Bill providing angel investment tax credits advanced

Angel investors supporting high-tech small businesses in Nebraska would receive refundable income tax credits under a bill advanced from general file March 8.

LB389, introduced by Bellevue Sen. Abbie Cornett at the request of the governor, would provide for up to $5 million in annual tax credits for investments made in a business with at least 51 percent of its work force and payroll in Nebraska and 25 or fewer employees primarily engaged in researching, developing or using products and services in the high-tech field. A Revenue Committee amendment, adopted 38-0, reduced the amount to $3 million annually.

The bill would define high-tech field to include aerospace, agricultural processing, renewable energy, energy efficiency and conservation, environmental engineering, food technology, cellulosic ethanol, information technology, materials science technology, nanotechnology, telecommunications, biosolutions, medical device products, pharmaceuticals, diagnostics, biologicals, chemistry and veterinary science.

To qualify for tax credits, an individual would need to invest at least $25,000 in a calendar year and qualified funds — composed of three or more investors — would be required to invest at least $50,000. Refundable credits equaling 40 percent of the investment would be granted to investors with caps of $350,000 for married couples filing joint returns and $300,000 for all other filers. The committee amendment reduced the credit to 35 percent after 2012. Credits could not exceed $1 million per taxable year for any one business.

As amended, the bill would fund the tax credits by reducing the amount of credits offered under the Nebraska Advantage Rural Development Act from $4 million to $1 million and retain the credit limit under the Nebraska Advantage Microenterprise Tax Credit Act at $2 million. The new limits would be imposed in 2012, and the program would expire after 2017.

Kearney Sen. Galen Hadley spoke in support of the bill. While 60 to 70 percent of angel investments are lost due to business failures, he said, tax credits would attract risk capital, which is important for start-up businesses that are having difficulty accessing credit and capital.

Angel investing provides a bridge between early stage financial support from an entrepreneur’s friends and family and later investment from venture capital, Hadley said. Angel investors also offer networking and planning for start-ups, he said.

Ogallala Sen. Ken Schilz, who selected LB389 as his priority bill, said angel investments are a necessity for rural Nebraska. Angel investment tax credits could connect in-state capital with small businesses in rural areas, he said.

“We need to find ways to take that capital … and reinvest it in Nebraska businesses,” Schilz said.

Omaha Sen. Pete Pirsch explained that the tax credit offered in LB389 is funded using an existing appropriation for an economic development program that is not fully utilizing its allocated funds. The tax credits have spurred investment in more than 20 other states with similar legislation, he said, citing a three-fold increase in angel investments in Wisconsin in the five years following enactment of the state’s program.

Schuyler Sen. Chris Langemeier said he was concerned about the low success rate of angel investments. In a budget-cutting session, he said, the Legislature should consider whether allocating funds for a “slot machine” program is appropriate.

Sen. Tom Carlson of Holdrege said Douglas, Sarpy and Lancaster counties are not in need of additional economic development programs, so LB389 should be tailored to benefit the other 90 counties in Nebraska.

After adopting a technical amendment offered by Cornett, the Legislature voted 38-0 to advance LB389 from general file.