About three months remain to take advantage of Angel Tax Credit
By Tom Ballard, Chief Alliance Officer, PYA
Investors who want to take advantage of the State of Tennessee’s new Angel Tax Credit (ATC) this year have about three months remaining to apply, and that should be good news for entrepreneurs looking for investors.
That’s the word from John Lanahan, Launch Tennessee’s Director of Capital Formation, who is overseeing the program approved in 2016 by the Tennessee General Assembly. It allows individuals making qualified investments directly into Tennessee companies to receive a 33 percent credit against their Hall Income Tax liability. There’s a maximum of $50,000 worth of credits allowed in a single year, but unused credits can be carried forward for up to five years.
“We want people to be aware that applications for this year must be filed by December 31,” Lanahan says, noting that slightly more than $1.1 million in tax credits had been awarded by mid-September. That leaves a little less than $1.9 million available for the balance of the year.
“The tax credits awarded to date represent about $4 million in new investment in Tennessee start-ups,” he adds. Of particular note is the fact that about one-fourth of those applying for the tax credit are new angels.
A total of 27 companies have received funding thus far from 42 unique individual investments.
“We saw the ATC as an incentive to get investors off the sidelines,” Lanahan said, and it is obviously helping.
Criteria for companies receiving angel funding that is eligible for the ATC are as follows:
- Must be an early stage company that is defined as in business less than five years, has less than $3 million in revenue in 2016, and employs 50 or fewer employees;
- At least 60 percent of its full-time employees perform the majority of their work in Tennessee;
- Must meet one of three tests – qualify as having a high-growth and institutional investment potential, be a recipient of funding through the federal Small Business Innovation Research (SBIR) or Small Business Technology Transfer (STTR) programs, or commercializing technology developed at a Tennessee-based research institution; and
- Cannot be a professional services firm or engaged in sectors like construction, hospitality and retail unless it is leveraging technology that enhances sales.
In the case of investors, the tax credit only applies to investments made on or after January 1, 2017, by an individual, not a partnership or special-purpose vehicle. Also, the individual must be an accredited investor as defined by Securities and Exchange Commission rules. The minimum investment must be $15,000, but it cannot exceed 40 percent of the company’s post-money valuation. Eligible investment vehicles are equity, convertible debt, and notes. Finally, the application should be filed within 60 days after it is made.
There’s also an additional important point. Both the investor seeking the credit and the company receiving the funding must complete documents. They are the Company Qualification Application (click here to access) for the recipient of the angel investment and the Tax Credit Application (click here for the form) that is to be completed by the angel investor.
After approval, Launch Tennessee will issue the angel Investor a tax credit certificate that he or she may attach to his or her Hall income tax return for the tax year corresponding to the date of such certificate of qualification.
“We will be doing events to promote the availability over the next few months,” Lanahan says. For more information, click here for a fact sheet on the Launch Tennessee website.