1.1 A bill for an act
1.2 relating to taxation; income; modifying certain requirements for the small business
1.3 investment credit; extending the credit allocation; amending Minnesota Statutes
1.4 2024, section 116J.8737, subdivisions 2, 5, 7, 9.
1.5BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:
1.6 Section 1. Minnesota Statutes 2024, section 116J.8737, subdivision 2, is amended to read:
1.7 Subd. 2.Certification of qualified small businesses.(a) Businesses may apply to the
1.8commissioner for certification as a qualified small business or qualified greater Minnesota
1.9small business for a calendar year. The application must be in the form and be made under
1.10the procedures specified by the commissioner, accompanied by an application fee of $150.
1.11Application fees are deposited in the small business investment tax credit administration
1.12account in the special revenue fund. Applications for certification must be made available
1.13on the department's website by November 1 of the preceding year.
1.14 (b) Within 30 days of receiving an application for certification under this subdivision,
1.15the commissioner must either certify the business as satisfying the conditions required of a
1.16qualified small business or qualified greater Minnesota small business, request additional
1.17information from the business, or reject the application for certification. If the commissioner
1.18requests additional information from the business, the commissioner must either certify the
1.19business or reject the application within 30 days of receiving the additional information. If
1.20the commissioner neither certifies the business nor rejects the application within 30 days
1.21of receiving the original application or within 30 days of receiving the additional information
1.22requested, whichever is later, then the application is deemed rejected, and the commissioner
1Section 1.
REVISOR EAP/VJ 25-0493703/14/25
State of Minnesota
This Document can be made available
in alternative formats upon request
HOUSE OF REPRESENTATIVES
H. F. No. 2723
NINETY-FOURTH SESSION
Authored by Norris03/24/2025
The bill was read for the first time and referred to the Committee on Taxes 2.1must refund the $150 application fee. A business that applies for certification and is rejected
2.2may reapply.
2.3 (c) To receive certification as a qualified small business, a business must satisfy all of
2.4the following conditions:
2.5 (1) the business has its headquarters in Minnesota;
2.6 (2) at least:
2.7 (i) 51 percent of the business's employees are employed in Minnesota;
2.8 (ii) 51 percent of the business's total payroll is paid or incurred in the state; and
2.9 (iii) 51 percent of the total value of all contractual agreements to which the business is
2.10a party in connection with its primary business activity is for services performed under
2.11contract in Minnesota, unless the business obtains a waiver under paragraph (i);
2.12 (3) the business is engaged in, or is committed to engage in, innovation in Minnesota in
2.13one of the following as its primary business activity:
2.14 (i) using proprietary technology to add value to a product, process, or service in a qualified
2.15high-technology field;
2.16 (ii) researching or developing a proprietary product, process, or service in a qualified
2.17high-technology field;
2.18 (iii) researching or developing a proprietary product, process, or service in the fields of
2.19agriculture, tourism, forestry, mining, manufacturing, or transportation; or
2.20 (iv) researching, developing, or producing a new proprietary technology for use in the
2.21fields of agriculture, tourism, forestry, mining, manufacturing, or transportation;
2.22 (4) other than the activities specifically listed in clause (3), the business is not engaged
2.23in real estate development, insurance, banking, lending, lobbying, political consulting,
2.24information technology consulting, wholesale or retail trade, leisure, hospitality,
2.25transportation, construction, ethanol production from corn, or professional services provided
2.26by attorneys, accountants, business consultants, physicians, or health care consultants;
2.27 (5) the business has fewer than 25 employees;
2.28 (6) the business must pay its employees annual wages of at least 175 percent of the
2.29federal poverty guideline for the year for a family of four and must pay its interns annual
2.30wages of at least 175 percent of the federal minimum wage used for federally covered
2.31employers, except that this requirement must be reduced proportionately for employees and
2Section 1.
REVISOR EAP/VJ 25-0493703/14/25 3.1interns who work less than full-time, and does not apply to an executive, officer, or member
3.2of the board of the business, or to any employee who owns, controls, or holds power to vote
3.3more than 20 percent of the outstanding securities of the business;
3.4 (7) the business has (i) not been in operation for more than ten years, or (ii) not been in
3.5operation for more than 20 years if the business is engaged in the research, development,
3.6or production of medical devices or pharmaceuticals for which United States Food and Drug
3.7Administration approval is required for use in the treatment or diagnosis of a disease or
3.8condition;
3.9 (8) the business has not previously received private equity investments of more than
3.10$4,000,000 $15,000,000;
3.11 (9) the business is not an entity disqualified under section 80A.50, paragraph (b), clause
3.12(3); and
3.13 (10) the business has not issued securities that are traded on a public exchange.
3.14 (d) In applying the limit under paragraph (c), clause (5), the employees in all members
3.15of the unitary business, as defined in section 290.17, subdivision 4, must be included.
3.16 (e) In order for a qualified investment in a business to be eligible for tax credits:
3.17 (1) the business must have applied for and received certification for the calendar year
3.18in which the investment was made prior to the date on which the qualified investment was
3.19made;
3.20 (2) the business must not have issued securities that are traded on a public exchange;
3.21 (3) the business must not issue securities that are traded on a public exchange within
3.22180 days after the date on which the qualified investment was made; and
3.23 (4) the business must not have a liquidation event within 180 days after the date on
3.24which the qualified investment was made.
3.25 (f) The commissioner must maintain a list of qualified small businesses and qualified
3.26greater Minnesota businesses certified under this subdivision for the calendar year and make
3.27the list accessible to the public on the department's website.
3.28 (g) For purposes of this subdivision, the following terms have the meanings given:
3.29 (1) "qualified high-technology field" includes aerospace, agricultural processing,
3.30renewable energy, energy efficiency and conservation, environmental engineering, food
3.31technology, cellulosic ethanol, information technology, materials science technology,
3Section 1.
REVISOR EAP/VJ 25-0493703/14/25 4.1nanotechnology, telecommunications, biotechnology, medical device products,
4.2pharmaceuticals, diagnostics, biologicals, chemistry, veterinary science, and similar fields;
4.3 (2) "proprietary technology" means the technical innovations that are unique and legally
4.4owned or licensed by a business and includes, without limitation, those innovations that are
4.5patented, patent pending, a subject of trade secrets, or copyrighted; and
4.6 (3) "greater Minnesota" means the area of Minnesota located outside of the metropolitan
4.7area as defined in section 473.121, subdivision 2.
4.8 (h) To receive certification as a qualified greater Minnesota business, a business must
4.9satisfy all of the requirements of paragraph (c) and must satisfy the following conditions:
4.10 (1) the business has its headquarters in greater Minnesota; and
4.11 (2) at least:
4.12 (i) 51 percent of the business's employees are employed in greater Minnesota;
4.13 (ii) 51 percent of the business's total payroll is paid or incurred in greater Minnesota;
4.14and
4.15 (iii) 51 percent of the total value of all contractual agreements to which the business is
4.16a party in connection with its primary business activity is for services performed under
4.17contract in greater Minnesota, unless the business obtains a waiver under paragraph (i).
4.18 (i) The commissioner must exempt a business from the requirement under paragraph
4.19(c), clause (2), item (iii), if the business certifies to the commissioner that the services
4.20required under a contract in connection with the primary business activity cannot be
4.21performed in Minnesota if the business otherwise qualifies as a qualified small business, or
4.22in greater Minnesota if the business otherwise qualifies as a qualified greater Minnesota
4.23business. The business must submit the certification required under this paragraph every
4.24six months from the month the exemption was granted. The exemption allowed under this
4.25paragraph must be submitted in a form and manner prescribed by the commissioner.
4.26 EFFECTIVE DATE.This section is effective for taxable years beginning after December
4.2731, 2024.
4.28 Sec. 2. Minnesota Statutes 2024, section 116J.8737, subdivision 5, is amended to read:
4.29 Subd. 5.Credit allowed.(a) A qualified investor or qualified fund is eligible for a credit
4.30equal to 25 percent of the qualified investment in a qualified small business. Investments
4.31made by a pass-through entity qualify for a credit only if the entity is a qualified fund. The
4.32commissioner must not allocate to qualified investors or qualified funds more than the dollar
4Sec. 2.
REVISOR EAP/VJ 25-0493703/14/25 5.1amount in credits allowed for the taxable years listed in paragraph (i). For each taxable year,
5.250 percent must be allocated to credits for qualified investments in qualified greater
5.3Minnesota businesses and minority-owned, women-owned, or veteran-owned qualified
5.4small businesses in Minnesota. The allocation applies to credits for qualified investments
5.5in a business that qualified at any time as a qualified greater Minnesota business or a
5.6minority-owned, women-owned, or veteran-owned qualified small businesses in Minnesota.
5.7Any portion of a taxable year's credits that is reserved for qualified investments in greater
5.8Minnesota businesses and minority-owned, women-owned, or veteran-owned qualified
5.9small businesses in Minnesota that is not allocated by September 30 of the taxable year is
5.10available for allocation to other credit applications beginning on October 1. Any portion of
5.11a taxable year's credits that is not allocated by the commissioner does not cancel and may
5.12be carried forward to subsequent taxable years until all credits have been allocated.
5.13 (b) The commissioner may not allocate more than a total maximum amount in credits
5.14for a taxable year to a qualified investor for the investor's cumulative qualified investments
5.15as an individual qualified investor and as an investor in a qualified fund; for married couples
5.16filing joint returns the maximum is $250,000, and for all other filers the maximum is
5.17$125,000. The commissioner may not allocate more than a total of $1,000,000 in credits
5.18over all taxable years for qualified investments in any one qualified small business.
5.19 (c) The commissioner may not allocate a credit to a qualified investor either as an
5.20individual qualified investor or as an investor in a qualified fund if, at the time the investment
5.21is proposed:
5.22 (1) the investor is an officer or principal of the qualified small business; or
5.23 (2) the investor, either individually or in combination with one or more members of the
5.24investor's family, owns, controls, or holds the power to vote 20 percent or more of the
5.25outstanding securities of the qualified small business.
5.26A member of the family of an individual disqualified by this paragraph is not eligible for a
5.27credit under this section. For a married couple filing a joint return, the limitations in this
5.28paragraph apply collectively to the investor and spouse. For purposes of determining the
5.29ownership interest of an investor under this paragraph, the rules under section 267(c) and
5.30267(e) of the Internal Revenue Code apply.
5.31 (d) Applications for tax credits must be made available on the department's website by
5.32November 1 of the preceding year.
5.33 (e) Qualified investors and qualified funds must apply to the commissioner for tax credits.
5.34Tax credits must be allocated to qualified investors or qualified funds in the order that the
5Sec. 2.
REVISOR EAP/VJ 25-0493703/14/25 6.1tax credit request applications are filed with the department. The commissioner must approve
6.2or reject tax credit request applications within 15 days of receiving the application. The
6.3investment specified in the application must be made within 60 days of the allocation of
6.4the credits. If the investment is not made within 60 days, the credit allocation is canceled
6.5and available for reallocation. A qualified investor or qualified fund that fails to invest as
6.6specified in the application, within 60 days of allocation of the credits, must notify the
6.7commissioner of the failure to invest within five business days of the expiration of the
6.860-day investment period.
6.9 (f) All tax credit request applications filed with the department on the same day must
6.10be treated as having been filed contemporaneously. If two or more qualified investors or
6.11qualified funds file tax credit request applications on the same day, and the aggregate amount
6.12of credit allocation claims exceeds the aggregate limit of credits under this section or the
6.13lesser amount of credits that remain unallocated on that day, then the credits must be allocated
6.14among the qualified investors or qualified funds who filed on that day on a pro rata basis
6.15with respect to the amounts claimed. The pro rata allocation for any one qualified investor
6.16or qualified fund is the product obtained by multiplying a fraction, the numerator of which
6.17is the amount of the credit allocation claim filed on behalf of a qualified investor and the
6.18denominator of which is the total of all credit allocation claims filed on behalf of all
6.19applicants on that day, by the amount of credits that remain unallocated on that day for the
6.20taxable year.
6.21 (g) A qualified investor or qualified fund, or a qualified small business acting on their
6.22behalf, must notify the commissioner when an investment for which credits were allocated
6.23has been made, and the taxable year in which the investment was made. A qualified fund
6.24must also provide the commissioner with a statement indicating the amount invested by
6.25each investor in the qualified fund based on each investor's share of the assets of the qualified
6.26fund at the time of the qualified investment. After receiving notification that the investment
6.27was made, the commissioner must issue credit certificates for the taxable year in which the
6.28investment was made to the qualified investor or, for an investment made by a qualified
6.29fund, to each qualified investor who is an investor in the fund. The certificate must state
6.30that the credit is subject to revocation if the qualified investor or qualified fund does not
6.31hold the investment in the qualified small business for at least three five years, consisting
6.32of the calendar year in which the investment was made and the two four following years.
6.33The three-year five-year holding period does not apply if:
6.34 (1) the investment by the qualified investor or qualified fund becomes worthless before
6.35the end of the three-year five-year period;
6Sec. 2.
REVISOR EAP/VJ 25-0493703/14/25 7.1 (2) 80 percent or more of the assets of the qualified small business is sold before the end
7.2of the three-year five-year period;
7.3 (3) the qualified small business is sold before the end of the three-year five-year period;
7.4 (4) the qualified small business's common stock begins trading on a public exchange
7.5before the end of the three-year five-year period; or
7.6 (5) the qualified investor dies before the end of the three-year five-year period.
7.7 (h) The commissioner must notify the commissioner of revenue of credit certificates
7.8issued under this section.
7.9 (i) The credit allowed under this subdivision is effective as follows:
7.10 (1) $10,000,000 for taxable years beginning after December 31, 2020, and before January
7.111, 2022; and
7.12 (2) $5,000,000 for taxable years beginning after December 31, 2021, and before January
7.131, 2025.; and
7.14 (3) $10,000,000 for taxable years beginning after December 31, 2024, and before January
7.151, 2029.
7.16 EFFECTIVE DATE.This section is effective for taxable years beginning after December
7.1731, 2024.
7.18 Sec. 3. Minnesota Statutes 2024, section 116J.8737, subdivision 7, is amended to read:
7.19 Subd. 7.Revocation of credits.(a) If the commissioner determines that a qualified
7.20investor or qualified fund did not meet the three-year five-year holding period required in
7.21subdivision 5, paragraph (g), any credit allocated and certified to the investor or fund is
7.22revoked and must be repaid by the investor.
7.23 (b) If the commissioner determines that a business did not meet the employment and
7.24payroll requirements in subdivision 2, paragraph (c), clause (2), or paragraph (h), as
7.25applicable, in any of the five calendar years following the year in which an investment in
7.26the business that qualified for a tax credit under this section was made, the business must
7.27repay the following percentage of the credits allowed for qualified investments in the
7.28business:
Percentage of credit required7.29 Year following the year in which
to be repaid:7.30 the investment was made:
100%7.31 First
7Sec. 3.
REVISOR EAP/VJ 25-0493703/14/25 80%8.1 Second
60%8.2 Third
40%8.3 Fourth
20%8.4 Fifth
08.5 Sixth and later
8.6 (c) The commissioner must notify the commissioner of revenue of every credit revoked
8.7and subject to full or partial repayment under this section.
8.8 (d) For the repayment of credits allowed under this section and section 290.0692, a
8.9qualified small business, qualified investor, or investor in a qualified fund must file an
8.10amended return with the commissioner of revenue and pay any amounts required to be
8.11repaid within 30 days after becoming subject to repayment under this section.
8.12 EFFECTIVE DATE.This section is effective for taxable years beginning after December
8.1331, 2024.
8.14 Sec. 4. Minnesota Statutes 2024, section 116J.8737, subdivision 9, is amended to read:
8.15 Subd. 9.Report to legislature.Beginning in 2011, The commissioner must annually
8.16report by March 15 to the chairs and ranking minority members of the legislative committees
8.17having jurisdiction over taxes and economic development in the senate and the house of
8.18representatives, in compliance with sections 3.195 and 3.197, on the tax credits issued under
8.19this section. The report must include:
8.20 (1) the number and amount of the credits issued;
8.21 (2) the recipients of the credits;
8.22 (3) for each qualified small business or qualified greater Minnesota business, its location,
8.23line of business, and if it received an investment resulting in certification of tax credits;
8.24 (4) the total amount of investment in each qualified small business resulting in
8.25certification of tax credits;
8.26 (5) for each qualified small business that received investments resulting in tax credits,
8.27the total amount of additional investment that did not qualify for the tax credit;
8.28 (6) the number and amount of credits revoked under subdivision 7;
8.29 (7) the number and amount of credits that are no longer subject to the three-year five-year
8.30holding period because of the exceptions under subdivision 5, paragraph (g), clauses (1) to
8.31(4); and
8Sec. 4.
REVISOR EAP/VJ 25-0493703/14/25 9.1 (8) any other information relevant to evaluating the effect of these credits.
9.2 EFFECTIVE DATE.This section is effective for taxable years beginning after December
9.331, 2024.
9Sec. 4.
REVISOR EAP/VJ 25-0493703/14/25