 certificates and amount authorized under this Section
16 for all calendar years.
17 (i) For each business seeking registration under this
18Section after December 31, 2016, the Department shall require
19the business to include in its application the North American
20Industry Classification System (NAICS) code applicable to the
21business and the number of employees of the business at the
22time of application. Each business registered by the Department
23as a qualified new business venture that receives an investment
24giving rise to the issuance of a tax credit certificate
25pursuant to this Section shall, for each of the 3 years
26following the issue date of the last tax credit certificate

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1issued by the Department with respect to such business pursuant
2to this Section, report to the Department the following:
3 (1) the number of employees and the location at which
4 those employees are employed, both as of the end of each
5 year;
6 (2) the amount of additional new capital investment
7 raised as of the end of each year, if any; and
8 (3) the terms of any liquidity event occurring during
9 such year; for the purposes of this Section, a "liquidity
10 event" means any event that would be considered an exit for
11 an illiquid investment, including any event that allows the
12 equity holders of the business (or any material portion
13 thereof) to cash out some or all of their respective equity
14 interests.
15(Source: P.A. 96-939, eff. 1-1-11; 97-507, eff. 8-23-11;
1697-1097, eff. 8-24-12.)
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