South Carolina Angel Tax Credit - Squarespace€¦ · South Carolina Angel Tax Credit: ... Angel investor tax credit overview ... investing, insurance, natural resources

South Carolina Angel Tax Credit: What Investors and Entrepreneurs Need to Know

Summer 2015

Disclaimer

� This presentation covers complex tax,

accounting, and legal issues

� We are not attorneys or accountants, nor qualified to give legal or tax advice

� Please seek input of professional advisors for your situation

Agenda

I. What is the angel investor tax credit?

II. Who and what qualifies?

III. What are the nitty gritty details?

IV. What issues have there been?

V. Is the credit working?

VI. Questions?


� High Growth Small Business Job Creation Act of 2013 � Passed by Legislature, signed by Governor in June 2013 � Took 4+ years to gain approval (and sunsets in 2019)


� The General Assembly desires to support the economic development goals of this State by improving the availability of early stage capital for emerging high-growth enterprises in South Carolina. To further these goals, this chapter is intended to: � encourage individual angels to invest in high-growth, job-

creating businesses � increase high-quality, high-paying jobs in SC � expand the economy with wealth-creating businesses � help commercialize SC’s higher education inventions

-150,000

-100,000

-50,000

0

50,000

100,000

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01

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03

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07

20

09

Job

s C

re

ate

d

Net Job Creation by Firm Age

Net Jobs Created by Firms Less Than 5 Years Old

Net Jobs Created by Firms Older Than 5 Years

Startups create all

of SC’s net new jobs

Source: Business Dynamics Statistics Briefing: Jobs Created from Business Startups in the United States. US Census Bureau and Kauffman Foundation (2009)

SC’s economy needs startups…

0

10

20

30

40

50

60

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90

100

20

05

20

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20

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20

08

20

09

20

10

20

11

20

12

20

13

20

14

VC Investments by State

GA

NC

TN

SC

FL

Source: PWC MoneyTree

…but is lacking in early stage capital

Angel investor tax credit overview

� State income tax credit � No impact on federal taxes � Is a credit against tax liability (not an income deduction) � Up to 35% of the investment made in a qualified startup � Capped at $100,000 in credits per individual per year � Implies max qualified investments of $285,714

� Not refundable, but can be carried forward up to 10 years � $5 million in total credits available each year � Sunsets in 2019

� Around 20+ other states have similar tax credits

29 states have a credit (or no income tax)

> 50%

40 – 50%

25 – 35%

10 – 20%

No income tax

Refundable

MT

WY

ID

WA

OR

NV UT

CA

AZ

ND

SD

NE

CO

NM

TX

OK

KS

AK

LA

MO

IA

MN

WI

IL IN

KY

TN

MS AL GA

FL

SC

NC

VA WV

OH

MI

NY

PA

MD

DE NJ

CT RI

MA

ME VT

NH

ALASKA

HAWAII

Tax Credit Rate

Agenda






VI. Questions?

II. Who and what qualifies: Companies

Less than 5 years old

Headquartered in SC

Less than 25 employees

Revenues less than $2M / year

retail, real estate, construction

gambling, entertainment, recreation

investing, insurance, natural resources

Required Not Allowed

High growth industry

Stated purpose or > 25% revenue from:

no brokerage fees

II. Who and what qualifies: Investors

Accredited* individual investors, pass-throughs

Investing in debt or equity Funds > $5 million

Allowed Not Allowed

Operating businesses

SC resident or SC tax liability

*Accredited Investor Definition (per SEC): • > $1M in net worth (excluding 1st home), or • > $200K income last 2 years and this year for individuals, or • > $300K income last 2 years and this year for couples, or • Pass-through entity whose members are all accredited

Agenda






VI. Questions?

III. Nitty Gritty Details

� Process / Timing

� Transferability

� Recapture

Nitty Gritty - Process

Qualifying company files application with Secretary of State

Investor applies for tax credit by December 31st of investment year

Once company certified, accredited investor makes investment

Department of Revenue allocates credits by January 31st

Typically approved in 7-10 days

Investor files credit form with tax return (for 50% of allowed credit)

If oversubscribed, allocated pro-rata

Investor files credit form in following year(s) for remaining credit

Nitty Gritty - Transferability

� The credits are transferable! � They can be sold or exchanged…but only once! � Expected to be worth ~$0.80 per $1.00 � Can transfer to spouse in divorce or heirs after death

� Designed to allow/attract: � Out of state investors � Investors with wealth but little current income

� Glitch: � Only out of state pass through entities currently allowed � Non-resident individuals without SC tax liability excluded � Hope to address next legislative session

Nitty Gritty - Recapture

� As a condition for passing the bill, recapture clause was added � Intended to recover credit for gains… � And avoid double dipping if a loss � Complicated and confusing, but here’s the gist:

� If investor realizes capital gain from credit: � Charged full 7% capital gains rate until credit recovered � Then capital gains drops to normally discounted 3.92%

� If investor realizes capital loss: � May not claim deduction for credited portion of capital

Agenda






VI. Questions?

IV. What issues have arisen

� Process failures � Investors investing before company certified � Investors failing to file credit application by 12/31 � One time extension for 2014 through July 31, 2015

� Pass-through disallowance � Originally disallowed multiple-member pass throughs � Issue now resolved

� Out of state investors � Current language disallows out of state individuals with no

SC tax liability – which defeats purpose of attracting capital

Agenda






VI. Questions?


� Reporting requirements: � Secretary of State

� Qualified Businesses to Legislature/Governor by 1/31

� Department of Revenue � Allocation of credits to investors by January 31 � Qualified investments to Legislature/Governor by 3/31


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40

50

60

2013 2014

QB* Applications

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13

0

2

4

6

8

10

12

14

2013 2014

Counties with QB

+113% +117%

25

23

8

4

3

11

0

10

20

30

40

50

60

70

80

Total QBs

QBs by County

Greenville

Charleston

Spartanburg

Pickens

York

Others (1 or 2)

*QB = Qualified Business


14

86

4

20

0

20

40

60

80

100

120

2013 2014

Investor Applications

Approved Not Approved

0.8

(56%)

2.2

(77%) 0.6

0.7

0

0.5

1

1.5

2

2.5

3

2013 2014

$M

illio

ns

Credits Approved

In State Out of State

+512%

+109%

$3.9M $8.1M Qualified

Investments

3

(60%)

10

(59%) 2

7

0

2

4

6

8

10

12

14

16

18

2013 2014

Investor Counties

In State Out of State

+240%

Agenda






VI. Questions?

VI. What questions do you have?

� Is it $5M of new credits each year? Or does carry-over years credit count against this year’s total? $5M begins afresh each year

� If you don’t need 50% in year 1, can you take more forward? Yes

� Can a founder claim the credit even if they are not accredited by wealth/income? Yes. Founders are automatically accredited

� Have any non-SC residents claimed the credit successfully? Yes – see

slides 23-24

� Does information on how much investment each company receives become public? No

� What happens if a qualified company mergers or is acquired? The

acquiring entity must inform the Secretary of State and Department of

Revenue, and may be able to remain qualified.

� Where can I get more information? Our website has the links to the

filing documents, or feel free to contact us any time

Thank you!

www.scangelnetwork.com

Documents

South Carolina Angel Tax Credit - Squarespace€¦ · South Carolina Angel Tax Credit: ... Angel investor tax credit overview ... investing, insurance, natural resources