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1 1 Section 1. NEW SECTION. 15E.41 PURPOSE.
1 2 The purpose of this division is to enhance the quality of
1 3 life for citizens of this state through the increased
1 4 availability of and accessibility to venture capital,
1 5 particularly at the seed capital investment stage, which
1 6 encourages the creation of wealth through high-skilled, new
1 7 jobs that increase the wage base and promote industrial
1 8 development and innovative products that use new technology.
1 9 The purpose of this division is also to encourage individuals
1 10 to invest seed capital in Iowa businesses and in community-
1 11 based seed capital funds.
1 12 Sec. 2. NEW SECTION. 15E.42 DEFINITIONS.
1 13 For purposes of this division, unless the context otherwise
1 14 requires:
1 15 1. "Affiliate" means a spouse, child, or sibling of an
1 16 investor or a corporation, partnership, or trust in which an
1 17 investor has a controlling equity interest or in which an
1 18 investor exercises management control.
1 19 2. "Board" means the Iowa capital investment board, if
1 20 created in House File 2078 as enacted by the Seventy-ninth
1 21 general assembly.
1 22 3. "Investor" means an individual making a cash investment
1 23 in a qualifying business or a person making a cash investment
1 24 in a community-based seed capital fund. "Investor" does not
1 25 include a person who is a current or previous owner, member,
1 26 or shareholder in a qualified business.
1 27 4. "Near equity" means debt that may be converted to
1 28 equity at the option of the debt holder, and royalty
1 29 agreements.
1 30 5. "Qualifying business" means a business meeting the
1 31 criteria defined in section 15E.44.
1 32 Sec. 3. NEW SECTION. 15E.43 INVESTMENT TAX CREDITS.
1 33 1. a. For tax years beginning on or after January 1,
1 34 2002, a tax credit shall be allowed against the taxes imposed
1 35 in chapter 422, division II, for a portion of an individual
2 1 taxpayer's equity investment, as provided in subsection 2, in
2 2 a qualified business. An individual shall not claim a tax
2 3 credit under this paragraph of a partnership, limited
2 4 liability company, S corporation, estate, or trust electing to
2 5 have income taxed directly to the individual.
2 6 b. For tax years beginning on or after January 1, 2002, a
2 7 tax credit shall be allowed against the taxes imposed in
2 8 chapter 422, divisions II, III, and V, and in chapter 432, and
2 9 against the moneys and credits tax imposed in section 533.24,
2 10 for a portion of a taxpayer's equity investment, as provided
2 11 in subsection 2, in a community-based seed capital fund. An
2 12 individual may claim a tax credit under this paragraph of a
2 13 partnership, limited liability company, S corporation, estate,
2 14 or trust electing to have income taxed directly to the
2 15 individual. The amount claimed by the individual shall be
2 16 based upon the pro rata share of the individual's earnings
2 17 from the partnership, limited liability company, S
2 18 corporation, estate, or trust.
2 19 c. A tax credit shall be allowed only for an investment
2 20 made in the form of cash to purchase equity in a qualifying
2 21 business or in a community-based seed capital fund. A
2 22 taxpayer shall not claim the tax credit prior to the third tax
2 23 year following the tax year in which the investment is made.
2 24 Any tax credit in excess of the taxpayer's liability for the
2 25 tax year may be credited to the tax liability for the
2 26 following five years or until depleted, whichever is earlier.
2 27 A tax credit shall not be carried back to a tax year prior to
2 28 the tax year in which the taxpayer redeems the tax credit.
2 29 2. A tax credit shall equal twenty percent of the
2 30 taxpayer's equity investment. The maximum amount of a tax
2 31 credit for an investment by an investor in any one qualifying
2 32 business shall be fifty thousand dollars. Each year, an
2 33 investor and all affiliates of the investor shall not claim
2 34 tax credits under this section for more than five different
2 35 investments in five different qualifying businesses.
3 1 3. An investment shall be deemed to have been made on the
3 2 same date as the date of acquisition of the equity interest as
3 3 determined by the Internal Revenue Code. An investment made
3 4 prior to January 1, 2002, shall not qualify for a tax credit
3 5 under this division.
3 6 4. The aggregate amount of tax credits issued pursuant to
3 7 this division shall not exceed a total of ten million dollars.
3 8 The total amount of tax credits issued during the fiscal year
3 9 beginning July 1, 2002, shall not exceed three million
3 10 dollars. The total amount of tax credits issued during the
3 11 fiscal year beginning July 1, 2003, shall not exceed three
3 12 million dollars. The total amount of tax credits issued
3 13 during the fiscal year beginning July 1, 2004, shall not
3 14 exceed four million dollars.
3 15 5. A tax credit shall not be redeemed during any tax year
3 16 beginning prior to January 1, 2005. A tax credit shall not be
3 17 transferable to any other taxpayer.
3 18 6. The board shall develop a system for registration and
3 19 authorization of tax credits authorized pursuant to this
3 20 division and shall control distribution of all tax credits
3 21 distributed to investors pursuant to this division. The board
3 22 shall develop rules for the qualification and administration
3 23 of qualifying businesses and community-based seed capital
3 24 funds. The department of revenue and finance shall adopt
3 25 these criteria as administrative rules and any other rules
3 26 pursuant to chapter 17A necessary for the administration of
3 27 this division.
3 28 Sec. 4. NEW SECTION. 15E.44 QUALIFYING BUSINESSES.
3 29 1. In order for an equity investment to qualify for a tax
3 30 credit, the business in which the equity investment is made
3 31 shall within one hundred twenty days of the date of the first
3 32 investment notify the board of the names, addresses, taxpayer
3 33 identification numbers, shares issued, consideration paid for
3 34 the shares, and the amount of any tax credits, of all
3 35 shareholders who may initially qualify for the tax credits,
4 1 and the earliest year in which the tax credits may be
4 2 redeemed. The list of shareholders who may qualify for the
4 3 tax credits shall be amended as new equity investments are
4 4 sold or as any information on the list shall change.
4 5 2. In order to be a qualifying business, a business must
4 6 meet all of the following criteria:
4 7 a. The principal business operations of the business are
4 8 located in this state.
4 9 b. The business has been in operation for three years or
4 10 less.
4 11 c. The business has an owner who has successfully
4 12 completed one of the following:
4 13 (1) An entrepreneurial venture development curriculum.
4 14 (2) Three years of relevant business experience.
4 15 (3) A four-year college degree in business management,
4 16 business administration, or a related field.
4 17 (4) Other training or experience as the board may specify
4 18 by rule or order as sufficient to increase the probability of
4 19 success of the qualifying business.
4 20 d. The business is not a business engaged primarily in
4 21 retail sales, real estate, or the provision of health care or
4 22 other professional services.
4 23 e. The business shall not have a net worth that exceeds
4 24 three million dollars.
4 25 f. The business shall have secured, within twenty-four
4 26 months following the first date on which the equity
4 27 investments qualifying for tax credits have been made, total
4 28 equity or near equity financing equal to at least two hundred
4 29 fifty thousand dollars.
4 30 3. A qualifying business shall have the burden of proof to
4 31 demonstrate to the board its qualifications under this
4 32 section, and shall have the obligation to notify the board in
4 33 a timely manner of any changes in the qualifications of the
4 34 business or in the eligibility of investors to redeem the
4 35 investment tax credits in any tax year.
5 1 4. After verifying the eligibility of a qualifying
5 2 business, the board shall issue a tax credit certificate to be
5 3 attached to the equity investor's tax return. The tax credit
5 4 certificate shall contain the taxpayer's name, address, tax
5 5 identification number, the amount of credit, the name of the
5 6 qualifying business, and other information required by the
5 7 department of revenue and finance. The tax credit
5 8 certificate, unless rescinded by the board, shall be accepted
5 9 by the department of revenue and finance as payment for taxes
5 10 imposed pursuant to chapter 422, division II, subject to any
5 11 conditions or restrictions placed by the board upon the face
5 12 of the tax credit certificate and subject to the limitations
5 13 of section 15E.43.
5 14 Sec. 5. NEW SECTION. 15E.45 COMMUNITY-BASED SEED CAPITAL
5 15 FUNDS.
5 16 1. An investment in a community seed capital fund shall
5 17 qualify for a tax credit under section 15E.43 provided that
5 18 all requirements of sections 15E.43, 15E.44, and this section
5 19 are met.
5 20 2. In order to be a community-based seed capital fund
5 21 qualifying under this section, a community-based seed capital
5 22 fund must meet all of the following criteria:
5 23 a. The fund is a limited partnership or limited liability
5 24 company.
5 25 b. The fund has, on or after January 1, 2002, a total of
5 26 both capital commitments from investors and investments in
5 27 qualifying businesses of at least five hundred thousand
5 28 dollars, but not more than three million dollars.
5 29 c. The fund has no fewer than ten individual investors who
5 30 are not affiliates, with no single investor and affiliates of
5 31 that investor together owning a total of more than twenty-five
5 32 percent of the ownership interests outstanding in the fund.
5 33 3. In order for an investment in a community-based seed
5 34 capital fund to qualify for a tax credit, the community-based
5 35 seed capital fund in which the investment is made shall within
6 1 one hundred twenty days of the date of the first investment
6 2 notify the board of the names, addresses, taxpayer
6 3 identification numbers, equity interests issued, consideration
6 4 paid for the interests, and the amount of any tax credits, of
6 5 which all limited partners or members who may initially
6 6 qualify for the tax credits, and the earliest year in which
6 7 the tax credits may be redeemed. The list of limited partners
6 8 or members who may qualify for the tax credits shall be
6 9 amended as new equity interests are sold or as any information
6 10 on the list shall change.
6 11 4. After verifying the eligibility of the community-based
6 12 seed capital fund, the board shall issue a tax credit
6 13 certificate to be attached to the taxpayer's tax return. The
6 14 tax credit certificate shall contain the taxpayer's name,
6 15 address, tax identification number, the amount of the tax
6 16 credit, the name of the community-based seed capital fund, and
6 17 other information required by the department of revenue and
6 18 finance. The tax credit certificate, unless rescinded by the
6 19 board, shall be accepted by the department of revenue and
6 20 finance or a local taxing district, as applicable, as payment
6 21 for taxes imposed pursuant to chapter 422, divisions II, III,
6 22 and V, and chapter 432, and as payment for the moneys and
6 23 credits tax imposed pursuant to section 533.24, subject to any
6 24 conditions or restrictions placed by the board on the face of
6 25 the tax credit certificate and subject to the limitations of
6 26 section 15E.43.
6 27 5. The manager of the community-based seed capital fund
6 28 shall have the burden of proof to demonstrate to the board the
6 29 community-based seed capital fund's qualifications under this
6 30 section, and shall have the obligation to notify the board in
6 31 a timely manner of any changes in the qualifications of the
6 32 community-based seed capital fund, in the qualifications of
6 33 any qualifying business in which the fund has invested, or in
6 34 the eligibility of limited partners or members to redeem the
6 35 investment tax credits in any year.
7 1 6. In the event that a community-based seed capital fund
7 2 fails to meet or maintain any requirement set forth in this
7 3 section, or in the event that the community-based seed capital
7 4 fund has not invested at least thirty-three percent of its
7 5 invested capital in no fewer than two separate qualifying
7 6 businesses, measured at the end of the thirty-sixth month
7 7 after commencing the fund's investing activities, the board
7 8 shall rescind any tax credit certificates issued to limited
7 9 partners or members and shall notify the department of revenue
7 10 and finance that it has done so, and the tax credit
7 11 certificates shall be null and void. However, a community-
7 12 based seed capital fund may apply to the board for a one-year
7 13 waiver from the requirements of this subsection.
7 14 7. An investor in a community-based seed capital fund
7 15 shall receive a tax credit pursuant to this division only for
7 16 the investor's investment in the community-based seed capital
7 17 fund and shall not receive any additional tax credit for the
7 18 investor's share of investments in a qualifying business made
7 19 by the community-based seed capital fund. However, an
7 20 investor in a community-based seed capital fund may receive a
7 21 tax credit under this division with respect to a separate
7 22 direct investment made by the investor in the same qualifying
7 23 business in which the community-based seed capital fund
7 24 invests.
7 25 8. A community-based seed capital fund shall not invest in
7 26 the Iowa fund of funds, if organized pursuant to 2002 Iowa
7 27 Acts, House File 2078, if enacted.
7 28 Sec. 6. NEW SECTION. 15E.46 REPORTS.
7 29 The board shall publish an annual report of the activities
7 30 conducted pursuant to this division and shall submit the
7 31 report to the governor and the general assembly. The report
7 32 shall include a listing of eligible qualifying businesses and
7 33 the number of tax credit certificates and the amount of tax
7 34 credits issued by the board.
7 35 Sec. 7. NEW SECTION. 422.11F INVESTMENT TAX CREDITS.
8 1 The taxes imposed under this division, less the credits
8 2 allowed under sections 422.12 and 422.12B, shall be reduced by
8 3 an investment tax credit authorized pursuant to section
8 4 15E.43.
8 5 Sec. 8. Section 422.33, Code Supplement 2001, is amended
8 6 by adding the following new subsection:
8 7 NEW SUBSECTION. 12. The taxes imposed under this division
8 8 shall be reduced by an investment tax credit authorized
8 9 pursuant to section 15E.43.
8 10 Sec. 9. Section 422.60, Code 2001, is amended by adding
8 11 the following new subsection:
8 12 NEW SUBSECTION. 4. The taxes imposed under this division
8 13 shall be reduced by an investment tax credit authorized
8 14 pursuant to section 15E.43.
8 15 Sec. 10. NEW SECTION. 432.12A INVESTMENT TAX CREDITS.
8 16 The tax imposed under this chapter shall be reduced by an
8 17 investment tax credit authorized pursuant to section 15E.43.
8 18 Sec. 11. Section 533.24, Code 2001, is amended by adding
8 19 the following new unnumbered paragraph:
8 20 NEW UNNUMBERED PARAGRAPH. The moneys and credits tax
8 21 imposed under this section shall be reduced by an investment
8 22 tax credit authorized pursuant to section 15E.43.
8 23 Sec. 12. MONEYS AND CREDITS TAX. Section 25B.7 shall not
8 24 apply to the tax credit authorized pursuant to section 15E.43
8 25 and allowed against the moneys and credits tax.
8 26 Sec. 13. EFFECTIVE AND RETROACTIVE APPLICABILITY DATE
8 27 PROVISIONS. This Act, being deemed of immediate importance,
8 28 takes effect upon enactment and applies retroactively to
8 29 January 1, 2002, for tax years beginning on or after that
8 30 date.
8 31 Sec. 14. 2002 Iowa Acts, House File 2078, is amended by
8 32 adding the following new section:
8 33 SEC. 12. EFFECTIVE DATE. Sections 1 through 9 of this
8 34 Act, being deemed of immediate importance, take effect upon
8 35 the enactment of the Act creating a tax credit for investments
9 1 in qualifying businesses and community-based seed capital
9 2 funds as enacted by the Seventy-ninth General Assembly, 2002
9 3 regular session.
9 4 EXPLANATION
9 5 This bill creates a tax credit for investments in
9 6 qualifying businesses and community-based seed capital funds.
9 7 The bill provides that, for tax years beginning on or after
9 8 January 1, 2002, a tax credit shall be allowed against
9 9 personal income tax for a portion of an individual's direct
9 10 equity investment in a qualified business. The bill provides
9 11 that, for tax years beginning on or after January 1, 2002, a
9 12 tax credit shall be allowed against personal or corporate
9 13 income tax, the franchise tax for financial institutions, the
9 14 insurance premium tax, and the moneys and credits tax for
9 15 credit unions for a portion of the taxpayer's equity
9 16 investment in a community-based seed capital fund. The bill
9 17 provides that a tax credit shall be allowed only for an
9 18 investment made in a form of cash to purchase equity in a
9 19 qualifying business or in a community-based seed capital fund.
9 20 The bill provides that a taxpayer shall not claim the tax
9 21 credit prior to the third tax year following the tax year in
9 22 which the investment is made. The bill provides that any tax
9 23 credit in excess of the taxpayer's liability for the tax year
9 24 may be credited to the tax liability for the following five
9 25 years or until depleted, whichever is earlier. The bill
9 26 provides that a tax credit shall not be carried back to a tax
9 27 year prior to the tax year in which the taxpayer redeems the
9 28 tax credit. The bill provides that a tax credit shall equal
9 29 20 percent of the taxpayer's equity investment. The bill
9 30 provides that the maximum amount of a tax credit for an
9 31 investment by a taxpayer in any one qualifying business shall
9 32 be $50,000. The bill provides that, each year, an investor
9 33 and all affiliates of the investor shall not claim tax credits
9 34 for more than five different investments in five different
9 35 qualifying businesses. The bill provides that an investment
10 1 shall be deemed to have been made on the same date as the date
10 2 of acquisition of the equity interest, as determined by the
10 3 Internal Revenue Code. The bill provides that the aggregate
10 4 amount of tax credits issued shall not exceed a total of $10
10 5 million. The bill provides that the total amount of tax
10 6 credits issued shall not exceed $3 million for the fiscal year
10 7 beginning July 1, 2002, $3 million for the fiscal year
10 8 beginning July 1, 2003, and $4 million for the fiscal year
10 9 beginning July 1, 2004. The bill provides that a tax credit
10 10 shall not be redeemed during any tax year beginning prior to
10 11 January 1, 2005, and shall not be transferable.
10 12 The bill provides that the Iowa capital investment board,
10 13 if created by House File 2078 as enacted by the Seventy-ninth
10 14 General Assembly, shall develop a system for registration and
10 15 authorization of tax credits authorized pursuant to this bill
10 16 and shall control distribution of all tax credits distributed
10 17 to investors pursuant to this bill.
10 18 The bill provides that, in order for an equity investment
10 19 to qualify for a tax credit, the business in which the equity
10 20 investment is made shall within 120 days of the date of the
10 21 first investment notify the board of the names, addresses,
10 22 taxpayer identification numbers, shares issued, consideration
10 23 paid for the shares, and the amount of any tax credits, of all
10 24 shareholders who may initially qualify for the tax credits,
10 25 and the earliest year in which the tax credits may be
10 26 redeemed. The bill provides certain criteria that a
10 27 qualifying business must meet relating to location of the
10 28 business, the duration of the business, the experience of the
10 29 business owner, the type of business, the net worth of the
10 30 business, and the equity investments in the business.
10 31 The bill provides that a qualifying business shall have the
10 32 burden of proof to demonstrate to the board its
10 33 qualifications, and shall have the obligation to notify the
10 34 board in a timely manner of any changes in the qualifications
10 35 or in the eligibility of investors to redeem the investment
11 1 tax credits in any tax year. The bill provides that after
11 2 verifying the eligibility of a qualifying business, the board
11 3 shall issue a tax credit certificate to be attached to the
11 4 equity investor's tax return.
11 5 The bill provides that an investment in a community-based
11 6 seed capital fund shall qualify for a tax credit provided that
11 7 all requirements of the bill are met. The bill provides that
11 8 in order to be a community-based seed capital fund qualifying
11 9 under this section, a community-based seed capital fund must
11 10 be a limited partnership or limited liability company; must
11 11 have, on or after January 1, 2002, a total of both capital
11 12 commitments from investors and investments in qualifying
11 13 businesses of at least $500,000, but not more than $3 million;
11 14 and must have no fewer than 10 individual investors who are
11 15 not affiliates, with no single investor and affiliates of that
11 16 investor together owning a total of more than 25 percent of
11 17 the ownership interests outstanding in the fund.
11 18 The bill provides that in order for an investment in a
11 19 community-based seed capital fund to qualify for a tax credit,
11 20 the community-based seed capital fund shall within 120 days of
11 21 the date of the first investment notify the board of the
11 22 names, addresses, taxpayer identification numbers, equity
11 23 interests issued, consideration paid for the interests, and
11 24 the amount of any tax credits, of which all limited partners
11 25 or members who may initially qualify for the tax credits, and
11 26 the earliest year in which the tax credits may be redeemed.
11 27 The bill provides that after verifying the eligibility of the
11 28 community-based seed capital fund, the board shall issue a tax
11 29 credit certificate to be attached to the taxpayer's tax
11 30 return.
11 31 The bill provides that the manager of the community-based
11 32 seed capital fund shall have the burden of proof to
11 33 demonstrate to the board the community-based seed capital
11 34 fund's qualifications, and shall have the obligation to notify
11 35 the board in a timely manner of any changes in the
12 1 qualifications of the community-based seed capital fund, in
12 2 the qualifications of any qualifying business in which the
12 3 fund has invested, or in the eligibility of limited partners
12 4 or members to redeem the investment tax credits in any year.
12 5 The bill provides that in the event that a community-based
12 6 seed capital fund fails to meet or maintain any requirement
12 7 set forth in the bill, or in the event that the community-
12 8 based seed capital fund has not invested at least 33 percent
12 9 of its invested capital in no fewer than two separate
12 10 qualifying businesses, measured at the end of the thirty-sixth
12 11 month after commencing the fund's investing activities, the
12 12 board shall rescind any tax credit certificates issued to
12 13 limited partners or members and shall notify the department of
12 14 revenue and finance that it has done so, and the tax credit
12 15 certificates shall be null and void. The bill allows a
12 16 community-based seed capital fund to apply to the board for a
12 17 one-year waiver regarding the investment requirements.
12 18 The bill provides that a community-based seed capital fund
12 19 shall receive a tax credit only for an investor's investment
12 20 in the community-based seed capital fund and shall not receive
12 21 any additional tax credit for the investor's share of
12 22 investments in a qualifying business made by the community-
12 23 based seed capital fund. The bill provides that an investor
12 24 may receive a tax credit with respect to a separate direct
12 25 investment made by the investor in the same qualifying
12 26 business in which the community-based seed capital fund
12 27 invests. The bill provides that a community-based seed
12 28 capital fund shall not invest in the Iowa fund of funds, if
12 29 organized pursuant to House File 2078, if enacted.
12 30 The bill requires the board to file an annual report with
12 31 the general assembly and the governor regarding eligible
12 32 qualifying businesses and tax credit certificates issued.
12 33 The bill provides that state mandate requirements shall not
12 34 apply to a tax credit issued and applied against the moneys
12 35 and credits tax liability of a credit union.
13 1 The bill takes effect upon enactment and applies
13 2 retroactively to January 1, 2002, for tax years beginning on
13 3 or after that date.
13 4 The bill amends 2002 Iowa Acts, House File 2078, to take
13 5 effect upon the enactment of this bill.
13 6 LSB 5257SV 79
13 7 tm/cf/24
Text: SF02192 Text: SF02194 Text: SF02100 - SF02199 Text: SF Index Bills and Amendments: General Index Bill History: General Index
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