29 Dec Early-stage investment tax credits the subject of Jan. 8 WIN panel
Madison, Wis. – Facing a budget deficit of more than $5 billion in the 2009-2011 budget biennium, will the Wisconsin Legislature enact proposed improvements to the state’s investment tax credit program?
Gov. Jim Doyle, the Wisconsin Technology Council, and other groups have called for upgrades to the Act 255 tax credit program, which will be the subject of a panel discussion Thursday, Jan. 8 during a luncheon meeting of the Wisconsin Innovation Network in Brookfield.
The program, titled “Wisconsin’s investment tax credits: What’s working and what happens next?” will feature John Neis, managing director of Venture Investors, a Madison-based venture capital firm, and Bill McCoshen, former secretary of the state Department of Commerce and the current executive director of Competitive Wisconsin, Inc.
They will be among the panelists discussing Wisconsin’s program to provide tax credits to investors in qualified early-stage deals. Act 255, the law establishing the program, took effect nearly four years ago and is given much of the credit for Wisconsin early-stage investments reaching the $147 million mark in 2007. That level of investment was up 43 percent over the previous year, far outpacing the national average in terms of the percentage increase.
Act 255 provides tax credits to investors who invest in Wisconsin companies that are qualified by the state Department of Commerce. At the onset, the total state allocation was $65 million over 10 years, and the tax credits were fully subscribed on the angel side.
Tax credits are not provided unless investments are made in Wisconsin companies, and investment dollars have gone to high-growth businesses in biotechnology, information technology, and other industries. In 2007, most deals were in life sciences ($69 million in 13 deals), but energy was second at $50.2 million in three deals.
However, Wisconsin still ranks in the lower half of states in angel and venture capital, and Gov. Doyle has proposed expansions under his Accelerate Wisconsin package. Under the plan, the state would increase the total amount of angel investor and venture capital tax credits available to businesses to $100 million, which the Doyle Administration says would leverage a minimum of $400 million in private investment.
Doyle also would raise the current cap of $1 million in tax-creditable angel investment per business to $4 million, allowing start-up companies to receive financing from any combination of angel or venture investors to the maximum of $4 million.
In addition, Doyle has put forth a capital gains reinvestment initiative that would give individuals a limited, 100 percent capital gains exclusion of up to $10 million for long-term capital gains reinvested in qualifying Wisconsin businesses.
Citing his department’s salesmanship and the moribund state of the economy, new state Commerce Secretary Dick Leinenkugel, an executive with the Jacob Leinenkugel Brewing Co., believes the Doyle Administration can get these improvements through the Legislature.
“I think they are going to have to look at job creation as a priority,” he told WTN last month.
Leinenkugel said job losses have the potential to create many new entrepreneurs as people that lose their jobs start to bring good ideas forward. “We have a real opportunity to support those early-stage entrepreneurs,” he noted. “We’re really focusing on Accelerate Wisconsin, and that’s all about making Act 255 even better. ”
Others would like to diversify the composition of companies that are qualified by Commerce. For example, economic development interests in Northeastern Wisconsin, where the prototype business tends to be more manufacturing-oriented, believe Act 255 is biased in favor of life science companies – even though manufacturing companies can qualify for the tax credit program.
Some in the IT industry also see a bias toward life science, but Commerce spokesman Tony Hozeny disputed that. Hozeny noted that while life science companies represent the majority of qualified companies, IT is the second largest category behind biotech, representing about 25 percent of companies that are qualified for tax credits. He also noted that selections are application and eligibility driven in that only small companies with revenues of less than $2 million a year are eligible to apply, and the need for this kind of risk capital is with early-stage investments.
Hozeny said the state can help established manufacturers with loan-grant tax credit programs, but he said they don’t face as many challenges in the financial market as someone who is trying to start an early-stage IT company and needs “several infusions of capital.”
As for any life science bias, he said biotech companies tend to be more active tax credit applicants. “The fact of the matter is we’ve had more applications for qualified new business ventures from biotech than we’ve had from IT,” Hozeny said. “Even with that, the second largest sector is IT.
“We’re pounding the pavement all the time looking for these companies. We want all of these companies to grow.”
The Wisconsin Technology Council, which also has recommended several modifications to the law, said it will announce additional panelists for the Jan. 8 WIN luncheon. The luncheon will be held at the Brookfield Suites Hotel and Convention Center, 1200 S. Moorland Road, Brookfield.