Small Business Investment (Angel) Tax Credit

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On December 14, 2010, the Small Business Investment Tax Credit (SBITC) was signed into Michigan law. The SBITC will provide a 25% tax credit to qualified investors who make qualified investments in qualified seed and early stage businesses in Michigan.

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Small Business Investment (Angel) Tax Credit

  1. 1. Small Business Investment (Angel) Tax Credit Public Presentation
  2. 2. Contents• Public Act 235 of 2010• SBITC Program Guidelines• Summary Application Process• Investment Monitoring• Contact Information• SBITC Program Application Forms Current as of 01/19/2011 2
  3. 3. Public Act 235 of 2010• Signed into law by Governor on 12/14/2010• Amends 1967 PA281 “Income tax act of 1967” (MCL 206.1 – 206.532) by adding section 278• Small Business Investment Tax Credit (“SBITC”) provides Qualified Investors an income-tax credit equal to 25% of a Qualified Investment in a Michigan-based, seed or early- stage Qualified Business Current as of 01/19/2011 3
  4. 4. SBITC Program GuidelinesQualified Investors Inclusion Criteria• Individual taxpayer or an incorporated entity subject to Michigan income tax laws as stated in Income Tax Act, PA 281 of 1967 Current as of 01/19/2011 4
  5. 5. SBITC Program GuidelinesQualified Investors Exclusion Criteria• Has been convicted of a felony involving a fiduciary obligation or the conversion or misappropriation of funds or insurance accounts, theft, deceit, fraud, misrepresentation, or corruption• Claiming a credit of more than $250,000 for investment in a single Qualified Business Current as of 01/19/2011 5
  6. 6. SBITC Program GuidelinesQualified Investors Exclusion Criteria• Claiming a credit of more than $250,000 for Qualified Investments in any Qualified Businesses in any 1 tax year• Has not paid or entered in an installment agreement regarding a final assessment of an unpaid liability for a state tax for which all appeals had been exhausted• Currently in a bankruptcy01/19/2011 Current as of proceeding 6
  7. 7. SBITC Program GuidelinesQualified Businesses Inclusion Criteria• Innovative small businesses with potential for high growth, for example companies in fields such as but not limited to alternative energy; defense and homeland security; information technology; life science (as defined in Section 88A of the MSF Act); medical devices; and next-generation manufacturing• Domiciled and headquartered in Michigan Current as of 01/19/2011 7
  8. 8. SBITC Program GuidelinesQualified Businesses Inclusion Criteria• Seed or early stage business as defined in section 3 of the Michigan Early Stage Venture Investment Act of 2003, 2003 PA 296, MCL 125.2233 [a business that has not fully established commercial operations and may also be engaged in continued research and product development, or that is engaged in product, service, or technology development and initial manufacturing, marketing, or sales activities] Current as of 01/19/2011 8
  9. 9. SBITC Program GuidelinesQualified Businesses Inclusion Criteria• Has been in existence less than 5 years, or 10 years if business activity is derived from research at an institution of higher education in Michigan or a 501(c)(3) organization in Michigan• Has greater than 50.1% of its employees working in the state• Has fewer than 100 FTEs• Has pre-investment valuation of less than $10,000,000 Current as of 01/19/2011 9
  10. 10. SBITC Program GuidelinesQualified Businesses Exclusion Criteria• Has received SBITC certification on more than $1,000,000 in Qualified Investments• Is a retail establishment as defined by Sec. 44-45, NAICS 1997• Is a recipient of MEGA (Section 431) or film- related tax credits (Sections 455, 457, and459)• Is operating a construction, transportation, hotel, motel, restaurant, or real estate business Current as of 01/19/2011 10
  11. 11. SBITC Program GuidelinesQualified Investments• At least $20,000 in a Qualified Business, disbursed in one tranche• Investment is syndicated with or passes through a MEDC-registered seed venture capital or angel investor group (“Qualified Investment Group”)• Equity investment that meets other Qualified Investment eligibility criteria Current as of 01/19/2011 11
  12. 12. SBITC Program GuidelinesQualified Investments• Debt investment that meets other Qualified Investment eligibility criteria• Maintain investment in Qualified Business for at least 3 years unless legitimate exit opportunity occurs• Investment is not in business that employs or is owned by any member of investor’s family or with which investor or any member of investor’s family has preexisting fiduciary relationship Current as of 01/19/2011 12
  13. 13. SBITC Program GuidelinesQualified Investments• Qualified Investor will submit annual report to the MEDC staff on the growth of the Qualified Small Business• SBITCs provided to Qualified Investments made through a registered seed venture capital group will not exceed $4M Current as of 01/19/2011 13
  14. 14. SBITC Program GuidelinesQualified Investment Group• At least 2 unrelated members• Conduct regular officer or general partner meetings at least semi-annually• Registered with the MEDC – Investment Group must be registered with the MEDC in order for an investor to apply for tax credit – Investment Groups may register with the MEDC by completing and submitting Form SBITC-005 – MEDC will accept Form SBITC-005 submissions after January 26, 2011, after the Michigan Strategic Fund Board has approved the guidelines of the SBITC Program Current as of 01/19/2011 14
  15. 15. Summary Application Process •Qualified Investor•Business submits compiles the following application (SBITC-001) forms, downloadable for a preliminary from MEDC website, eligibility assessment with supporting for the SBITC Program documentation:•MEDC notifies business on preliminary •Small Business Qualified Investor Qualifying Application Submits Forms to eligibility status Qualified (SBITC-002 ) •Investor Application MEDC •If approved, Business (SBITC-003) Qualified Investor •Registered Investment Closes Group Application •Requests for tax receives tax credit certificate to attach to (SBITC-004) Business Financing •An Investment Group credits should be annual return •Additional Preliminary made within 60 Round gains registration status after submission days of a information requests Eligibility of Investment Group Qualified or decline notices will Assessment Registration Form be communicated to (SBITC-005); Investment Qualified Investor Investment Group must be registered prior to investment SBITC Review Qualified Investor Committee ReviewsOPTIONAL STEP Compiles Application and Application Issues Notice to Qualified Investor Current as of 01/19/2011 15
  16. 16. Summary Application ProcessAdditional Notes• Tax Credit Application  If Tax Credit Application is approved, MEDC will email an approval notification to Qualified Investor and issue a Certificate of SBITC in the amount equal to the total eligible credit. Qualified Investor will submit the Certificate with the tax filing.  If information is incomplete or additional documentation is required for the review of the Tax Credit Application, MEDC will email an information request to the Investor. Current as of 01/19/2011 16
  17. 17. Summary Application ProcessAdditional Notes• Tax Credit Application  If Tax Credit Application is denied, MEDC will send notification email to Investor indicating reason(s) for denial. Denied applicants may be eligible to reapply; reapplication instructions and conditions will be provided in notification email. Current as of 01/19/2011 17
  18. 18. Summary Application ProcessAdditional Notes• If the amount of the credit awarded exceeds the tax liabilityof the Qualified Investor for the tax year, that portion of thecredit that exceeds the tax liability for the tax year shall notbe refunded but may be carried forward to offset tax liabilityin subsequent tax years for a period not to exceed 5 tax yearsor until used up, whichever occurs first.• The amount of the tax credit is provided in equalinstallments over 2 years beginning with the tax year inwhich the tax certificate was issued. Current as of 01/19/2011 18
  19. 19. Summary Application ProcessAdditional Notes• The total amount of SBITCs that the MSF certifiescannot exceed $9M in a calendar year.• 60-day time window: Qualified Investor mustrequest SBITC for a Qualified Investment within 60days of making a Qualified Investment. Current as of 01/19/2011 19
  20. 20. Summary Application Process Application Forms OverviewForm Name Completed By Completed When Submitted ToSBITC-001: Small Business Preliminary Company Before MEDCEligibility Assessment optional investmentSBITC-002: Small Business Qualifying Company After investment InvestorApplicationSBITC-003: Investor Application Investor After investment MEDCSBITC-004: Registered Investment Investment After investment InvestorGroup Application GroupSBITC-005: Investment Group Investment Before MEDCRegistration Application Group investmentSBITC-006: Investor Annual Report Investor After investment MEDC Current as of 01/19/2011 20
  21. 21. Investment MonitoringInvestors will file an Annual Report to theMEDC with the following information:• Job creation• MBT or equivalent taxes paid• Additional investments Current as of 01/19/2011 21
  22. 22. Contact InformationFor all questions and comments on the SmallBusiness Investment Tax Credit Program,please use the following contact information:MEDC Capital Access GroupEmail: SBITC@michigan.orgPhone: (888) 522-0103 Current as of 01/19/2011 22

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