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Proposed 20% Tax Credit For Angel Investors Flies Into Committee

September 13, 2016

Only Silicon Valley has more “angel investor” backed start-up companies than Michigan and legislation brought before a House committee Wednesday could get the Great Lakes State a little closer.

Michigan Venture Capital Association Executive Director Maureen Miller Brosnan urged the House Tax Policy Committee today to support a pair of bills that would create a 20 percent income tax credit on an investment made by small “seed or early stage” businesses.

The committee only took testimony on the Rep. Jeff Farrington (R-Utica) bills — HBs 5786 and 5787. Angel investors are private investors or investor groups that financially back start-up companies. The Michigan Strategic Fund (MSF) will determine the eligibility and issue certificate for the investment tax credits.

Farrington said “start-up” companies would be very narrowly defined to include only companies worth less than $10 million, are headquartered in Michigan, have been in existence for less than five years and have fewer than 100 employees.

Advocate for the bills, Jody Vanderwel, president of angel investor group Grand Angels, said that a 2010 experiment with angel investor tax credits “is responsible in-part for building momentum for angel investment.”

The Michigan Investment Capital Association reported 99 individuals took advantage of the two-year 2010 credit flagship, on average making $61,000 in individual tax credits for a total of $1.5 million. The numbers were shared as Rep. Jim Townsend (D-Royal Oak) and others questioned whether the tax credits would lower state revenues put toward education.

Townsend said he found “the deafening silence to my friends on my left who I think years ago would have called this picking winners and losers” remarkable.  

Since 2010, total start-up companies in Michigan have grown 42 percent to 128 and that investment in start-ups since 2010 has increased 68 percent to $16 million.

The Department of Treasury also testified before the committee in opposition of the legislation because the credit is structured around the individual income tax.

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