MN Angel Tax Credits Resulted in $72 Million in Investments

Published On: 27th February 2014

From the internet

A study has found that the Minnesota Angel Tax Credit program resulted in $71.7 million in angel investments between 2010 and 2012.

The study that was commissioned by the Department of Revenue found that the program was also linked to the retention and creation of 512 jobs.

During the three-year period, the state issued $34.2 million in tax credits. Every dollar of credit was matched by $1.09 in new angel investment. The total amount of investments that qualified for the 25 percent tax credit over the period was $138.6 million. Of that amount, $71.7 million would have never happened without the tax credit being put in place.

As for what this is, an angel investor is usually a person or fund with a high net worth. That individual or the fund then invests in the early stages of a company. The tax benefit then gives them something back on their Minnesota income tax return.

The Angel Tax Credit program, which is also known as the Small Business Investment Tax Credit, has shown a lot of success in helping startups in the early stages of their development. The study simply highlights the different ways in which the Angel Tax Credit is making an impact on small businesses in Minnesota.

The study, which was conducted by the Department of Employment and Economic Development (DEED), will give the Legislature the data on whether or not to renew the Angel Tax Credit during the upcoming legislative session. The program is set to expire at the end of 2014.

The Angel Tax Credit was enacted in April 2010 to offset the negative effects that the recession was having on investments in small businesses throughout Minnesota, especially those in the technology sector.

In order to participate in the program, qualified small businesses and investors must apply to DEED for certification. There are investors throughout the country that look for small businesses to invest in within states that offer tax credits, such as the Angel Tax Credit. It has shown to bring more capital to companies that are in their earliest stages.

At the same time, the demand for the tax credits has placed a strain on the resources of the program. In past years, the program ran through its credits in the spring. It seems to get earlier each year, so DEED has already allocated over half of the $12.2 million in credits that are available for 2014.

It was found in the study that there is an unintended consequence of causing angels to withhold their investments until the money pool has been replenished. Qualifying businesses find themselves waiting on the cash with no idea when they are going to receive it.

One business in Shakopee said that their company’s investors were able to benefit from the Angel Tax Credit. The business is confident that they would have gotten funding without it, but they feel it better helped seal the deal. It also relieved some of the concerns that investors had about making the investment because the company was so young at the time and so were its owners. Because the owners were straight out of college, the banks wouldn’t even talk to them.

It is the hope of these business owners that the Legislature renews the program so that other businesses like them can have investors that benefit.