LANSING ? A bill has been introduced in the Michigan Legislature that would let angel investors take a limited tax credit to off set losses on their investments in Michigan technology and life science start ups.
The maximum amount of credits that can be granted in this legislation is $10 million. A credit cannot be claimed for a tax year that begins before January 1, 2008. SB92 was recently transferred from the Senate Finance Committee to the Committee on Commerce and Labor. Senator Mike Bishop, who is sponsoring the Legislation, said he remains optimistic that the Bill will pass the Senate. He?s less certain of the Bill?s status in the Michigan House.
The bill – SB92 – calls for a Michigan Capital Investment Board to be created in the Michigan Treasury Department to administer the program. A business seeking angel investments would then have to apply to the Board to be designated as a qualified business. To receive the designation, the business must satisfy the following criteria:
The principal business operations must be in Michigan, operated for three years or less, not engaged primarily in retail, real estate, health care or other professional services, engaged in alternative energy technology, technology as addressed by the Michigan tri-technology corridor initiative and Michigan Life Sciences Corridor initiative, and high-technology activities as defined in the MEGA Act. The designated company must have a pre-investment valuation of $10 million or less, as well as met other criteria as determined by the Board.
Investments may be made individually by angels, or through a Community-
based Seed Capital Company. A Community-Based Seed Capital Company must be certified for eligibility by the Board. These criteria include:
Flow-through entity (limited partnership or limited liability company); Principal business operations in Michigan; Formed solely to invest in a single qualified business; Capital commitments and investments ranging from $250,000 to $10 million; At least five investors; no investor owns more than 35 percent.
The tax credits will expire, if not used in the first five years after issuance, but may be reissued. To be eligible for the tax credit certificate, a qualified business must receive at least $250,000 in equity investments or near equity within a 24-month period. “Near equity” refers to debt convertible at the option of the holder into equity and royalty agreements.
The tax credit may be claimed only in the year the investment is sold or
exchanged at a loss, or the year in which the investment is eligible for treatment as a worthless security for federal income tax purposes.
The tax credit is only available for investments made after
December 31, 2005 by investors who are not current or previous
investors or owners. If the amount of the credit exceeds the taxpayer’s tax liability, the balance of the credit shall be refunded to the taxpayer. The credit cannot pass through a partnership, limited liability company, S-corporation, estate or trust, except in the context of a Community-based Seed Capital Company.
The amount of credit cannot exceed 20 percent of taxpayer’s investment. The maximum credit per investment is $50,000, and a taxpayer may not
claim a credit for more than five investments in any tax year.
If the amount of the credit exceeds the taxpayer’s tax liability, the balance of the credit shall be refunded to the taxpayer. The maximum credit per investment is $50,000, and a taxpayer may not claim a credit for more than five investments in any tax year.
