Pawlenty approves ‘angel’ tax credit bill

Lawmakers hope the bill will encourage homegrown businesses to stay in Minnesota.

by James Nord

Minnesota startup businesses, including those using licensed University of Minnesota technology, will now have more reason to stay true to their roots with the advent of a new tax credit program promoting investment in small businesses. The Small Business Tax Investment Credit, signed by the governor last week, offers tax credits on investments made by qualified investors into small businesses in Minnesota. The University has lobbied for the bill in the past, as it would make the state more attractive in the technology commercialization market. âÄúIt will make it easier to finance startup companies that are formed to commercialize University technology,âÄù said Doug Johnson, director of the UniversityâÄôs Venture Center within the Office for Technology Commercialization. The law will reward âÄúangelâÄù investors with a 25-cent tax credit for every dollar invested. Under the lawâÄôs definition, these investors are backers of specific businesses that are less than 10 years old. Individual investors must finance at least $10,000, while a pool of investors must finance at least $30,000. Wisconsin, Iowa and North Dakota all have similar investment tax credits already. This has prompted small businesses with homegrown Minnesota technology to leave the state in search of funds. Some companies spun off from University research have moved to Wisconsin, University Vice President for Research Tim Mulcahy said in a February legislative committee meeting. âÄúWe need to address the fact we have a lack of available capital for small startup companies,âÄù Sen. Kathy Saltzman, DFL-Woodbury, said. The bill promises to dole out more than $50 million in tax credits over five years. Gov. Tim Pawlenty is a longtime supporter of the measure, including it in a jobs proposal he touted in his State of the State Address in February. âÄúThese steps will encourage job growth and send a strong signal that Minnesota is moving in a more pro-growth, pro-jobs direction,âÄù he said. Currently, Minnesota ranks 23rd in businesses created from university research and development, according to a report presented to the Legislature by the Minnesota Science and Technology Economic Development Project Committee, which advocated for implementing the tax credit. âÄúThe state has to be competitive,âÄù Johnson said. âÄúThe attraction for Minnesota startups was to move to Wisconsin or Iowa or South Dakota in order to get investors who could then get their tax credits,âÄù Johnson said. Minnesota ranked 43rd in âÄúfriendlinessâÄù toward entrepreneurs in the 2009 Small Business Survival Index. The corporate tax rate in Minnesota, including federal taxes, is the third highest in the world, according to the committeeâÄôs report. Now, homegrown businesses will find staying put a little more appealing. To qualify as a small business, startups must be less than 10 years old, have fewer than 25 employees and be headquartered in Minnesota. Additionally, at least 51 percent of the workers must be employed in the state. They must also be âÄúengaged in, or committed to engage in, innovation in MinnesotaâÄù within the technology field, according to the bill. The bill also states investors cannot make more than half their annual income from the company in which they wish to invest; investors and investees must be mostly separate entities. The angel program was a part of a larger jobs bill, which passed 112-10 in the House and 58-3 in the Senate.