SB3654 96TH GENERAL ASSEMBLY

LRB096 20368 RCE 36007 b

96TH GENERAL ASSEMBLY
State of Illinois
2009 and 2010
SB3654

Introduced 2/11/2010, by Sen. Michael W. Frerichs

SYNOPSIS AS INTRODUCED:

New Act
30 ILCS 105/5.755 new
35 ILCS 5/219 new

Creates the Emerging Technology Industries Act. Requires the Department of Commerce and Economic Opportunity to establish and maintain a program to award grants to emerging-technology enterprises in the State. Sets forth eligibility requirements and funding priorities for awarding the grants, and sets forth procedures for awarding the grants. Requires written contracts in which the emerging-technology enterprise guarantees that it will perform the actions expected to be performed. Sets dollar limits on matching funds for federal Small Business Innovative Research (SBIR) grants and total grant matching funds per year. Limits total credits to $15,000,000 in any one State fiscal year. Amends the State Finance Act to create the Emerging Technology Grant Fund. Amends the Illinois Income Tax Act. Creates an income tax credit for qualified investors who make an investment in an emerging technology enterprise in the State. Provides that the Department of Commerce and Economic Opportunity must certify the amount of the credit and sets forth the procedures for the application and certification of the credit. Sets forth provisions for the revocation and recapture of the tax credit. Contains other provisions. Effective immediately.

FISCAL NOTE ACT MAY APPLY

A BILL FOR

AN ACT concerning revenue.

Be it enacted by the People of the State of Illinois, represented in the General Assembly:

Section 1. Short title. This Act may be cited as the Emerging Technology Industries Act.

Section 5. Purpose. It is the purpose of this Act to develop and diversify the economy of the State of Illinois by:

(1) expediting the innovation and commercialization of research;

(2) attracting, creating, or expanding private-sector entities that will promote a substantial increase in high-quality jobs; and

(3) increasing higher education applied technology research capabilities.

Section 10. Definitions. As used in this Act:

"Department" means the Department of Commerce and Economic Opportunity.

"Emerging technology enterprise" means a business concern that is primarily engaged in an emerging technology industry.

"Emerging technology industry" includes, without limitation, any industry related to:

(1) agricultural science;

(2) computer and software technology;

(3) biotechnology;

(4) medicine;

(5) life sciences;

(6) nanotechnology;

(7) energy;

(8) manufactured energy systems;

(9) aerospace;

(10) petroleum;

(11) micro-electromechanical systems;

(12) defense;

(13) semiconductors; or

(14) any other pursuit that is determined by the Department to be an emerging technology industry.

"Fund" means the Emerging Technology Grant Fund established under Section 20 of this Act.

"Investment" means the contribution of property, at a risk of loss, to a qualified Illinois emerging technology enterprise in exchange for stock, a partnership interest, or other ownership interest in the qualified company. For the purposes of this definition, an investment is at risk of loss if its repayment depends entirely upon the success of the business operations of the qualified Illinois emerging technology enterprise.

"Qualified investor" means an investor who is:

(1) an individual who invests at least $25,000 in a qualified Illinois emerging technology enterprise;

(2) an Illinois corporation that invests at least $250,000 in a qualified Illinois emerging technology enterprise; or

(3) a qualified Illinois venture capital firm.

"Qualified Illinois emerging technology enterprise" means a company that has:

(1) its headquarters and base of operations in Illinois;

(2) fewer than 50 full-time employees;

(3) been in active business no longer than 10 years; and

(4) been certified in writing as an emerging technology enterprise by the Department.

"Qualified Illinois venture capital firm" means an entity that:

(1) is organized for the purpose of investing funds in privately-held companies engaged in the research, development, or commercialization of innovative and propriety technology;

(2) has at least 2 principals who each have at least 5 years of venture capital experience;

(3) has at least one year of experience investing in emerging technology industries; and

(4) has its headquarters and principal place of operations in Illinois.

Section 15. Eligibility. An emerging-technology enterprise is eligible to receive a grant under this Act if the activity to be funded: (i) will result in the creation of new jobs in this State; and (ii) has the potential to result in the advancement of medicine or science.

Section 20. The Emerging Technology Grant Fund. The Emerging Technology Grant Fund is created as a special fund in the State treasury. From appropriations to the Department from the Fund, the Department shall make grants to emerging-technology enterprises in the State as set forth under this Act. Moneys received for the purposes of this Section, including, without limitation, appropriations, repayments of grant moneys, and gifts, grants, and awards from any public or private entity, must be deposited into the Fund. Any interest earnings that are attributable to moneys in the Fund must be deposited into the Fund.

Section 25. Grant contracts.

(a) Before awarding a grant under this Act, the Department shall enter into a written contract with the emerging-technology enterprise to be awarded the grant money. In the contract, the emerging-technology enterprise shall guarantee that it will perform the actions expected to be performed. The contract may specify that:

(1) If all or any portion of the amount of the grant is used to build a capital improvement:

(A) the State retains a lien or other interest in the capital improvement in proportion to the percentage of the grant amount used to pay for the capital improvement; and

(B) the recipient of the grant shall, if the capital improvement is sold, (i) repay to the State the grant money used to pay for the capital improvement, with interest at the rate and according to the other terms provided by the agreement, and (ii) share with the State a proportionate amount of any profit realized from the sale; and

(2) If, as of the date certain provided in the contract, the grant recipient has not used grant money awarded under this Act for the purposes for which the grant was intended, then the recipient shall repay that amount and any related interest applicable under the agreement to the State at the agreed rate and on the agreed terms.

(b) If an emerging-technology enterprise fails to perform an action guaranteed by contract before a time specified by contract, then the enterprise shall return all moneys received from the Fund.

(c) The provisions of this Section take precedence over any conflicting requirements of the Illinois Grant Funds Recovery Act.

Section 30. Funding priority. In awarding money from the Fund under this Act, priority shall be given to proposals that:

(1) involve emerging scientific or technology fields that have a reasonable probability of enhancing the State's national and global economic competitiveness;

(2) may result in a medical or scientific advancement;

(3) are collaborative between any combination of private or nonprofit entities and public or private agencies or institutions in the State;

(4) are matched with other available funds, including funds from the private or nonprofit entity or institution of higher education collaborating on the project; or

(5) have an economic development benefit to the State.

Section 35. Research grant matching. Amounts allocated from the Fund for use as provided by this Act must be reserved to match funding from research sponsors other than this State, including federal research sponsors. The Department shall determine proposals eligible for funding under this Act. If amounts allocated from the Fund are used to match a federal Small Business Innovative Research (SBIR) grant, then the State matching funds from the Fund for all phases of that SBIR grant shall not exceed $600,000. Not more than $10,000,000 of moneys from the Fund shall be used by the Department in any one fiscal year as grant matching funds under this Act.

Section 40. Documentation of benefits.

(a) An emerging-technology enterprise that receives a grant under this Act must document specific benefits that the State may expect to gain as a result of the grant award. This documentation must be completed and provided to the Department before the emerging-technology enterprise may enter into a contract to receive funding under Section 25.

(b) The Department may terminate funding to an emerging-technology enterprise if the enterprise fails to realize a benefit specified in the contract, as determined by a periodic review conducted by the Department.

Section 45. Income tax credit. A qualified investor may claim a credit against the tax imposed under subsections (a) and (b) of Section 201 of the Illinois Income Tax Act, as provided in this Act and Section 219 of the Illinois Income Tax Act. The amount of the credit is an amount equal to the final credit certificate approved by the Department for an investment in a qualified emerging technology enterprise, as provided under Sections 50 and 55 of this Act.

This credit is exempt from the provisions of Section 250 of the Illinois Income Tax Act.

Section 50. Tax credit application; certification.

(a) In order to receive the tax credit under this Act, the qualified investor must submit an application to the Department on forms provided by the Department at least 30 days prior to making an investment in a qualified Illinois emerging technology enterprise for which the qualified investor is eligible for an initial tax credit certificate.

(b) The Department shall approve all applications that qualify for credits under this Act on a first-come first-served basis. Within 30 days after its receipt of an application, the Department must certify the amount of any approved tax credits to a qualified investor.

(c) The qualified investor must make an investment in a qualified Illinois emerging technology enterprise within 30 days after the Department has issued a tax credit certificate under subsection (b). Within 10 days after making the investment, the qualified investor must provide written notice to the Department. If the qualified investor fails to provide this written notice within 40 days after the issuance of the tax credit certificate, then the Department shall rescind the certificate.

Section 55. Amount of the tax credit. The tax credit allowed in a tax credit certificate issued under this Act is 25% of the investment in a qualified Illinois emerging technology enterprise, but not to exceed:

(1) $50,000 for a qualified investor that is an individual; or

(2) $250,000 for a qualified investor that is a corporation or a qualified Illinois venture capital firm.

Section 57. Limit on total tax credits. Total tax credits allowed under this Act shall not exceed $15,000,000 in any one State fiscal year.

Section 60. Recapture of the tax credit.

(a) If, within 2 taxable years after the close of the taxable year in which a credit under Section 45 of this Act is approved, the qualified investor sells, transfers, or otherwise disposes of the ownership interest in the qualified Illinois emerging technology enterprise that gave rise to the credit, then the credit must be recaptured.

(b) The amount required to be recaptured under this Section is:

(1) 100% of the amount of the credit if the disposition occurs during the taxable year in which the tax credit is approved;

(2) 67% of the amount of the credit if the disposition occurs during the first taxable year after the close of the taxable year for which the tax is approved; or

(3) 33% of the amount of the credit if the disposition occurs more than one taxable year but not more than 2 taxable years after the close of the taxable year for which the tax credit is approved.

(c) The qualified investor who claimed the credit shall pay the recaptured amount as taxes payable to the State for the taxable year in which the disposition occurred.

Section 65. Revocation of the credit.

(a) The Department may revoke its certification of an approved credit under this Act if any representation in connection with the application for the certification proves to have been false when made.

(b) The revocation may be in full or in part as the Department determines and, subject to subsection (c), must be communicated in writing to the qualified investor and the Department of Revenue.

(c) The Department of Revenue may make an assessment against the qualified investor to recapture any amount of the tax credit that the qualified investor has already claimed.

Section 70. Annual report.

(a) On or before January 10 of each year, the Department shall report to the Governor and to the General Assembly on the tax credit certificates awarded under this Act for the prior calendar year.

(b) This report must include, for each tax credit certificate awarded:

(1) the name of the qualified investor and the amount of credit awarded or allocated to that investor;

(2) the name and address of the qualified Illinois emerging technology enterprise that received the investment giving rise to the credit and the county in which the qualified Illinois emerging technology enterprise is located; and

(3) the dates of receipt and approval by the Department of the applications for the tax credit certificate.

(c) The report must summarize for each category of qualified investors:

(1) the total number of applicants for initial tax credit certificates under this Act in the prior calendar year;

(2) the total number of applications for which initial tax credit certificates were issued in the prior calendar year; and

(3) the total tax credit certificates authorized under this Act for all calendar years.

Section 75. Rules. The Department shall adopt any rule necessary for the administration of this Act, except that the Department of Revenue shall prescribe rules in accordance with subsection (d) of Section 219 of the Illinois Income Tax Act.

Section 90. The State Finance Act is amended by adding Section 5.755 as follows:

(30 ILCS 105/5.755 new)

Sec. 5.755. The Emerging Technology Grant Fund.

Section 95. The Illinois Income Tax Act is amended by adding Section 219 as follows:

(35 ILCS 5/219 new)

Sec. 219. Emerging Technology Investment Tax Credit.

(a) For tax years beginning on or after January 1, 2010, a taxpayer who has been awarded a tax credit under the Emerging Technology Industries Act is entitled to a credit against the taxes imposed under subsections (a) and (b) of Section 201 of this Act in an amount determined by the Department of Commerce and Economic Opportunity under the Emerging Technology Industries Act.

(b) If the taxpayer is a partnership or Subchapter S corporation, the credit is allowed to the partners or shareholders in accordance with the determination of income and distributive share of income under Sections 702 and 704 and Subchapter S of the Internal Revenue Code.

(c) The credit may not be carried forward or back.

(d) The Department, in cooperation with the Department of Commerce and Economic Opportunity, may prescribe rules to enforce and administer the provisions of this Section.

(e) The credit established under this Section and Sections 45 through 65 of the Emerging Technology Industries Act is exempt from the provisions of Section 250 of this Act.

Section 99. Effective date. This Act takes effect upon becoming law.