In an effort to help spur private sector investment in Colorado advanced industries, the Colorado Office of Economic Development and International Trade (OEDIT) recently announced the creation of the Advanced Industry Investment Income Tax Credit program, which is expected to be available in early September 2014. This program is designed to incentivize private investors who take an equity stake in start-up companies with high growth potential in one of seven advanced industries: advanced manufacturing, aerospace, bioscience, electronics, energy/natural resources and clean tech, infrastructure engineering and technology and information.
For qualified investors, the tax credit is equal to 25 percent of their qualified investment in a qualified small business operating in an advanced industry. If the qualified small business is in a rural or economically distressed area, the tax credit increases to 30 percent of qualified investments.
There are several criteria that must be met to qualify for this credit; here is a brief synopsis of the qualifications.
Qualified Investment
To qualify for this tax credit, an investment must meet these criteria:
- The investment must be made on or after July 1, 2014, and before January 1, 2018.
- The investment must be in an equity instrument, e.g., common stock, preferred stock, partnership/LLC interest or a security or debt instrument that is convertible into an equity security.
- The investment must be at least $10,000.
Qualified Investor
Investors must meet the following criteria to qualify:
- An individual, LLC, partnership, S corporation or other business entity other than a C corporation
- A 30 percent or smaller voting interest in the qualified small business immediately prior to the investment
- Not more than a 50 percent voting interest immediately after the investment
Qualified Small Business
Small businesses wanting to qualify for this tax credit must meet the following criteria:
- A corporation, limited liability company, partnership or other business entity
- In an advanced industry
- Headquarters in Colorado or at least 50 percent of its employees based in Colorado
- Receive less than $10 million from third-party investors, not including grants, since formation
- Annual revenues of less than $5 million
- Actively operating and generating revenue for less than five years
Online applications are expected to be available in early September 2014. Qualified investors will have up to 90 days from the date an investment is made to apply to OEDIT for a tax credit. Credits will be granted on a first-come, first-served basis to qualified applicants based on the date and time applications are received.
Up to $375,000 of tax credits will be available in calendar year 2014, and no more than $50,000 can be claimed for each qualified investment. The total available tax credit is set to increase in to $750,000 for calendar years 2015 – 2017. The tax credit is nonrefundable, but any unused credits can be carried forward for five years.
For further information on this program, contact your tax advisor.
——
This information was written by qualified, experienced BKD professionals, but applying specific information to your situation requires careful consideration of facts and circumstances. Consult your BKD advisor before acting on any matter covered here.
Article reprinted with permission from BKD, LLP, bkd.com. All rights reserved.
