The state of Minnesota offers a very generous tax credit to certain investors. The Angel Tax credit is equal to 25% of the amount invested in a qualified activity (businesses focused on high technology, new proprietary technology, or a new proprietary product, process or service in certain fields including agriculture, tourism, forestry, mining, manufacturing and transportation). The annual maximum credit is $125,000 ($250,000 for married taxpayers) and is refundable so if your share of credit exceeds your Minnesota tax liability the excess will be refunded to you!
The state has identified $15 Million of funds available for 2015 Angel Credits. Prior to being allocated the credit, businesses and investors must be certified by DEED (Department of Economic Development). The state will start accepting certification applications from businesses and investors in November. The angel credit funds are generally allocated on a first come first served basis so it is very important to get certified now so you are ready to apply for an allocation of the 2015 credit! Applications for an allocation of the 2015 Angel Credits will be accepted beginning January 2, 2015.
In addition to meeting the qualified activity requirement, businesses must satisfy the following criteria:
- Be headquartered in Minnesota.
- Have a minimum of 51 percent of employees and 51 percent of payroll in Minnesota.
- Have fewer than 25 employees. No minimum number of employees is required.
- Pay employees annual wages of at least 175 percent of poverty level, which for 2014 is $41,738 per year or $20.07 per hour. Does not apply to business’ executives, officers, board members, 20 percent-plus owners.
- Pay interns 175 percent of federal minimum wage ($12.69 per hour).
- Not have been in operation for more than 10 years (20 years if related to medical devices or pharmaceuticals requiring FDA approval).
- Not have been disqualified from investment under Stat. 80 A.50 (b)(3), the Small Corporation Offering Registration disqualifications.
- Not have issued securities that are traded on a public exchanges, or begin trading (or have a liquidation event) within 180 days after a qualified investment.
- Not previously have received private equity investments of more than $4 million.
- Not have generated more than $4 million in investments that have received an Angel Tax Credit. The Angel Tax Credit is capped at $1 million per business.
- Be certified by DEED before investment is made. The non-refundable certification filing fee is $150.
Qualified investors in certified Angel businesses must:
- Be a natural person.
- Be an accredited investor per SEC Reg. D’s Rule 501.
- Be a non-accredited investor investing in exempt filings per Minn. Stat. 80A.46 (13) or (14) or Minn. Stat. 80A.50 (b).
- Of the business in which the investment is made, not be:
- An officer (a person elected or appointed by the board to manage the business), or
- A principal (a person having authority to act on behalf of the business), or
- A 20% or more owner, individually or combined with family members, of the voting securities of the business, or
- A family member (siblings, spouse, ancestors and lineal descendants) of the above.
- Be certified by DEED before investment is made; non-accredited investors making exempt transactions may file for certification within 30 days of making investment.
- Make a minimum qualifying investment of $10,000. The non-refundable certification filing fee is $350.
All original 2014 Angel credit funds were allocated by early March 2014, so it’s important that companies and investors take action now. Don’t delay! Talk to your advisor today to determine if you are qualified for the credit so you can begin the certification process. For more information you can visit the state of Minnesota website http://mn.gov/deed/business/financing-business/tax-credits/angel-tax-credit/.