State Changes, Eases Angel Tax Credit Requirements
Changes recently approved by Minnesota Governor Mark Dayton and the state legislature spell good news for companies wanting to take advantage of Minnesota's angel investor tax credit program.
The angel tax credit program was signed into law on April 1, 2010 but didn't kick off until last July. It gives a 25 percent tax break to individuals and investment funds that provide as much as $4 million in seed money to businesses focused on high technology or new proprietary technology.
The tax credit is available to investors and investment funds that funnel money into start-ups that are less than 10 years old and have fewer than 25 employees. The businesses also must be headquartered in Minnesota and have at least 51 percent of their workers and their full payroll based within the state.
According to Monte Hanson, spokesman for the Minnesota Department of Employment and Economic Development (DEED), these are the three key changes to the program that will now make it easier for companies seeking to participate:
1. Companies can now qualify for the credit if they have received no more than $4 million in previous equity investment. Previously, the cap was set at $2 million.
2. Investment funds that have limited liability corporations (LLCs), S Corporations, and C Corporations as members are now eligible for the credit. The three entities themselves can't receive the credit, but individual investors within those specific investment funds can if they meet certain criteria. Previously, investment funds were only eligible if their members were comprised exclusively of individuals.
3. Start-ups don't need to pay interns as much anymore in order to qualify for the credit. Full-time interns now must earn at least 175 percent of the federal minimum wage-or $12.69 per hour-for the company to be eligible. In the past, companies had to dole out $19.17 per hour to qualify, an amount that was based on 175 percent of the minimum poverty level wage for a family of four.
Although the changes were only recently signed into law, they took effect on January 1, 2011.
The angel investor tax credit spurred $28 million in funding for 67 Minnesota companies in 2010-and those 67 companies collectively created 47 jobs last year, according to a report that DEED submitted to the Minnesota Legislature.
Angel investors collected just over $7 million in credits from the state in 2010. Because $11 million in angel investor credits was available in 2010, almost $4 million in remaining funding will roll over into 2011-bringing the total available to nearly $16 million this year. In March, angel tax credit Program Coordinator Jeff Nelson told Twin Cities Business that he expects that full amount to be distributed by the end of 2011.
The state will fund $12 million in credits through 2014, and credits cannot exceed $125,000 per person per year.