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What our members have to say...
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"DONE DEAL: Best Sites 4 U. I purchased a proposal package from you originally for £149, and was fortunate enough to receive interest in my proposal within a day of submitting it. I am pleased to say this initial interest has now developed into a business deal, and I have received an Angel Investor who now owns 30% of my company."
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Mike Haywood - Best sites 4 U |
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Proposed Changes to Wisconsin Investment Tax Credits Would Encourage Investment By Making Tax Credits Refundable
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In 2005, in an effort to increase angel and venture capital investment in Wisconsin start-ups, the Wisconsin legislature passed Act 255 creating the early stage seed investment tax credit and the angel investment credit programs. Under each program, venture capital funds and angel investors are eligible to receive an income tax credit of up to 25% of investments made in businesses that have been certified by the Wisconsin Economic Development Corporation (WEDC) as a qualified new business venture (QNBV). While the Act 255 tax credits have been very popular with investors and have proved to be a useful selling point to businesses that are certified as a QNBV (to date more than 181 companies have been qualified as QNBVs and have raised more than $140 million in qualified investments), the aggregate amount of credits that may be allocated to investors by the state each year have historically not been fully depleted.
Due in part to this lack of use of the programs, the legislature is currently considering Assembly Bill 20 which would also make the tax credits refundable (currently, the tax credits may only be used to reduce an investor’s Wisconsin tax liability to zero with any unused credits being carried forward). By making the tax credits refundable, it will enable investors from outside of Wisconsin, who are not subject to Wisconsin income tax (and therefore have no Wisconsin taxable income to reduce) to take advantage of the tax credit program. The sponsors of Assembly Bill 20 feel that making out-of-state investors eligible to receive the credit will ultimately increase the amount of investment in Wisconsin QNBVs. As the state continues to do its part to incentivize investment in Wisconsin companies, it is incumbent on the companies to educate themselves on programs such as the Act 255 tax credits as the battle for the almighty investment dollar continues. To that end, please see below for a brief summary of the Act 255 credits.
Certification as a QNBV
In order for an investment in a business to qualify for the Act 255 tax credits, that business must be certified by the WEDC as a QNBV prior to the investment. To become certified as a QNBV, a business must (1) have its headquarters in the state of Wisconsin, (2) have at least 51% of its employees employed in the state of Wisconsin, (3) have less than 100 employees, (4) have been in operation in this state for less than 10 consecutive years, (5) have received less than $10 million in aggregate private equity investment, and (6) have the potential for (i) increasing Wisconsin jobs or (ii) increasing capital investment in Wisconsin (or both), and must also engage in or be committed to innovation in one of the following areas:
• Biotechnology, nanotechnology, communications, agriculture, clean energy, or manufacturing;
• Product processing or assembly, including medical devices, pharmaceuticals, computer software, computer hardware, semiconductors, other innovative technology products, or products that are produced using manufacturing methods that are enabled by applying proprietary technology; or
• Pre-commercialization activity related to proprietary technology, including conducting research, new product development, development of a new business process, or developing services applying proprietary technology.
Claiming of Act 255 Credits
Once certified as a QNBV, the company should work with the WEDC to ensure that all necessary paperwork is filed with the WEDC to claim the tax credits. Once all the necessary paperwork has been submitted to the WEDC, the WEDC will issue each investor a form certifying the amount of tax credit the investor can claim. This form must be submitted with the investor’s Wisconsin tax return to claim the credits.
Restrictions and Limitation of Act 255 Credits
The Act 255 tax credits are subject to the following restrictions and limitations:
• If an investment in a QNBV is not maintained for a minimum of three years, any tax credits received from the investment are subject to forfeiture and recapture.
• If the funds invested are not used by the QNBV for legitimate business purposes (as determined by the WEDC), any tax credits received from the investment are subject to forfeiture and recapture.
• The aggregate amount of investments in any single QNBV that may qualify for tax credits is limited to $8 million (meaning a maximum of $2 million in tax credits may be allocated with respect to investments in any single QNBV).
• Investors are eligible to receive tax credits in any given year only to the extent that tax credits for that year are available to be allocated by the WEDC. Under current law, the aggregate amount of tax credits that may be allocated by the WEDC to all investors in any calendar year is limited to $20.5 million (except that an additional $250,000 in tax credits may be made available for investments in nanotechnology QNBVs). Tax credits are not allocated by the WEDC for an investment until the investor has made its investment and the necessary filings with the WEDC have been made. Available tax credits in any year are allocated on a first-to-file basis. As a result, in the event the maximum amount tax credits for a given year has been allocated at the time the an investment in a QNBV is reported, tax credits for that investment will not be available to be allocated until the next calendar year.
On October, 14, 2011, Assembly Bill 20 was recommended for passage by a bipartisan 9 to 5 vote of the committee on Jobs, Economy and Small Business and it is currently awaiting scheduling by the joint committee on Finance. While we do view the Bill as uncontroversial and it does have bipartisan support, it is uncertain at this point if and when the Bill will ultimately be passed.
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