Minnesota Angel Tax Credit: WellAdvised aids in application process for businesses and investors.

This summer, Minnesota’s Angel Tax Credit applications will become available. This tax credit means that qualifying investors will receive a refund of 25 percent of their investment up to a total credit of $125,000 per person per year ($250,000 per couple).

As a member of the Minnesota Governor’s 21st Century Tax Reform Commission (www.taxes.state.mn.us/mntaxreform/index.shtml) one of the recommendations in our 2009 report was to enact an early-stage investment tax credit. It’s one of the important factors to making us regionally competitive and I’m excited to help businesses and investors apply for it.

According to a recent report by Mojo Minnesota in 2008 the average angel investor nationally made 6.3 investments for a total of $1.77M; invested in 3.7 new companies; and 62.7% of those investments had follow-on or co-investments with venture capital firms. This suggests that supporting angel investing is a way to attract more venture capital into Minnesota’s businesses as well.

In order to participate, investors and businesses must be certified by the Minnesota Department of Employment and Economic Development (DEED). I met with DEED personnel in late April to get the answers to some of the questions I’ve been hearing about the angel tax credit. I learned that the investors eligible for the tax credit don’t need to be located in Minnesota as long as the majority of the business is located in our state. That’s a big plus that opens up an even larger pool of investors.

The Minnesota businesses that qualify for investment are those:

• Researching or developing a proprietary product, process or service in a qualified high-technology field.
• Using proprietary technology to add value to a product, process or service in a qualified high-technology field.
• Researching, developing or producing a new proprietary technology for use in agriculture, tourism, forestry, mining, manufacturing or transportation.
• One detail that businesses need to be aware of is that in order to be eligible, all of their employees must be making above $18.55 an hour (this includes wages plus benefits).

In order to become a qualified business, you must apply to DEED. To qualify you must have been in business less than 10 years and not have received previous equity above $2 million.

For the tax credit to go through, both the business and investor need to apply and be approved. Then the business must apply for the tax credit itself. I’ve found that some investors, as well as some businesses, are confused about this process and it’s my hope that funding for businesses won’t be held up by this confusion. WellAdvised LLC has already prepared several successful applications for Minnesota businesses – please contact us if you’d like to be next! If you’re an investor or business with questions about how this tax credit can work for you, please feel free to ask us.

The July 2010 WellAdvised Newsletter also featured articles on innovation in the Minnesota economy, and determining when to hire a bookkeeper or controller.   Read the entire newsletter here.