Incentives Watch: Angels on High (or Low)? Effectiveness of Investor Credits Examined

New Jersey recently enacted a refundable angel investor credit that allows companies and individuals to receive a credit for up to 10 percent of a qualified investment in an emerging technology business with a physical presence in New Jersey that conducts research, manufacturing, or technology commercialization, according to a recent Bloomberg BNA Weekly State Tax Reportarticle.

Angel investor credits are designed to encourage investment in certain startup companies. The New Jersey credit may be taken against a taxpayer’s gross income tax liability and corporation business tax liability, notes the article.

In addition to New Jersey, several other states offer similar credits, including Connecticut, Illinois, Kansas, Kentucky, Louisiana, Michigan, Minnesota, Nebraska, New Mexico, North Dakota, Pennsylvania, Vermont, and Wisconsin.

Some states have seen increased investment as a result of the state’s credit program, while others have not, according to a report by the Angel Resource Institute—a nonprofit aimed at sharing best practices for angel investing. For example, the report notes that a 2009 study concluded that Kentucky’s credit is ineffective because only 14 percent of the total authorized credit amount was used in 11 years. On the other hand, Wisconsin’s credit program resulted in the tripling of angel networks and funds since 2004.

Several states have ways of tracking the effectiveness of their credit programs, from reporting requirements to data collection, notes the report. Despite these efforts, the report concludes that “[p]rior studies do not provide any clear conclusion on the effectiveness or lack of effectiveness of angel tax credits.”

For more information about various state angel investor credits, check out Bloomberg BNA’s Business Credits and Incentives Portfolio Series and Individual Income Tax Navigator.

In other developments . . .

A homeowner installing solar energy equipment in two different stages is entitled to a total maximum credit of $5,000, whether the equipment is placed in service at the same time or in stages, the New York Department of Taxation and Finance advised, according to a Bloomberg BNA Weekly State Tax Reportarticle.

By: Kathleen Caggiano

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