How to understand and take advantage of the Venture Investment Credit

What types of investments qualify for the Venture Investment Credit?
To qualify, an investment must be made in a Michigan-headquartered ‘Early Stage Business’ with fewer than 100 employees, that has a value of less than $10 million and that has been in existence for less than five years. Additionally, the business cannot have fully established commercial operations, it must be headquartered and domiciled in Michigan, it must have the majority of its workers working in the state and it cannot be a retail establishment. Businesses in existence for up to 10 years may also qualify if they have been linked to qualified university R&D programs.
Similar to the Film Credit, the Venture Investment Credit requires certification from a Michigan agency, in this case, the Michigan Strategic Fund. Investors must seek certification within 60 days of making the investment in order to qualify for the credit.
How does the Venture Investment Credit compare to other tax credits?
The Angel Investment Credit, passed in February 2009, provided for a reduction in the amount of gain recognized, if any, from a sale of the investment several years after the investment was made. In contrast, the new Venture Investment Credit provides for a percentage of a qualified investment as a credit against Michigan Income Tax. The credit is claimed in the year the investment is made, not the year the investment is harvested.
Additionally, while the Angel Investment Credit provided tax relief only if the investment was successful, the Venture Investment Credit may be utilized even if an investment does not achieve a successful harvest.
Assuming it is signed into law as expected, entrepreneurs taking the risk of investing in qualified Michigan businesses will be rewarded for their efforts, and not necessarily their results. The rationale behind the structure of this latter credit is that it will incentivize entrepreneurs to create businesses in Michigan, a fraction of which will likely help energize the state’s economy.
WALTER M. McGRAIL, JD, CPA, is a senior manager at Cendrowski Selecky PC. Reach him at (248) 540-5760 or [email protected].