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Angel Tax Credit: Prayers for passage not on all lips
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The Angel Investor Tax Credit proposal now before the General Assembly may remind some of the adage, "Be careful what you pray for."


Angel Capital Group (ACG) managing partner and legislative liaison Jason Denenberg quickly affirms it's a tough budget year and tax-related issues are highly charged. However, he told VNC, such programs have proven effective in some other states; and, at the very least, debate of Angel Credit merits would raise aware of Angel opportunities among wealthy Tennesseans. Denenberg noted ACG and other third-parties could earn roles helping Angels submit their applications to the program.


The Angel credit proposal misses the mark, according to Jeff Cornwall, director of the Belmont University Center for Entrepreneurship. "Targeted tax credits for angel investments do little to spur new investments or to increase the overall activity level of angel investing over the long term," he told VNC. "They do give angels a tax break, which is not a bad thing, but spurring entrepreneurship in our economy will come from more broad-based tax cuts that leave money in the bank accounts of customers. Recent surveys of entrepreneurs suggest that what they need most to begin growing their businesses again is improved revenues coming from consumer spending, not more access to capital. This is a well intentioned bill, but not one that will have much of an impact on economic growth in Tennessee."

The Angel Credit bills' sponsors, State Rep. Debra Maggart (R-Hendersonville) and State Sen. Ken Yager (R-Harriman), have not yet responded to VNC requests for interviews, though a Maggart spokesman said she will be available today. This story will be updated, as warranted.


Nashville Capital Network (NCN) Executive Director Sid Chambless told VNC his group is still studying the bill, adding: "Generally, we think smartly constructed tax credit programs can invigorate angel investment and economic development. A number of states like Wisconsin and Ohio have had great success with similar initiatives. We are in the process of studying this bill and querying leading angel investors about its potential impact on their investments and activities. I am hopeful this dialogue will result in policy that promotes entrepreneurship and angel investing in Tennessee."

The proposal would do for Angel investors something like what the innovative and yet-unproven TNInvestco initiative has done for insurance companies and venture-capital investors: Encourage Angels' investments in "Tennessee qualified small businesses" that have generated no more than $999,999.99 annual income in the year prior to application.

Angels would get credits against their Hall Income Tax liabilities, much as participating insurance companies were able to reduce their premium-tax payments under TNInvestco, the unprecedented program in which the state chose to forego $200 million in revenue, driven by estimates that ten TNInvestco-certified funds would invest wisely in companies that would eventually produce both net-new jobs and tax revenue for the state.


Any prayerful petitions on this matter that might be sent heavenward by State Treasurer David Lillard might be influenced by the fiscal note now carried by the Angel Credit bills, HB1396 and SB1238: The note contains no speculation as to future job and revenue gains flowing from the program, but posits $40 million in tax revenue at least temporarily foregone, as well as at least $1.6 million in staff and out-of-pocket expenditures over an initial five-year period.


Likewise, if Credit lead advocate Angel Capital Group succeeds this session, State Economic and Community Development (ECD) Commissioner Bill Hagerty may want to hit his knees.

For, according to the legislation, Hagerty would be required to designate companies that qualify for investment; devise an application process; determine (and sometimes investigate) whether companies have a "reasonable chance" of success and "reasonable potential" to create "measurable" employment; delist companies that become un-qualified; and, wield authority to audit and otherwise "access" companies benefiting from the program.

ECD would also be responsible for, first, reviewing a projected 3,216 applications from among the state's estimated 71,622 "potential angel investors" statewide. ECD would then communicate directly or via third-party agents with the projected 1,784 Tennessee applicants who will fail to pass muster as active and accredited Angel investors.

Former state senator and now U.S. Rep. Diane Black (R-6-TN) began exploring the Angel Credit idea in 2007 and the notion surfaced again during a 2008 meeting on capital formation, hosted by Tennessee Technology Development Corporation (TTDC).

Subsequently, debate of the state's capital-formation agenda focused on the TNInvestco venture capital initiative, which passed in 2009.  VNC

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Tags: Angel Capital Group, Angel investors, Bill Hagerty, capital formation, David Lillard, economic development, finance, Jason Denenberg, Nashville Capital Network, Sid Chambless, state government, tax credits, taxes, Tennessee Technology Development Corporation, TNInvestco, TTDC, venture capital

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