Indiana Venture Capital Investment Tax Credit Program Updates – Corporate and Corporate Law
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Effective January 1, 2022, the Indiana State Legislature updated the popular Venture Capital Investment Tax Credit Program (Indiana VCI Program) to (1) expand the Indiana VCI Program to Indiana Investment Funds; (2) increase the amount of tax credits generally available under the Indiana VCI program; and (3) providing investors with more tax credits related to investments in women and minority-owned businesses (W/MBE).
The Indiana VCI program provides a non-refundable tax credit to investors making certain investments in Indiana companies. The Indiana VCI program is designed to incentivize investment in Indiana’s fast-growing businesses. To take advantage of the Indiana VCI program, an investor must make a qualifying investment in a qualified Indiana investment company or fund.
Generally, to take advantage of the Indiana VCI program:
- The business or investment fund must first be certified as an Indiana Qualified Business or Indiana Qualified Investment Fund by the Indiana Economic Development Corporation (IEDC).
- The investor must submit a qualified capital investment application to the IEDC before making their investment.
- Once the qualified equity investment application has been approved by IEDC, the investor must invest in the company or investment fund and submit the required documentation of the investment to IEDC.
- The IEDC will then issue the investor a letter of certification. This certification letter must be submitted with the investor’s Indiana state tax return to claim the tax credit.
The amount of tax credit available to an investor under the Indiana VCI program for each calendar year is:
- Investments in a qualified Indiana business: 25% of the investment amount (for example, $25,000 tax credit available for a total investment of $100,000), up to a total tax credit amount lifetime of $1,000,000.
- Investments in a qualifying W/MBE: 30% of the investment amount (e.g. $30,000 tax credit available for a total investment of $100,000), up to a total credit amount of lifetime tax of $1,500,000.
- Investments in a qualified Indiana investment fund: 20% of the investment amount (e.g., $20,000 tax credit available for a total investment of $100,000), up to an amount annual tax credit of $5,000,000.
The total amount of Indiana VCI program tax credits available to all investors in each fiscal year is capped at $20,000,000, of which up to $7,500,000 may be issued for investment in mutual funds qualified from Indiana.
Prior to 2022, (1) the total amount of tax credits available under the Indiana VCI program per year was $12,500,000, and (2) the amount of tax credit available to an investor under the Indiana VCI program in a calendar year was 20% of the investment amount, up to a total lifetime tax credit amount of $1,000,000, whether or not the business was a W/ MBE. Investment funds were not eligible for the tax credit.
Investors considering investing in an Indiana investment company or fund should ask the company or investment fund if an Indiana VCI program tax credit is available to them. Out-of-state investors who do not file an Indiana tax return should also inquire, as it is possible to sell an Indiana VCI program tax credit to an Indiana taxpayer.
Taft’s Venture Capital and Emerging Companies practice group has extensive experience in all aspects of venture capital transactions. Contact one of Taft’s venture capital attorneys in Indiana for more information on how to take advantage of the Indiana VCI program, as a startup or investor.
Taft associate Ed Bellows (admission pending) contributed to this article.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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