Haslam Admin asks GenAssembly for Angel Tax Credit to mobilize early-stage investors and energize Tennessee 'Angel ecosystem'
Milt Capps updated 14 April 2016 0721
Update: April 14, 2016: Credit bill deferred in both chambers til week of April 18. March 2, 2016 1:57pm - The companion bill introduced by Sen. Norris is SB2539. Bills are working their ways through respective committees.-Ed.
RANDY BOYD, Gov. Bill Haslam's commissioner of economic and community development, this afternoon confirmed the Administration's support for a tax credit aimed at bringing more qualified Angel investors in from the sidelines and spawning a more robust Angel-investor ecosystem.
If the measures passes Tennessee's House and Senate and is signed into law by Gov. Haslam, Tennessee will join 26 other U.S. states that have similar programs. Boyd said a recent report showed that 75% of those other states had realized material gains in entrepreneurial activity, as a result of the program.
Boyd told Venture Nashville today that HB 1536 outlining the credit has been enrolled, carried by State Rep. Gerald McCormick (HD26-Chattanooga). A copy of the original House bill is here (pdf).
Sen. Mark Norris (SD32, Collierville) told VNC it will likely be his name atop the Senate's eventual companion bill. Both McCormick and Norris are Republicans.
An initial review of the proposed program suggests that total credits would range from $3MM to $5MM per year, in keeping with a predetermined schedule.
To put those amounts in perspective, such annual credit totals, it could be argued, might be equivalent to the annual impact of one or two micro-VC funds being fully invested in a given year, though the benefits might be spread more thinly, statewide.
Under the program, individual accredited investors could qualify for up to $50K in tax credits each year, provided each investment in a year was at least $15K and met other conditions. There's additional incentive in the program for investments in companies based in any of Tennessee's 21 "Tier 4" distressed counties.
[Updated 18 Jan. 4:20pm] Asked his response to the proposal, Nashville Capital Network Executive Director and Managing Partner Sid Chambless said Jan. 18, "I'm studying it, but I think this gives some tax relief to the state's investors who are putting their own money at risk for early-stage investments, thereby supporting the entrepreneurial ecosystem. That seems like a good policy for the state's private investors and entrepreneurs."
Companies in which investments are made could, according to the proposed legislation, be "an innovative small business with high-growth potential, including, but not limited to, tech-enabled startups and companies in the fields of consumer products, medical devices, life science, or additive manufacturing; or is a company that has received small business innovation research/small business technology transfer (SBIR/STTR) funding; or is commercializing technology developed at a research institution within this state..."
Targeted early-stage companies may have generated no more than $3MM gross annual revenue, and may have 50 or fewer full-time employees, 60% of whom perform the majority of their work in Tennessee, according to the initial House bill.
Boyd stressed that the tax-credit approach reflects a cultural and policy shift, whereby investors will carry the ball on increasing funding for early-stage companies, rather than having state government essentially picking winners.
In 2009, state Revenue and ECD agencies collaborated to pick 10 TNInvestco funds from among dozens of applicants. The program's impact has yet to be assessed. It required $200MM of prospective state insurance premium tax revenue.
Boyd said he anticipates that the majority of stakeholders who support the Angel Tax Credit will mobilize statewide to rally grassroots support and legislators' endorsment. LaunchTN, local Chambers of Commerce, Angel groups and others may align their collective activities.
There's no word yet on whether the Administration will advance further proposals to stimulate the state's entrepreneurial ecosystem. Boyd recently told VNC he had a number of ideas.
[UPDATE 16 Jan 1:44pm: Commissioner Boyd said today, "While we are continuing to investigate other initiatives we likely won't introduce another during this session."]
The credit would be used by qualifiable Angel investors to offset taxes otherwise due under the state's Hall Income Tax, the only such offset available to Tennesseans in the absence of a general state tax on personal income. The Hall Tax applies to certain taxable interest and dividend income and has been a target of Tennesseans with obligations under the current law.
Boyd said more than 2,000 Tennesseans pay at least $10K yearly under the Hall Income Tax requirement, adding that he believes many of those would rather engage in Angel investing, advantaged by the credit.
Boyd said the program, designed to commence beginning with the 2017 tax year, would be administered by LaunchTN (formally, Tennessee Technology Development Corporation), which is led by CEO Charlie Brock, an entrepreneur, investor and a Chattanoogan.
LaunchTN also administers for ECD the rules-governed INCITE co-investment program, which is nearing the end of its allocation of funding from the U.S. Treasury.
Applicants for the proposed tax credit and the companies in which they invested must meet strict criteria, if they are to be certified for a tax credit in a given year. A credit carry-forward option is provided.
A cap for the total tax credits certified is imposed during a three-year pilot period for the program -- spanning tax years 2017-2019, inclusive -- and LaunchTN is mandated to report in 2020 results achieved against objectives.
The outcome of Angel Tax Credit debate, if any, is impossible to handicap at this time.
In 2011, the Angel Capital Group, now based in Knoxville, made a quiet effort to gain legislator interest in such a measure, as reported by VNC.
ACG's person on point for that exercise was Jason Denenberg, who is now on staff with LaunchTN.
Boyd said LaunchTN would receive no additional state funding for administering the Angel investment program. LaunchTN has received funding for its handling of the waning INCITE program. VNC
last edited 11:58 a.m. 16 January 2016.