As a way of promoting the growth of startup companies in Tennessee, Randy Boyd, Commissioner of Economic and Community Development, has proposed an angel investor’s tax credit. The proposed legislation, which has already been filed, creates a 33 percent credit given to angel investors for up to $50,000 annually against the liability of Hall Income Tax of up to $50,000 angel investments. An angel investor will be required to invest a minimum of $15,000 in order to benefit.
Hall Income Tax is applicable to those receiving interest from stock and bond dividends, and will reduce the tax bills of those making angel investments in startups. The tax credit will increase to 50 percent for those who will invest in any of Tennessee’s distressed counties. The program has been capped to $3 million during the first year, and will increase to $4 million then $5 million in the subsequent years.
Other requirements for startups receiving the angel investments are: they should ensure that 60 percent of their employees are based in Tennessee; they must make an annual revenue of less than $3 million; they must not have more than 50 employees. These will guarantee that the startup companies in Tennessee are the ones benefitting.
Currently, there are 26 other states that have similar ongoing programs, although the tax credits for most of them are on income tax. Tennessee’s tax credits, however, will apply on Hall tax since the state does not have income tax.
This proclamation comes at a time when Tennessee’s early-stage companies investment programs, INCITE and TNInvestco, are dwindling. As of 2014, only $17 million of the original $117 million for the investment programs was available.
Tennessee has about 2,000 people paying a Hall Income Tax; around 235,000 accredited investors; and about 6,800 prospective angel investors. The economic office has shown that only around 400 people offer angel investments, a number which legislation wants increased.
Boyd pointed out that they want to make Tennessee a friendly state for stockholders, where individuals can make investments more confidently and lucratively. Boyd also said that the legislation is a win-win for both investors and entrepreneurs. He believes that by providing shareholders with extra incentives, and giving them more freedom to make their investment decisions, they will attract more angel investments, thus providing Tennessee entrepreneurs with more capital.