Reforms to the Angel Investor Tax Credit Make Iowa More Attractive to Innovators and Entrepreneurs
The Battelle Report, released in December of 2014, included many critical findings, among them that innovation and entrepreneurship will drive future gains. In an effort to accelerate the development of Iowa’s entrepreneurial ecosystem, the report had several recommendations, including the creation of an effective angel investor tax credit that eliminates the waiting period, increases the tax credit percentage, and makes the credits transferrable to attract broader investor interest. During the 2015 Legislative Session, the Iowa Legislature took that recommendation to heart and made the necessary changes, making the tax credit more competitive, attractive, and effective.
Improvements to the Angel Investor Tax Credit during the 2015 Legislative Session include:
- Increasing the credit percentage from 20% to 25%, which is more in-line with neighboring states.
- Making the credits refundable, but not transferrable, which allows the program to better compete with neighboring states and makes the investment more desirable to angel investors.
- Focusing the credits on individual angel investors and not institutions and preventing the angel tax credits from competing with the Innovation Fund Tax Credits for investment capital, which allows the angel tax credits to be scaled for more individualized investments rather than institutional investments.
- Simplify the eligibility requirements and better align the credit with existing programs, thereby maximizing the reach and effectiveness of this and other available programs, such as the Demonstration Fund and the Innovation Fund Tax Credit Program.
- Elimination of the community-based seed fund feature, as it is capped at small dollar amounts that make it economically inefficient to operate as a managed fund. Investors can continue to make similar financial contributions by pooling their investments through LLCs and LLPs, which allow them to make investments more efficiently.
- Simplify the cap structure by capping the individual credit level at $100,000 per taxpayer per year rather than the previous $250,000.
- Minimize future liabilities by reducing the carryforward period from five years to three years.
By increasing the competitiveness and effectiveness of the Angel Investor Tax Credit in this manner, Iowa is now better positioned to meet the needs of innovators and entrepreneurs from around the globe.