The Minnesota Department of Employment and Economic Development (“DEED”) is now accepting applications to participate in the Minnesota Angel Investor Tax Credit program for calendar year 2014.

Passed in 2010, the popular program encourages private investments in emerging companies by providing investors with a 25-percent credit against Minnesota income tax for their investments, with a maximum credit of $125,000 per person (or $250,000 if married and filing jointly). The credit is refundable and non-Minnesota residents are eligible if they file a Minnesota tax return. To participate in the program, a qualifying business must:

  • be engaged, or committed to engage, in technological innovation in Minnesota;
  • be headquartered in Minnesota, and have over half of its business and employees in Minnesota;
  • have fewer than 25 employees, and pay those employees annual wages of at least 175% of the poverty level wage;
  • be in operation for less than 10 years (or less than 20 years if related to medical devices or pharmaceuticals requiring FDA approval) and not be publicly traded;
  • not have received private equity investments of more than $4 million; and
  • not have received more than $4 million in investments that received an Angel Tax Credit.

To receive a credit, qualifying businesses and investors must complete three steps. Prior to investing, they each must apply for certification, and DEED can take up to 30 days to process the application. Once certified, businesses and investors must jointly apply for the credit allocation. DEED accepts these applications on a rolling basis as credits last. If approved, the proposed investment must then be completed within 60 days from the approval date, or by December 31, whichever is sooner.

“The early bird catches the worm” is an appropriate proverbial phrase for these credits. In calendar year 2013, all $12.7 million of the tax credits were allocated by early May, compared to allocations lasting until July the year before. For calendar year 2014, which is the last year of the program absent new legislation, $12 million in credits has been allocated, and the program’s coordinator speculates that, due to increasing popularity, the credits will run out by April 2014. Fortunately, Applicants may receive DEED approval now and be queued for credits before DEED begins to process tax credit allocations in January 2014. If you are a company or investor that is interested in taking part in this program in 2014, we encourage you to consider your qualifications now and apply early.