Tax Credit, Political Gifts Majorly Impact MN Cos
Two major decisions-one at the state level and one at the federal level-had a major impact on Minnesota companies in 2010, but the effects were felt in very different ways.
The state's angel investor tax credit has provided new opportunities for high-tech startups to get investments and has to some extent alleviated concerns about the state losing some of its most promising emerging companies because it didn't previously offer such an incentive.
Meanwhile, several local companies took advantage of an early 2010 U.S. Supreme Court decision that lifted restrictions on their political campaign spending. But some-namely, Target Corporation-then learned the hard way the ramifications of contributing to political organizations.
- Tax credit: The new credit, signed into law on April 1, 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.
A total of $11 million in tax credits was available in 2010, and the state will fund $12 million in credits annually between 2011 and 2014. Credits cannot exceed $125,000 per person per year.
The tax credit is available to investors and investment funds that funnel money into startups that are less than 10 years old, have fewer than 25 employees, and have less than $2 million in previous equity investments. 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.
The idea behind the credit is to encourage investments that will bolster the local economy and create jobs within the state. Such a credit was first proposed to the Minnesota Legislature more than five years ago, and Governor Tim Pawlenty strongly urged legislators to approve it in 2010.
Many states offer some type of angel investor tax credit. Such credits have helped kindle the growth of biomedical industries in Ohio, Wisconsin, and several other states.
- Political donations: Minneapolis-based Target faced significant backlash from both employees and the GLBT community after it gave $150,000 in August to MN Forward, an organization that backed Republican gubernatorial candidate Tom Emmer, who opposes gay marriage.
Three investment firms that hold a stake in the local retailer-Boston-based Walden Asset Management, Boston-based Trillium Asset Management, and Bethesda, Maryland-based Calvert Asset Management Company-also collectively filed a proposal requesting that Target's board undertake a “comprehensive review of the company's political contributions and spending processes, including the criteria used for such contributions.”
Calvert and Trillium filed a similar proposal with Richfield-based Best Buy Company, Inc., which donated $100,000 to MN Forward.
“It is unclear how frequently companies will decide to spend shareholder monies in controversial political races,” Tim Smith, senior vice president at Walden Asset Management, said in a statement following the donation. “But if the Best Buy and Target contributions are any indication, imprudent donations can potentially have a major negative impact on company reputations and business if they don't carefully and fully assess a candidate's positions.”
Target CEO Gregg Steinhafel initially defended the company's donation to MN Forward but apologized to company employees just over a week later.
“The intent of our political contribution to MN Forward was to support economic growth and job creation,” Steinhafel wrote in the letter. “While I firmly believe that a business climate conducive to growth is critical to our future, I realize our decision affected many of you in a way I did not anticipate, and for that I am genuinely sorry.”
Steinhafel said at the time that Target would soon begin a “strategic review and analysis of our decision-making process for financial contributions in the public policy arena.”
MN Forward bills itself as a nonpartisan organization, yet its support for Emmer has been the source of the controversy surrounding Target's donation. The same day that Steinhafel issued his apology, MN Forward announced its support for six candidates for state Congress, including three Democrats.
Other major local donors to MN Forward include Red Wing Shoe Company, Inc., and Golden Valley-based Pentair, Inc.