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HOUSE BILL NO. 702
INTRODUCED BY J. KRAUTTER
A BILL FOR AN ACT ENTITLED: "AN ACT PROVIDING FOR INCOME TAX CREDITS ASSOCIATED WITH INVESTING IN AND OPERATING A QUALIFYING MONTANA BUSINESS; DESCRIBING ELIGIBLE INVESTMENTS IN QUALIFYING MONTANA BUSINESSES; PROVIDING INCOME TAX CREDITS FOR INVESTORS AND QUALIFYING MONTANA BUSINESSES; ALLOWING A TRANSFER OF AN INCOME TAX CREDIT RECEIVED BY A QUALIFYING MONTANA BUSINESS; REQUIRING THE DEPARTMENT OF REVENUE TO ADMINISTER THE TRANSFER OF THE TAX CREDITS; REQUIRING A PERFORMANCE AUDIT BY THE LEGISLATIVE AUDITOR; PROVIDING DEFINITIONS; PROVIDING RULEMAKING AUTHORITY; AND PROVIDING AN APPLICABILITY DATE AND TERMINATION DATES."
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MONTANA:
NEW SECTION. Section 1. Definitions. For purposes of [sections 1 through 6], the following definitions apply:
(1) (a) "Cash investment" means equity infusions that are distributed to a business during the tax year.
(b) The term does not include pledges of equity infusions that are not distributed to a business during the tax year.
(2) "Investor" means a person or entity that provides a cash investment from a qualifying fund.
(3) "Officer" means an employee of a business who holds a management-level position.
(4) "Proprietary technology" means the technical innovations that are unique and legally owned or licensed by a business. The term includes, without limitation, innovations that are patented, patent pending, a subject of trade secrets, or copyrighted.
(5) "Qualified field" means the field of aerospace, agriculture, renewable energy, energy efficiency and conservation, environmental engineering, food technology, information technology, materials science technology, nanotechnology, telecommunications, biotechnology, medical device products, pharmaceuticals, diagnostics, biologicals, chemistry, veterinary science, tourism, forestry, mining, manufacturing, photonics, or transportation.
(6) "Qualifying fund" means a fund comprising cash, securities, or other investment assets used to provide a cash investment in a qualifying Montana business.
(7) (a) "Qualifying Montana business" means a business:
(i) engaged in or committed to engage in innovation in Montana in one of the following as its primary business activity:
(A) using proprietary technology to add value to a product, process, or service in a qualified field; or
(B) researching, developing, or producing a proprietary product, process, or service in a qualified field;
(ii) that conducts a substantial amount of its business from Montana;
(iii) with a minimum of three employees and at least 65% of the business's employees employed in Montana;
(iv) with at least 65% of the business's total payroll paid or incurred in Montana;
(v) that meets at least three of the following requirements:
(A) has fewer than 25 employees;
(B) has been in operation fewer than 5 years;
(C) had previous equity infusions of less than $2 million;
(D) has assets totaling less than $10 million; and
(vi) that uses the investments provided for in this section to perform daily functions of the business, including but not limited to expanding office or manufacturing facilities, buying equipment, and hiring employees, or to qualify for loans from a financial institution.
(b) The term does not include, other than the activities specifically listed in subsection (7)(a)(i), a business engaged in real estate development, insurance, banking, lending, lobbying, political consulting, information technology consulting, wholesale or retail trade, leisure, construction, or professional services provided by attorneys, accountants, business consultants, physicians, or health care consultants.
NEW SECTION. Section 2. Small business investment tax credit -- investor capital credit. (1) For tax years 2020 through 2027, an investor is allowed as a credit against taxes otherwise imposed by this chapter a percentage of a cash investment made by the investor during the year to a qualifying Montana business.
(2) The amount of the credit is 30% of the total cash investments in a qualifying Montana business, and the minimum cash investment to qualify for the credit is $25,000.
(3) A credit of up to $75,000 may be claimed in a year by an investor. If the credit calculated as provided in subsection (2) exceeds $75,000, the unused portion may be carried forward to a subsequent tax year but the total credit claimed in all years may not exceed $750,000.
(4) The credit allowed under this section may not exceed the investor's income tax liability. The unused portion of a credit may be carried forward for 7 succeeding tax years.
(5) The credit may not be claimed by a principal or officer of a qualifying fund if the principal or officer is also a principal or officer of a qualifying Montana business in which the qualifying fund invests.
NEW SECTION. Section 3. Small business investment tax credit -- business borrower credit. (1) For tax years 2020 through 2027, a qualifying Montana business is allowed as a credit against taxes otherwise imposed by this chapter a percentage of the cash investment received from an investor during the year. The credit must be claimed or transferred for the tax year in which the qualifying Montana business received the cash investment.
(2) A qualifying Montana business that desires to claim or transfer the tax credit provided for in this section shall submit detailed information to the department regarding the total amount of cash investments received, the name and taxpayer identification number of the investor that provided the cash investment, and any further information required by the department to properly administer the credit.
(3) Subject to the aggregate limit in subsection (4), the percentage of cash investment that may be claimed or transferred as a tax credit during each tax year is as follows:
(a) 0% of the cash investment if the amount is below $150,000 during the tax year;
(b) 50% of the cash investment on the first $500,000, or any part of that cash investment subject to the minimum cash investment amount provided in subsection (3)(a);
(c) 25% on the next $500,000 of the cash investment, or any part of that cash investment;
(d) 12% on the next $1 million of the cash investment, or any part of that cash investment; and
(e) 0% on any cash investment amount in excess of $2 million.
(4) (a) The aggregate amount of tax credits allowed under this section is $5 million for each tax year.
(b) The department shall approve the tax credits provided for under this section on a first-come, first-served basis and post a notice on its website advising taxpayers when the aggregate limit is in effect. If a qualifying Montana business claims a tax credit after the amount of credits claimed exceeds the aggregate limit, the taxpayer's return will be processed without regard to the credit.
(5) The credit may not be claimed by a principal or officer of a qualifying fund if the principal or officer is also a principal or officer of a qualifying Montana business in which the qualifying fund invests.
(6) A qualifying Montana business is not required to offset a tax liability, and the credit may be carried forward for 2 years. Any portion of a credit that is not used by a qualifying Montana business may be transferred as provided in [section 4] prior to the expiration of the 2-year carryforward.
(7) The credit allowed under this section is not refundable and may not exceed the income tax liability of a qualifying Montana business or a transferee.
NEW SECTION. Section 4. Transfer of business borrower tax credit. (1) A tax credit or a portion of a tax credit for a qualifying Montana business approved and calculated as provided in [section 3] but not claimed in whole or in part by the qualifying Montana business may be transferred by the qualifying Montana business to another Montana taxpayer as provided in this section.
(2) The transferred credit may be used as a credit against the taxes imposed by chapter 31 and this chapter. A credit may be transferred only one time and may not involve more than one transferee. If the credit is transferred to a small business corporation, a partnership, a limited liability partnership, or a limited liability company, the credit must be attributed to the individual shareholders, partners, members, or managers in the same proportion used to report income or loss for state tax purposes.
(3) A qualifying Montana business that transfers a tax credit shall submit a written notification of the transfer of the tax credit to the department within 30 days after the transfer. The notification must include the following information:
(a) the tax credit balance before and after the transfer;
(b) the tax year the credit was realized;
(c) the tax identification number of the taxpayer to whom the credit was transferred;
(d) the amount of credit transferred;
(e) the date of the transfer; and
(f) any other information required by the department.
(4) A transferee has rights to claim the tax credit available to the qualifying Montana business only at the time of the transfer, except that the carryforward is extended. A transferee is not required to offset a tax liability in the year of the transfer, and the credit may be carried forward for 2 tax years after the year of the transfer. A transferred credit is not refundable and may not exceed the income tax liability of the transferee. The department shall administer the transfer of credits pursuant to [section 3] and this section.
NEW SECTION. Section 5. Statement of purpose -- rulemaking. (1) Pursuant to 5-4-104, the legislature finds that the purpose of the tax credits provided for in [sections 2 through 4] is to encourage investment in small businesses and to increase the number of high-wage jobs in Montana.
(2) The department shall adopt rules to implement and administer [sections 1 through 4] and this section. The rules must:
(a) include a process for the department to certify a qualifying Montana business and qualifying funds;
(b) include a process for the transfer of credits; and
(c) provide for the disallowance of a credit when it is not part of a bona fide business transaction or when an investor does not exercise due diligence prior to providing a cash investment to a qualifying Montana business.
NEW SECTION. Section 6. Legislative performance audit required. (1) By June 30, 2026, the legislative auditor shall present a performance audit report to the legislative audit committee and the revenue and transportation interim committee evaluating the results of the tax credit programs in [sections 1 through 5].
(2) The legislative audit report must include but is not limited to:
(a) the number of taxpayers claiming the credits and the corresponding credit amounts;
(b) the types of investments made by the recipients of credits under [section 1];
(c) the financial impact of the investments in qualifying Montana businesses;
(d) whether the credits materially affected the amount and type of investments made and the success of those investments, with particular attention to whether the credits encouraged investors to invest in projects with a lower likelihood of financial success;
(e) the amount of economic activity, including the number of jobs and the wages of those jobs generated by the investments;
(f) the incremental change in Montana state and local taxes paid as a result of the allowance of the credits;
(g) state and local revenue generated by the investments; and
(h) additional state and local costs attributable to the investments.
(3) The department of revenue shall work closely with the legislative auditor to provide information necessary to complete the audit report.
(4) Following completion of the legislative audit, the revenue and transportation interim committee shall present to the legislature meeting in the 2027 regular session a recommendation on whether the tax credit programs in [sections 1 though 5] should be:
(a) immediately terminated;
(b) extended for a period of up to 8 years; or
(c) amended and extended for a period of up to 8 years.
(5) The report provided by the legislative auditor to the interim committees must be in summary fashion to protect individual taxpayer confidential information.
NEW SECTION. Section 7. Codification instruction. [Sections 1 through 6] are intended to be codified as an integral part of Title 15, chapter 30, part 23, and the provisions of Title 15, chapter 30, part 23, apply to [sections 1 through 6].
NEW SECTION. Section 8. Severability. If a part of [this act] is invalid, all valid parts that are severable from the invalid part remain in effect. If a part of [this act] is invalid in one or more of its applications, the part remains in effect in all valid applications that are severable from the invalid applications.
NEW SECTION. Section 9. Applicability. [This act] applies to tax years beginning after December 31, 2019.
NEW SECTION. Section 10. Termination. (1) Except as provided in subsection (2), [this act] terminates December 31, 2034.
(2) [Section 6] terminates June 30, 2027.
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Latest Version of HB 702 (HB0702.01)
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