Tax Incentives for CAPCOs, Angel Investment, Green Jobs Sought in Minnesota

As part of the 2010-11 biennial budget unveiled last week, Gov. Tim Pawlenty proposed a package of tax incentives directed toward small, emerging businesses and companies that create green jobs and services. The governor's proposed Minnesota Jobs Recovery Act calls for a sizable investment over the next biennium with even greater costs beginning in 2012.

Within the Department of Employment and Economic Development, the governor is proposing investment tax credits totaling $50 million, deferred until 2012. Under the proposal, $38 million in tax incentives would be available to insurance companies for early-stage investments in certified capital companies. This proposal creates a 60 percent tax credit in the form of an insurance premium tax credit and is allowed only in the fifth calendar year after the investment is made at a rate not exceeding 20 percent of the earned credit in any taxable year, according to budget documents.

Another $12 million is recommended for angel investments in regional investment funds, including a 25 percent tax credit for investments in funds that invest in qualified businesses meeting defined criteria. The credit would be allowed only after an investment has been held for four years. The proposal creates 20 funds that are geographically dispersed and requires each fund to invest at least 60 percent of its money in qualified businesses within the fund's region. Both proposals dedicate 50 percent of the investments to green technology.

Tax incentives for angel investment are likely to be a topic of debate in the upcoming legislative session. There are currently two other proposals under consideration within the House Bioscience and Emerging Technology and Senate Business, Industry and Jobs committees aimed at increasing early-stage funding for Minnesota start-up companies, reports MinnPost.

Sen. Kathy Saltzman, DFL-Woodbury, is sponsoring two proposals aimed at increasing investment in the state's bioscience industry. The proposed Angel Investor Tax Credit provides tax incentives for private investments in early-stage high technology and bioscience businesses and the Minnesota Business Investment Act offers tax incentives to insurance companies for investments made in high technology and green businesses.

Another proposal floated by Rep. Jim Davnie, DFL-Minneapolis, but not yet formally introduced would set aside $6 million for a 25 percent tax credit for angel investments in the high-tech, biotech, medical device and green manufacturing sectors, according to the article.

The House and Senate proposals differ from Gov. Pawlenty's plan in two main areas, according to the MinnPost article. Under the governor's plan, investors would not be able to claim the tax credit until four years after the investment is made, while both the House and Senate versions would award the credit the same year the investment was made. Also, the governor's plan calls for geographic dispersment to avoid concentrating the investments in the metro area.

Gov. Pawlenty's Jobs and Recovery Act also calls for creation of a Green JOBZ program, modeled after the original JOBZ program. The Green JOBZ program would be available only to companies that create renewable energy, represent manufacturing equipment or services used in renewable energy or that create a product or service that lessens energy use or emissions. Companies will receive benefits for twelve years for all agreements signed by the end of 2015 under the plan. Gov. Pawlenty recommends $3.65 million in 2010-11 and another $6.6 million in 2012-13 for the effort.

Gov. Pawlenty recommends a one-time appropriation of $200,000 over the 2010-11 biennium to support the strategic implementation of the BioBusiness Alliance of Minnesota Destination 2025 Roadmap to define how Minnesota can be competitive in the bioscience sectors. The Alliance received a one-time appropriation of $1.75 million in FY08.

Within the Department of Education, the governor recommends $1.5 million each fiscal year (the same as last biennium) for the Math and Science Teacher Academy, which provides technical assistance to schools and districts and professional development to teachers to ensure the successful implementation of the new statewide standards in mathematics and science.

Gov. Tim Pawlenty's 2010-11 executive budget is available at: http://www.finance.state.mn.us/fin/budget.