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Lawmakers propose bill to expand venture capital tax credit

January 27, 2017

Two Indiana lawmakers have introduced a bill that would revamp the state's Venture Capital Investment Tax Credit program to make it more attractive and flexible.

The program, which began in 2004, allows corporate or individual investors to reap up to $1 million in state tax credits in return for pumping equity or debt capital into early stage companies. House Bill 1503 would raise the cap to $1.5 million and, for the first time, allow the tax credits to be transferred.

That means an out-of-state investor with no Indiana tax liability could sell those tax credits to an Indiana taxpayer.

"It's not a new concept—it's something that other states have done," said CloudOne CEO John McDonald, who chairs the policy committee of the Indiana Chamber's Tech and Innovation Council, which lobbied for the legislation.

"It has had value in helping states bring in dollars from other states, and we were kind being eclipsed by that."

The bill was authored by Rep. Ben Smaltz, R-Auburn, and co-authored by Rep. Julie Olthoff, R-Crown Point. Smaltz couldn't be reached for comment, but Olthoff said she wanted to throw her weight behind a bill that would increase the flow of venture capital investing.

"Venture capital money is so hard to find for so many businesses that have great ideas," Olthoff said. "So many ideas die on the table because they just don't have the money to move them forward."

The proposal appears to dovetail with the agenda of Gov. Eric Holcomb. His priorities for the session include updating and growing the state's Venture Capital Investment Tax Credit program, a spokeswoman said.

The 13-year-old program is managed by the Indiana Economic Development Corp. It works like this: An angel investor wants to invest money in a qualifying startup. Both parties then present their plans to the IEDC for certification.

Once approved, the investor has up to two years to make the investment and show proof. The party making the investment then would receive 20 percent of the investment amount in the form of a tax credit, or $1 million—whichever is less.

The proposed bill would increase that percentage to 25 percent and raise the maximum credit to $1.5 million. If the qualifying business is in a low-income community, as defined by federal guidelines, then the percentage climbs to 40 percent.

The bill also makes the credit "assignable" and increases the amount of tax credits the IEDC can approve per year, from $12.5 million to $15.0 million.

McDonald said that if the bill passes, out-of-state investors would be able to unlock value from tax credits for qualifying investments. He said they could, for instance, sell $1 million in tax credits for less than $1 million to an interested party as part of a collaborative deal to fund a company.

"The investor gets monetary value, the Indiana taxpayer gets the tax credit, and the company gets the investment," McDonald said.

According to the IEDC, from 2004 to 2016 investors claimed $42.7 million in venture capital tax credits related to $515.1 million in investments.

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