Money on the table: Iowa Economic Incentives
Posted on 02/20/2017 at 12:00 AM by Cody Edwards
In recent years, the Iowa Economic Development Authority (“IEDA”) has made an effort to make Iowa a more business-friendly state. In doing so, the IEDA has revamped Iowa’s economic assistance delivery model, making it easier for new and expanding businesses to obtain economic assistance and tax credits. The IEDA reports that since 2011 it has provided $56.5 million in direct assistance and tax credits equaling $478.1 million. Although the public perceives economic incentives as being limited to multi-million dollar investments, economic incentives are available for investments of much less. Below is a brief description of some of the incentives provided by the IEDA—Angel Investor Tax Credits and High Quality Jobs Program.
Angel Investor Tax Credits
Angel Investor Tax Credits allow an investor to receive a tax credit for their equity investment in certain qualifying businesses. The Angel Investor Tax Credits are made up of the Qualifying Business Tax Credit and the Community-Based Seed Capital Fund Tax Credits. The Credits are offered on a first-come-first-served basis, with total available credits of $2 million per year.
Timing is critical to obtaining the Angel Investor Tax Credits. Businesses seeking to be designated as a Qualifying Business or Community-Based Seed Capital Fund must submit a verification application and required documents to the IEDA within 180 days of receiving the first investments. The business must be verified and registered as an eligible Qualifying Business or Community Based Seed Capital Fund before individual investors can be approved to receive a tax credit.
Qualifying Business Tax Credit
Under the Qualifying Business Tax Credit, an investor receives tax credits equal to 20 percent of the investor’s equity investment in a Qualifying Business. The maximum amount of a tax credit per investment by an investor in any one Qualifying Business is $50,000 (for an investment of $250,000). The maximum amount of tax credits per investor is $250,000 (five investments in separate Qualifying Businesses x $50,000 per investment).
There are many nuanced requirements to qualify for the Qualifying Business Tax Credit, but the basic requirements are as follows:
- The principal business operations of the business are located in Iowa;
- The business has been in operation for six years or less, as measured from the date of the investment for which a credit is claimed;
- The business cannot be a business engaged primarily in retail sales, real estate, health care services or other services requiring a professional license;
- The business must have a net worth of $5 million or less as of the date of the investment for which the credit is claimed;
- Within 24 months from the first date on which the equity investments qualifying for investment tax credits have been made, the business shall have secured total equity or near equity financing equal to at least $250,000; and
- The business must have an owner who has successfully completed training, such as a college degree, that will increase the probability of success of the qualifying business.
Community-Based Seed Capital Fund Tax Credit
Under the Community-Based Seed Capital Fund Tax Credit, an investor receives tax credits equal to 20 percent of the investor’s equity investment in a Community-Based Seed Capital Fund.
Similar to the Qualifying Business Tax Credit, there are many nuanced requirements to qualify for the Community-Based Seed Capital Fund Tax Credit. However, the basic requirements of the Community-Based Seed Capital Fund Tax Credit are as follows:
- The fund is organized as a limited partnership or limited liability company.
- The fund has a total of capital commitments from both investors and investments in Qualifying Businesses of at least $125,000, but not more than $3 million.
- The fund has at least five investors that are not affiliates, with no single investor and affiliates of that investor owning a total of more than 25 percent of the ownership interests outstanding in the fund.
The requirements of the Angel Investor Tax Credits are nuanced. However, if you are planning to invest money into start-up companies located in Iowa, it may be worth looking into whether the Angel Investor Tax Credits are available.
The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.
Categories: Table SALT, Cody Edwards, Taxation Law
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