House File 2454 - Introduced HOUSE FILE 2454 BY COMMITTEE ON WAYS AND MEANS (SUCCESSOR TO HF 2382) (SUCCESSOR TO HSB 648) A BILL FOR An Act relating to economic development by modifying the 1 innovation fund investment tax credit and the authority and 2 duties of the Iowa innovation corporation, and including 3 effective date and retroactive applicability provisions. 4 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 5 TLSB 6027HZ (2) 84 mm/sc

H.F. 2454 Section 1. Section 15.107A, Code Supplement 2011, is 1 amended by adding the following new subsection: 2 NEW SUBSECTION . 3. The corporation may establish an 3 innovation fund for purposes of stimulating early-stage and 4 seed capital investment in the state. If the innovation fund 5 is established to qualify for innovation tax credits pursuant 6 to section 15E.52, then the corporation shall ensure that the 7 following requirements are met: 8 a. Any entity engaged to provide investment management 9 services to the innovation fund shall be chosen according to an 10 open and competitive proposal process, and the duration of a 11 contract entered into with such an entity shall not exceed four 12 years. 13 b. The compensation package provided to an entity engaged 14 pursuant to paragraph “a” shall be at or below the market rate 15 for such services as determined by at least one independent 16 investment management evaluation group. 17 c. Any contract entered into for services pursuant to 18 this subsection shall be made available to the authority, the 19 general assembly, the auditor of state, and the governor’s 20 office. 21 Sec. 2. Section 15E.52, Code Supplement 2011, is amended to 22 read as follows: 23 15E.52 Innovation fund investment tax credits. 24 1. For purposes of this section, unless the context 25 otherwise requires: 26 a. “Board” means the same as defined in section 15.102 . 27 b. “Innovation fund” means one or more early-stage capital 28 funds certified by the board. 29 c. “Innovative business” means a business applying novel 30 or original methods to the manufacture of a product or the 31 delivery of a service. “Innovative business” includes but is 32 not limited to a business engaged in a targeted industry as 33 defined in section 15.411 . 34 2. a. A tax credit shall be allowed against the taxes 35 -1- LSB 6027HZ (2) 84 mm/sc 1/ 6

H.F. 2454 imposed in chapter 422, divisions II, III, and V , and in 1 chapter 432 , and against the moneys and credits tax imposed 2 in section 533.329 , for a portion of a taxpayer’s equity 3 investment in the form of cash in an innovation fund. 4 b. An individual may claim a tax credit under this section 5 of a partnership, limited liability company, S corporation, 6 estate, or trust electing to have income taxed directly to 7 the individual. The amount claimed by the individual shall 8 be based upon the pro rata share of the individual’s earnings 9 from the partnership, limited liability company, S corporation, 10 estate, or trust. 11 3. a. The amount of a tax credit allowed under this section 12 shall equal twenty percent of the taxpayer’s equity investment 13 in an innovation fund tax credits allowed under this section 14 for a fiscal year shall equal the amount allocated in section 15 15.119, subsection 2, paragraph “g” . 16 b. Each fiscal year, the authority shall issue one or more 17 certificates totaling the amount allowed under paragraph “a” 18 to one or more nonprofit corporations operating an innovation 19 fund. 20 c. Notwithstanding subsection 11, a corporation to which 21 a certificate has been issued pursuant to paragraph “b” shall 22 only transfer the amount of tax credits represented on the 23 certificate to taxpayers who agree to invest in an innovation 24 fund. 25 4. A taxpayer shall not claim a tax credit under this 26 section if the taxpayer is a venture capital investment fund 27 allocation manager for the Iowa fund of funds created in 28 section 15E.65 or an investor that receives a tax credit for 29 the same investment in a qualifying business as described in 30 section 15E.44 or in a community-based seed capital fund as 31 described in section 15E.45 . 32 5. a. The board shall issue certificates under this section 33 which may be redeemed for tax credits. The board shall issue 34 such certificates so that not more than the amount allocated 35 -2- LSB 6027HZ (2) 84 mm/sc 2/ 6

H.F. 2454 for such tax credits under section 15.119, subsection 2 , may be 1 claimed. The certificates shall not be transferable. 2 b. The board shall, in cooperation with the department of 3 revenue, establish criteria and procedures for the allocation 4 and issuance of tax credits by means of certificates issued 5 by the board. The criteria shall include the contingencies 6 that must be met for a certificate to be redeemable in order to 7 receive a tax credit. The procedures established by the board, 8 in cooperation with the department of revenue, shall relate to 9 the procedures for the issuance of the certificates and for the 10 redemption of a certificate and related tax credit. 11 6. A taxpayer shall not redeem a certificate and related tax 12 credit prior to the third tax year following the tax year in 13 which the investment is made. Any tax credit in excess of the 14 taxpayer’s liability for the tax year may be credited to the 15 tax liability for the following five years or until depleted, 16 whichever is earlier. A tax credit shall not be carried back 17 to a tax year prior to the tax year in which the taxpayer claims 18 the tax credit. 19 7. An innovation fund shall submit an application for 20 certification to the board. The board shall approve the 21 application and certify the innovation fund if all of the 22 following criteria are met: 23 a. The fund is organized for the purposes of making 24 investments in promising early-stage companies which have a 25 principal place of business in the state. 26 b. The fund proposes to make investments in innovative 27 businesses. 28 c. The fund seeks to secure private funding sources for 29 investment in such businesses. 30 d. The fund meets any other criteria adopted by the 31 authority by rule. 32 8. A tax credit certificate issued pursuant to this section 33 shall not and cannot pledge the credit of the state. A tax 34 credit certificate issued pursuant to this section shall not 35 -3- LSB 6027HZ (2) 84 mm/sc 3/ 6

H.F. 2454 constitute a contract binding the state if such a certificate 1 is pledged to secure the debt of a taxpayer. 2 9. Tax credit certificates issued pursuant to this section 3 may be transferred to any person or entity. Within ninety days 4 of transfer, the transferee shall submit the transferred tax 5 credit certificate to the department of revenue along with a 6 statement containing the transferee’s name, tax identification 7 number, and address, the denomination that each replacement 8 tax credit certificate is to carry, and any other information 9 required by the department of revenue. 10 10. Within thirty days of receiving the transferred 11 tax credit certificate and the transferee’s statement, the 12 department of revenue shall issue one or more replacement 13 tax credit certificates to the transferee. Each replacement 14 tax credit certificate must contain the information required 15 for the original tax credit certificate and must have the 16 same expiration date that appeared in the original tax credit 17 certificate. A replacement tax credit certificate may reflect 18 a different type of tax than the type of tax noted on the 19 original tax credit certificate. A tax credit shall not be 20 claimed by a transferee under this section until a replacement 21 tax credit certificate identifying the transferee as the proper 22 holder has been issued. 23 11. The transferee may use the amount of the tax credit 24 transferred against the taxes imposed in chapter 422, divisions 25 II, III, and V, and in chapter 432, and against the moneys and 26 credits tax imposed in section 533.329, for any tax year the 27 original transferor could have claimed the tax credit. Any 28 consideration received for the transfer of the tax credit shall 29 not be included as income under chapter 422, divisions II, III, 30 and V. Any consideration paid for the transfer of the tax 31 credit shall not be deducted from income under chapter 422, 32 divisions II, III, and V. 33 Sec. 3. EFFECTIVE UPON ENACTMENT. This Act, being deemed of 34 immediate importance, takes effect upon enactment. 35 -4- LSB 6027HZ (2) 84 mm/sc 4/ 6

H.F. 2454 Sec. 4. RETROACTIVE APPLICABILITY. This Act applies 1 retroactively to January 1, 2012, for tax years beginning on or 2 after that date and equity investments in an innovation fund 3 made on or after that date. 4 EXPLANATION 5 This bill relates to economic development by modifying the 6 innovation fund investment tax credit and allowing the Iowa 7 innovation corporation to establish an innovation fund. 8 Under current law, the economic development authority is 9 required to issue nontransferable tax credit certificates 10 equal to 20 percent of a taxpayer’s equity investment in an 11 innovation fund. The tax credits available for issuance are 12 limited to a total of $8 million per fiscal year. 13 The bill modifies the credit by removing the 20 percent 14 limitation and specifying that for each fiscal year a total 15 of $8 million in innovation fund investment tax credit 16 certificates shall be issued by the authority to one or 17 more nonprofit corporations operating an innovation fund. A 18 nonprofit corporation which receives a tax credit certificate 19 from the authority shall only transfer the certificate to 20 taxpayers who agree to invest in an innovation fund. The bill 21 makes the tax credit certificates transferable and establishes 22 procedures for transferring the credit to another person or 23 entity. 24 The bill provides that any innovation tax credit certificate 25 issued by the authority cannot pledge the credit of the state 26 and shall not constitute a contract binding the state if the 27 certificate is pledged to secure a debt of the taxpayer. 28 The bill adds an additional requirement for certification of 29 an innovation fund which requires an applicant fund to meet any 30 other criteria adopted by the economic development authority 31 by rule. 32 The bill allows the Iowa innovation corporation to establish 33 an innovation fund for purposes of stimulating early-stage 34 and seed capital investment in the state. If the fund is 35 -5- LSB 6027HZ (2) 84 mm/sc 5/ 6

H.F. 2454 established to qualify for innovation fund tax credits, then 1 it must meet certain requirements as described in the bill 2 relating to contracts for investment management services. 3 The bill is effective upon enactment and applies 4 retroactively to January 1, 2012, for tax years beginning on 5 or after that date and for equity investments in an innovation 6 fund made on or after that date. 7 -6- LSB 6027HZ (2) 84 mm/sc 6/ 6