'Angels' may get a tax break
People who invest in small high-tech, biotech and manufacturing firms my be eligible to receive a state tax credit for 50 percent of their investments. The Virginia Department of Taxation recently set tentative guidelines for what is being called the 'angel-investor law.' The department must set permanent regulations within one year.
Passed during the 1998 General Assembly session, the law has a number of stipulations. The investment must be for cash and neither the investor, the investor's family nor the investor's affiliates can receive any type of compensation from the business for one year. The maximum credit is $50,000 and, although the investment must be held for five years, the investor can apply for a tax credit immediately. The credit is available for individuals and estates only- businesses cannot receive the credit.
Eligible businesses receiving the investments must have annual gross revenues under $5 million, must operate principally in Virginia and cannot be in t the fields of or related to banking, finance, construction and consulting.
The hitch is that the state set aside only $5 million to be used for the credits, so investors may not receive a full 50 percent credit depending on how many apply, cautions Jeff Gallagher, a director at Mezzullo & McCandlsih. The tax department will add the investments from the year and divvy up the credits equally among investors.
Also the business receiving the investment must apply for a certificate of eligibility form the tax department by September 1 and the investor must include a copy of that certificate when applying for the tax credit.
Gallagher adds that the law is modeled after similar laws in other states where high-tech community is active and will give investors an added incentive to help small businesses grow.
To find out if your business is eligible for credits under the angel-investor law, call Lisa George, a tax policy analyst at the Virginia Department of Taxation, at 804-367-1525.
Angela D. Hill (Inside Business) April 5, 1999
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