State-funded angel investor tax credits

• Published in: Journal of entrepreneurship and public policy Vol. 1; no. 1; p. 50
• Main Authors: Hendon, John R, Bell, Joseph R, Blair, Brittany, Martin, Don K
• Format: Journal Article
• Language: English
• Published: Bingley Emerald Group Publishing Limited 20-04-2012
• Subjects: Angel investors; Comparative analysis; Economic growth; Entrepreneurial finance; Entrepreneurs; Entrepreneurship; Equity; Incentives; Investments; Liability; Perceptions; Portfolio management; Public officials; Public policy; Small business; Startups; State budgets; State government; State taxes; Stock exchanges; Studies; Tax credits; Venture capital; United States > US
• ISSN: 2045-2101; 2045-211X
• DOI: 10.1108/20452101211208353

Over the past decade more than 20 states have begun to offer tax credits to angel investors in an attempt to increase state economic growth. These credits are intended to increase new venture investment, create high-paying and knowledge-based jobs, and increase tax revenue collections, but there is some debate over costs and benefits associated with these credits. This paper aims to investigate this issue. This paper will examine the implementation and perceived effectiveness of tax credit programs in Hawaii, Louisiana, Wisconsin, Minnesota, Oregon, and Vermont. These states were chosen for this research sample based on their differing physical locations within the USA and the uniqueness of the characteristics of each state's chosen tax credit program. The paper reveals that state investment tax credit programs vary widely in areas of eligibility, level of funding available per investment and per year, and whether or not the credits are refundable. All of these factors can cause significant variability in effectiveness of a state program. Recommended criteria for achieving an outcome that may result in lawmaker support for tax credit incentives will be outlined based on the success, trial, and error of various state programs. These criteria will allow some commonality in analysis of potential or ongoing incentive programs. This paper provides an analysis of the various existing state investment tax credit programs and identifies characteristics of such programs that may, if used during program formation, result in greater confidence by lawmakers in the program's overall effectiveness and provide a greater commitment to program success.