Senate File 2345 - Introduced SENATE FILE 2345 BY COMMITTEE ON WAYS AND MEANS (SUCCESSOR TO SF 2227) (SUCCESSOR TO SSB 3151) 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 6050SZ (3) 84 mm/sc
S.F. 2345 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 d. The corporation complies with the provisions of section 22 15.107C. 23 Sec. 2. Section 15.107C, subsections 3 and 4, Code 24 Supplement 2011, are amended to read as follows: 25 3. The deliberations or meetings of the board of directors 26 of the corporation that pertain to the performance of delegated 27 functions or activities that utilize public funding shall be 28 conducted in accordance with chapter 21 . For purposes of this 29 subsection, “public funding” includes innovation fund investment 30 tax credits issued or transferred pursuant to section 15E.52. 31 4. All of the following shall be subject to chapter 22 : 32 a. Minutes of the meetings conducted in accordance with 33 subsection 3 . 34 b. All records pertaining to the performance by the 35 -1- LSB 6050SZ (3) 84 mm/sc 1/ 7
S.F. 2345 corporation of delegated functions or activities that utilize 1 public funding. For purposes of this subsection, “public 2 funding” includes innovation fund investment tax credits issued 3 or transferred pursuant to section 15E.52. 4 Sec. 3. Section 15.119, subsection 2, paragraph g, Code 5 Supplement 2011, is amended to read as follows: 6 g. The tax credits for investments in an innovation fund 7 pursuant to section 15E.52 . In allocating tax credits pursuant 8 to this subsection , the authority shall allocate eight million 9 dollars for purposes of this paragraph for each fiscal year 10 during the period beginning July 1, 2012, and ending June 30, 11 2014. For each fiscal year beginning on or after July 1, 2015, 12 the authority shall allocate zero dollars for purposes of this 13 paragraph . 14 Sec. 4. Section 15E.52, Code Supplement 2011, is amended to 15 read as follows: 16 15E.52 Innovation fund investment tax credits. 17 1. For purposes of this section, unless the context 18 otherwise requires: 19 a. “Board” means the same as defined in section 15.102 . 20 b. “Innovation fund” means one or more early-stage capital 21 funds certified by the board. 22 c. “Innovative business” means a business applying novel 23 or original methods to the manufacture of a product or the 24 delivery of a service. “Innovative business” includes but is 25 not limited to a business engaged in a targeted industry as 26 defined in section 15.411 . 27 2. a. A tax credit shall be allowed against the taxes 28 imposed in chapter 422, divisions II, III, and V , and in 29 chapter 432 , and against the moneys and credits tax imposed 30 in section 533.329 , for a portion of a taxpayer’s equity 31 investment in the form of cash in an innovation fund. 32 b. An individual may claim a tax credit under this section 33 of a partnership, limited liability company, S corporation, 34 estate, or trust electing to have income taxed directly to 35 -2- LSB 6050SZ (3) 84 mm/sc 2/ 7
S.F. 2345 the individual. The amount claimed by the individual shall 1 be based upon the pro rata share of the individual’s earnings 2 from the partnership, limited liability company, S corporation, 3 estate, or trust. 4 3. a. The amount of a tax credit allowed under this section 5 shall equal twenty percent of the taxpayer’s equity investment 6 in an innovation fund tax credits issued under this section 7 for a fiscal year shall equal the amount allocated in section 8 15.119, subsection 2, paragraph “g” . 9 b. The authority shall issue one or more certificates 10 totaling the amount allowed under paragraph “a” to one or more 11 nonprofit corporations operating an innovation fund. 12 c. Notwithstanding subsection 9, a corporation to which a 13 certificate has been issued pursuant to paragraph “b” shall 14 only transfer the amount of tax credits represented on the 15 certificate to taxpayers who agree to invest in an innovation 16 fund. In transferring such tax credits, the corporation shall 17 ensure that the amount of tax credits transferred by the 18 corporation to a taxpayer does not exceed fifty percent of the 19 taxpayer’s investment in the innovation fund. 20 d. A corporation to which a certificate has been issued 21 pursuant to paragraph “b” shall ensure that an investor in 22 an innovation fund operated by the corporation shall not be 23 permitted to vote for or participate in a decision to invest 24 moneys from the innovation fund in a business in which the 25 investor has an equity interest of greater than fifty percent 26 if that investor has received or will receive a tax credit 27 issued or transferred pursuant to this section. 28 4. A taxpayer shall not claim a tax credit under this 29 section if the taxpayer is a venture capital investment fund 30 allocation manager for the Iowa fund of funds created in 31 section 15E.65 or an investor that receives a tax credit for 32 the same investment in a qualifying business as described in 33 section 15E.44 or in a community-based seed capital fund as 34 described in section 15E.45 . 35 -3- LSB 6050SZ (3) 84 mm/sc 3/ 7
S.F. 2345 5. a. The board shall issue certificates under this section 1 which may be redeemed for tax credits. The board shall issue 2 such certificates so that not more than the amount allocated 3 for such tax credits under section 15.119, subsection 2 , may be 4 claimed. The certificates shall not be transferable. 5 b. The board shall, in cooperation with the department of 6 revenue, establish criteria and procedures for the allocation 7 and issuance of tax credits by means of certificates issued 8 by the board. The criteria shall include the contingencies 9 that must be met for a certificate to be redeemable in order to 10 receive a tax credit. The procedures established by the board, 11 in cooperation with the department of revenue, shall relate to 12 the procedures for the issuance of the certificates and for the 13 redemption of a certificate and related tax credit. 14 6. A taxpayer shall not redeem a certificate and related tax 15 credit prior to the third tax year following the tax year in 16 which the investment is made. Any tax credit in excess of the 17 taxpayer’s liability for the tax year may be credited to the 18 tax liability for the following five years or until depleted, 19 whichever is earlier. A tax credit shall not be carried back 20 to a tax year prior to the tax year in which the taxpayer claims 21 the tax credit. 22 7. An innovation fund shall submit an application for 23 certification to the board. The board shall approve the 24 application and certify the innovation fund if all of the 25 following criteria are met: 26 a. The fund is organized for the purposes of making 27 investments in promising early-stage companies which have a 28 principal place of business in the state. 29 b. The fund proposes to make investments in innovative 30 businesses. 31 c. The fund seeks to secure private funding sources for 32 investment in such businesses. 33 d. The fund meets any other criteria adopted by the 34 authority by rule. 35 -4- LSB 6050SZ (3) 84 mm/sc 4/ 7
S.F. 2345 8. A tax credit certificate issued pursuant to this section 1 shall not and cannot pledge the credit of the state. A tax 2 credit certificate issued pursuant to this section shall not 3 constitute a contract binding the state if such a certificate 4 is pledged to secure the debt of a taxpayer. 5 9. Tax credit certificates issued pursuant to this section 6 may be transferred to any person or entity. Within ninety days 7 of transfer, the transferee shall submit the transferred tax 8 credit certificate to the department of revenue along with a 9 statement containing the transferee’s name, tax identification 10 number, and address, the denomination that each replacement 11 tax credit certificate is to carry, and any other information 12 required by the department of revenue. 13 10. Within thirty days of receiving the transferred 14 tax credit certificate and the transferee’s statement, the 15 department of revenue shall issue one or more replacement 16 tax credit certificates to the transferee. Each replacement 17 tax credit certificate must contain the information required 18 for the original tax credit certificate and must have the 19 same expiration date that appeared in the original tax credit 20 certificate. A replacement tax credit certificate may reflect 21 a different type of tax than the type of tax noted on the 22 original tax credit certificate. A tax credit shall not be 23 claimed by a transferee under this section until a replacement 24 tax credit certificate identifying the transferee as the proper 25 holder has been issued. 26 11. The transferee may use the amount of the tax credit 27 transferred against the taxes imposed in chapter 422, divisions 28 II, III, and V, and in chapter 432, and against the moneys and 29 credits tax imposed in section 533.329, for any tax year the 30 original transferor could have claimed the tax credit. Any 31 consideration received for the transfer of the tax credit shall 32 not be included as income under chapter 422, divisions II, III, 33 and V. Any consideration paid for the transfer of the tax 34 credit shall not be deducted from income under chapter 422, 35 -5- LSB 6050SZ (3) 84 mm/sc 5/ 7
S.F. 2345 divisions II, III, and V. 1 12. Notwithstanding section 422.20 or 422.72 or any other 2 provision of law to the contrary, for any transfer of a tax 3 credit certificate pursuant to this section, the department 4 of revenue shall make publicly available the name of the 5 transferee and the amount of the credits transferred. 6 Sec. 5. EFFECTIVE UPON ENACTMENT. This Act, being deemed of 7 immediate importance, takes effect upon enactment. 8 Sec. 6. RETROACTIVE APPLICABILITY. This Act applies 9 retroactively to January 1, 2012, for tax years beginning on or 10 after that date and equity investments in an innovation fund 11 made on or after that date. 12 EXPLANATION 13 This bill relates to economic development by modifying the 14 innovation fund investment tax credit and allowing the Iowa 15 innovation corporation to establish an innovation fund. 16 Under current law, the economic development authority is 17 required to issue nontransferable tax credit certificates 18 equal to 20 percent of a taxpayer’s equity investment in an 19 innovation fund. The tax credits available for issuance are 20 limited to a total of $8 million per fiscal year. 21 The bill modifies the credit by removing the 20 percent 22 limitation and specifying that for each fiscal year of the 23 period beginning July 1, 2012, and ending June 30, 2014, a 24 total of $8 million in innovation fund investment tax credit 25 certificates shall be issued by the authority to one or more 26 nonprofit corporations operating an innovation fund. No new 27 innovation fund investment tax credit certificates shall be 28 issued by the authority on or after July 1, 2015. A nonprofit 29 corporation which receives a tax credit certificate from the 30 authority shall only transfer the certificate to taxpayers 31 who agree to invest in an innovation fund, and shall not 32 transfer tax credits to a taxpayer in excess of 50 percent 33 of the taxpayer’s investment in an innovation fund. The 34 bill makes the tax credit certificates transferable and 35 -6- LSB 6050SZ (3) 84 mm/sc 6/ 7
S.F. 2345 establishes procedures for transferring the credit to another 1 person or entity. The department of revenue shall make 2 publicly available the name of each transferee and the amount 3 transferred. 4 The bill provides that any innovation tax credit certificate 5 issued by the authority cannot pledge the credit of the state 6 and shall not constitute a contract binding the state if the 7 certificate is pledged to secure a debt of the taxpayer. 8 The bill adds an additional requirement for certification of 9 an innovation fund which requires an applicant fund to meet any 10 other criteria adopted by the economic development authority 11 by rule. 12 The bill allows the Iowa innovation corporation to establish 13 an innovation fund for purposes of stimulating early-stage 14 and seed capital investment in the state. If the fund is 15 established to qualify for innovation fund tax credits, then 16 it must meet certain requirements as described in the bill 17 relating to contracts for investment management services and 18 must comply with certain open meeting and records requirements 19 in Code section 15.107C. In addition, any investor in an 20 innovation fund operated by the Iowa innovation corporation is 21 not permitted to vote on or participate in investment decisions 22 of the innovation fund related to businesses in which the 23 investor has a greater than 50 percent equity interest if that 24 investor has or will receive an innovation fund tax credit. 25 The bill is effective upon enactment and applies 26 retroactively to January 1, 2012, for tax years beginning on 27 or after that date and for equity investments in an innovation 28 fund made on or after that date. 29 -7- LSB 6050SZ (3) 84 mm/sc 7/ 7