MOJO Guide to Angel Investor Tax Credit

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Minnesota now has an angel investor tax credit! This is a great step in promoting new enterprise finance in Minnesota - long a hub for emerging technology.

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MOJO Guide to Angel Investor Tax Credit

  1. 1. MINNESOTA’S ANGEL INVESTOR TAX CREDIT: A Few Highlights
  2. 2. A Long Time Coming <ul><li>AITC under discussion in MN for over 5 years. </li></ul><ul><li>AITC bill passed with strong bi-partisan support. </li></ul><ul><li>MN joins over 20 other states with Angel Tax Credits (incl. WI, ND, OH). </li></ul>
  3. 3. Who’s Implementing? <ul><li>MN DEED is administering program. </li></ul><ul><li>Webpage up with info now (search “angel tax credit”) – www.positivelyminnesota.com </li></ul><ul><li>Program details and applications available this summer. </li></ul>
  4. 4. The Credit <ul><li>Tax credit = to 25% of amount invested in a qualified business </li></ul><ul><li>Credits applied against Minnesota tax liability. </li></ul><ul><li>Credits are refundable (i.e. taxpayer will get a cash refund from Minnesota if no Minnesota tax liability). Allows investments from out of state investors </li></ul>
  5. 5. Qualifying Investor (Individual) <ul><li>Investor must certify to only invest in a transaction exempt under sec. 80A.46, clause (13) or (14), or in a security registered under sec. 80A.50, para.(b). </li></ul><ul><li>Investor cannot receive more than 50% of gross income from qualified business. </li></ul><ul><ul><li>Married couple cannot receive more than 50% of their combined income from qualified business. </li></ul></ul><ul><ul><li>Investor’s family member is also disqualified if the investor makes more than 50% of their gross income from qualified business </li></ul></ul>
  6. 6. Qualifying Investment (I) <ul><li>Minimum investment to qualify for tax credit: $10,000 in cash, made in a calendar year </li></ul><ul><li>Investment must be made in exchange for: (1) common stock, (2) a partnership or membership interest, (3) preferred stock, (4) debt with mandatory conversion to equity, or (5) an equivalent ownership as determined by DEED </li></ul>
  7. 7. Qualifying Investment (I)… <ul><li>Maximum investment that qualifies for credits (per calendar year): </li></ul><ul><ul><li>$1,000,000 for a married couple filing joint returns, and </li></ul></ul><ul><ul><li>$500,000 for all other filers (translates to a maximum in credits of $250,000 for a married couple and $125,000 for all other filers). </li></ul></ul><ul><ul><li>Separate investments in multiple companies each count towards this limit. </li></ul></ul>
  8. 8. Qualifying Fund <ul><li>The fund must invest, or intend to invest in qualified small businesses </li></ul><ul><li>Be a pass through entity </li></ul><ul><li>Have at least 3 separate investors, all of whom qualify as individual investor </li></ul>
  9. 9. Qualifying Investment (F) <ul><li>Investments in the fund may be equity investments or notes or other fixed amounts, or combination </li></ul><ul><li>Minimum investment to qualify for credit: $30,000 in cash, made in calendar year </li></ul><ul><li>Investment made in exchange for: (1) stock, (2) a partnership or membership interest, (3) debt with mandatory conversion to equity </li></ul>
  10. 10. Qualifying Industries <ul><li>Businesses using proprietary technology in qualified high-tech field; </li></ul><ul><li>Businesses researching or developing products, processes or services in a qualified high-tech field; or </li></ul><ul><li>Businesses researching or developing proprietary tech in agriculture, tourism, forestry, mining, manufacturing, or transportation </li></ul>
  11. 11. Qualifying Industries…. <ul><li>Examples of Qualified High Tech Fields: </li></ul><ul><ul><li>aerospace, agricultural processing, renewable energy, energy efficiency and conservation, environmental engineering, food technology, cellulosic ethanol, information technology, materials science technology, nanotechnology, telecommunications, biotechnology, medical device products, pharmaceuticals, diagnostics, biologicals, chemistry, veterinary science, and similar fields </li></ul></ul>
  12. 12. Qualifying Businesses <ul><li>Operating less than 10 years </li></ul><ul><li>Received no more than $2,000,000 in “private equity investments” </li></ul><ul><li>Maximum investment that will qualify for tax credit: $4,000,000 from all sources over all taxable years (i.e. one business cannot generate more than $1M in credits) </li></ul>
  13. 13. Qualifying Businesses… <ul><li>Fewer than 25 employees </li></ul><ul><ul><li>employees of a parent company or subsidiary are included in this number; see Minn. Stat. Sec. 290.17(4) </li></ul></ul><ul><li>51% of employees working in Minnesota </li></ul><ul><li>51% of total payroll is paid or incurred in Minnesota </li></ul>
  14. 14. Qualifying Businesses… <ul><li>Employees paid wages at least 175% of federal poverty guideline for year for family of 4 </li></ul><ul><ul><li>for 2010, minimum of $38,587.50 in annual wages for each employee </li></ul></ul><ul><ul><li>requirement is reduced proportionately for employees who work less than full-time, </li></ul></ul><ul><li>Requirement does not apply to executive, officer, board member, or to any employee who owns/controls more than 20% of outstanding securities of the business </li></ul>
  15. 15. How to Apply <ul><li>2 Steps: </li></ul><ul><ul><li>Certification (Businesses, Investors, Funds); </li></ul></ul><ul><ul><li>Tax Credit Application (Investors; Funds) </li></ul></ul><ul><li>Certification – on DEED site – 8/1/2010 </li></ul><ul><li>Tax Credit App – on DEED site - 9/1/2010 </li></ul><ul><li>Earliest Investment – 7/1/2010 </li></ul><ul><li>Visit DEED’s website this summer </li></ul><ul><li>Read the MOJO AITC Guide </li></ul>
  16. 16. THANKS. Ernest Grumbles [email_address]

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