The following is an overview of key information for angel investors interested in qualifying for the Angel Tax Credit Incentive program that was passed by the Tennessee General Assembly in 2016 and active as of Jan. 1, 2017.
For more detailed answers to common questions, please visit the Angel Tax Credit program FAQ.
You can also contact Launch Tennessee directly with any questions regarding the ATC at ATC@launchtn.org.
The basic requirements for the Angel Tax Credit
- Must invest in qualifying company (see below)
- Investment Equity includes common, preferred, convertible debt
- Minimum investment of $15,000
- Cannot exceed 40% of company’s capital at time of investment
- Investor must be accredited per SEC rules
How the Angel Tax Credit works for angel investors
- Angel investors receives credit versus Hall income tax
- 33% credit of total investment (50% for companies in Tier 4 county)
- Max credit for investor is $50,000 / year
- Unused credits can be carried over for up to 5 years
What an Angel Tax Credit qualifying company looks like
- Early Stage: Less than 5 years in business; less than $3 million in revenue in previous year; 50 or fewer full-time employees
- Has Tennessee nexus: 60% of full-time employees perform majority of their work in TN
- Meets any 1 of 3 tests: Qualify as having high-growth and institutional investment potential; Company has received SBIR/STTR funding; Commercializing tech developed at TN-based research institution
- Industry restrictions: Cannot be a professional services firm or “primarily” engaged in certain industries (including construction, leisure, hospitality, retail, real estate, insurance, banking, lobbying, alcohol, gambling). However, technology companies leveraging disruptive technology and innovating in these industries are qualified
- Industry restrictions – example: A company 3D printing construction materials would qualify, a residential or commercial construction company would not.
For angel investors interested in applying for the ATC
- Start date: Investments made beginning Jan 1, 2017
- Processing: Officially starts Jan 1st, 2017
- Company application: Can be filed prior to investment for pre-certification; must be filed within 60 days of investment.
- Investor application: Must be an accredited investor defined by SEC rules; must be filed within 60 days of investment
- Maximum credits allocated: $3M in 2017, $4M in 2018, $5M for 2019 and beyond
- Credits allocated on first-come, first-served basis: Investment put in queue once BOTH applications are complete
Example scenarios of the Angel Tax Credit in action
- $60,000 investment in qualifying company: Investor receives $20,000 (33%) tax credit vs Hall income tax; If tax liability is less than $20,000, excess carried forward up to 5 years; Investor can receive remaining $30,000 credits for other investments in that same year
- $60,000 investment in qualifying company (in Tier 4 county): Investor receives $30,000 (50%) tax credit vs Hall income tax; If tax liability is less than $30,000, excess carried forward up to 5 years
- $200,000 investment made in qualifying company: Investor receives maximum $50,000 tax credit vs Hall income tax
- 10 angels each invest $90,000 in a single qualifying company: Each investor receives $30,000 tax credit vs Hall income tax; No limit on amount of qualifying investments in a qualified company