The clock is ticking for Kansas angel tax credits to be awarded to growing startups in 2018, said Rachèll Rowand.
“We are looking for innovative businesses in Kansas that are under five years old,” said Rowand, program manager for the Kansas Department of Commerce, which administers the state’s angel tax program. “The biotechnology industry is allowed 10 years. A lot of people have the misperception that the angel tax credit program is just for biotech companies, but it’s not.”
The Kansas Angel Investor Tax Program, established in 2005 and extended by the state legislature in 2016, currently is allotted $6 million annually to distribute among eligible companies who apply. As of this week, the program still had $4.7 million in tax credits waiting to be awarded in 2018.
The deadline to apply is Aug. 31. Applications for certification will be accepted only for Kansas businesses in the seed and early-stage rounds of financing. Click here to learn more about applying.
Here’s how it works: The state grants tax credits against the Kansas income tax liability of investors investing in these startup ventures. With the primary goal of encouraging individuals to provide seed-capital financing for emerging, Kansas businesses engaged in the development, implementation, and commercialization of innovative technologies, products and services.
Interest in the program has been increasing this year, Rowand said, though she noted it didn’t see enough applications to award the full $6 million in 2017, so the unused credits rolled over into 2018. The state began the year with $8,540,055.80 in the bank and likely could end 2018 with an excess again.
“We’ve had quite a few companies that have been able to use the credits to entice investors so they’re able to grow their businesses in the ways they want to grow,” Rowand said, noting the past exits of EyeVerify, now Zoloz, and Zave Networks, both of which originated in Kansas City, Kansas.
“Everybody’s view of success looks different. We find it successful if they create jobs or they sell well,” she added.
Other indicators of business progress attributed to the Kansas Angel Investor Tax Program, according to the Department of Commerce:
- $432.5 million in capital raised over 13 years;
- $6.71 additional capital investment for every $1 of tax credit issued;
- Attracted $48.4 million out of state capital investment over the past 12 years;
- Added/saved 2,398 jobs in 13 years — 5,995 jobs with a 2.5 multiplier effect (A jobs multiplier indicates how important an industry is in regional job creation. A jobs multiplier of 3, for example, would mean that for every job created by that industry, two other jobs would be created in other industries (for a total of three jobs);
- $353.3 million in revenue in 13 years from companies receiving credits; and
- $5.48 revenue for every $1 of tax credit issued.
The program asks for documentation to make sure the applicant companies meet the statute, said Rowand. Once approved, it’s up to companies to meet with their investors; once they invest, another round of document submissions takes place so that the credits can be issued and used, she said.
“The paperwork is really not that strenuous and doesn’t cause a lot of heartache,” Rowand said. “But we do have to know about the business and the owners of the business.”
Companies must meet the following criteria to be certified as a Qualified Kansas Business:
- The business has a reasonable chance of success and potential to create measurable employment within Kansas.
- In the most recent tax year of the business, annual gross revenue was less than $5,000,000.
- Businesses that are not Bioscience businesses must have been in operation for less than five years; bioscience businesses must have been in operation for less than 10 years.
- The business has an innovative and proprietary technology, product, or service.
- The existing owners of the business have made a substantial financial and time commitment to the business.
- The securities to be issued and purchased are qualified securities.
- The company agrees to adequate reporting of business information to the Kansas Department of Commerce.
- The ability of investors in the business to receive tax credits for cash investments in qualified securities of the business is beneficial because funding otherwise available for the business is not available on commercially reasonable terms.
- Each applicant must sign a Qualified Company Agreement with the Kansas Department of Commerce.
Only accredited angel investors can qualify for the Kansas Angel Investor Tax Credit by investing in Kansas Department of Commerce certified Kansas businesses.