Angel Investor Tax Credit
Louisiana's Angel Investor Tax Credit (AITC) encourages accredited investors to invest in early stage, small wealth-creating Louisiana businesses that seek startup and expansion capital.
- Provides a 25.2% tax credit on investments by accredited investors who invest in businesses certified by Louisiana Economic Development as Louisiana Entrepreneurial Businesses (LEB).
- $3.6 million annual program cap.
- Investors can invest $720,000 per business per year and $1.44 million per business over the life of the program.
- The AITC Program sunsets on July 1, 2017.
The incentive is available to Louisiana businesses that are not involved in retail, real estate, professional services, gaming or gambling, natural resource extraction or exploration, or financial services, including venture capital funds.
Qualifying uses of investment funds include:
- Capital improvements
- Plant equipment
- Research & development
- Working capital
Non-eligible uses of investment funds include:
- Pay dividends
- Repay shareholders' loans
- Redeem shares
- Repay debt
What qualifies as an LEB?
- The principal business operations are in Louisiana, with Louisiana as the primary place of employment for the employees of the business.
- The business must possess a fully developed business plan that includes all appropriate long and short term forecasts and contingencies of business operations, including research and development, profit, loss and cash flow projections, and details of expenditure of angel investor funding.
- The business must have a Louisiana Tax Identification Number.
- The business has either gross annual sales of less than $10 million or a business net worth of less than $2 million.
- The business employs 50 or fewer full-time employees.
- The business must demonstrate that it will create quality jobs in the state.
- The business is not primarily engaged in the business of retail sales, real estate, professional services, gaming or gambling, natural resource extraction or exploration, or financial services including venture capital funds.
- The business has a plan of progression through which more than 50% of its sales will be derived from outside of Louisiana.
Who qualifies as an Accredited Investor?
- An Accredited Investor is defined as:
- A natural person who has an individual or joint net worth with a spouse exceeding $1 million at the time of the investment.
- A natural person who has individual income exceeding $200,000 or joint income with a spouse exceeding $300,000.
- An Angel Pool, all of whose participants shall be Accredited Investors.
Program Statutes & Rules:
All incentive program rules are in the Louisiana Administrative Code maintained by the Office of the State Register.
There is no formal application form for the LEB certification. Simply email the applicant's business plan and documents or information that addresses all of the listed eligibility criteria for the LEB certification to email@example.com.
Applications for tax credit reservations for a calendar year (application form on the LED website) must be emailed to firstname.lastname@example.org on or after January 1 of the calendar year in which the investments are expected to be made in the business (earlier applications will be rejected and must be resubmitted on or after that date). An application fee shall be submitted with all applications for reservation of credits. The application fee shall be equal to 0.5 percent (0.005) times the total anticipated tax incentive for the investors with a minimum application fee of $500 and a maximum application fee of $15,000, payable to Louisiana Department of Economic Development. After acknowledgement and receipt of reservation, applicant will have 10 days to remit the appropriate fee by mail. Should fee not be received within the allotted time, the reservation will be canceled.
After LED receives the application for certification as an LEB, which qualifies the business to possibly receive tax credits under the AITC, the following occurs:
- LED forwards a letter to the company that states the La. business is a certified LEB under the AITC Program.
- LED instructs the LEB to submit an AITC Reservation Application to email@example.com requesting tax credits at a specific amount (25.2% of investment) be reserved.
- The applicant must also indicate whether it would be willing to receive a proration of tax credits and specify the lowest proration percentage of the investment that the company would be willing to entertain if the $3.6 million cap is exceeded on the day the reservation application is received by LED.
- LED forwards a letter to the LEB that states the requested tax credits in a specified amount have been reserved in the name of the LEB.
- The LEB has 60 days from the date of the reservation letter to provide LED with proof of investment; i.e., a Subscription Agreement as required by the Securities and Exchange Commission.
- If the LEB provides proof of investment by accredited investors to LED within the prescribed 60-day period, LED issues a tax credit certification letter which states the amount of the tax credit and the years in which it will be applied against Louisiana income tax and corporate franchise tax liabilities of the investor.
- The allocation of tax credits for all years will be administered on a first come, first serve basis until the annual $3.6 million cap is reached. However, on the day the annual cap is reached, all applications received that day will be treated as received at the same time and the credits remaining for allocation will be prorated.
- The accredited investor submits the LED AITC certificate letter to the Louisiana Department of Revenue with his/her state tax return to apply the tax credits against Louisiana tax liabilities 24 months after the certification letter is issued by LED.
- The process begins again each year on January 1 and continues through July 1, 2017.
- Each year the LEBs can be recertified by providing updated information on the business to LED.
Q: I have an angel investor that invested funds in my company earlier this year, before I became aware of the AITC Program. Can this angel investor take advantage of the AITC with the investments he made in my business earlier this year?
A: The investment must have been made after the date your business was issued an LEB certification by LED and before the 60-day proof of investment period lapsed.
Q: My business was certified by LED as an LEB under the previous AITC Program of 2005. Is my business' LEB certification, which was issued by LED under the previous AITC program of 2005, still valid under the AITC of 2011?
A: During the 2011 La. legislative session the AITC Act of 2005 was repealed and replaced with the AITC ACT 414 of 2011. The new AITC ACT of 2011 states that effective July 8, 2011, which is the date Gov. Jindal signed ACT 414, LED must recertify all LEBs. So you must reapply for a new LEB certification to be eligible for the new AITC program.
Q: I am negotiating with a group of angel investors for a round of funding in my business. How do I know if they will qualify to receive tax credits under the AITC Program?
A: If the individuals that comprise the angel pool meet the net worth and income requirements for accredited investors associated with the Securities Act of 1933, they should qualify for the tax credits.
Q: Since the AITC is a state program, can out-of-state investors benefit from the program?
A: AITC tax credits can only be applied against Louisiana state tax liabilities. An out-of-state investor could benefit by transferring the AITC to a Louisiana taxpayer.
Q: How many years must an investment be maintained in the LEB?
A: Three years.
Q: When will the AITC become deductible from an investor's tax liability?
A: The tax credit available in the first year shall become deductible from tax liability in the taxpayers income tax year which occurs twenty-four (24) months from the date LED certifies the amount of the investment.
Q: Are AITC applications, business plans, financial statements, etc, subject to a Public Records Request?
A: Yes. The company has the burden of defending against a Public Records Request in court. LED will notify the business of such a request.
Q: Would an investor in an LEB in calendar year 2014 automatically be included in a tax credit allocation in calendar year 2015?
A: No. The LEB must submit an AITC Reservation Application in calendar year 2015 for an investor to be eligible for AITC tax credits in calendar year 2015.
Q: Are there any limits to the amount of investments that can be made under the Angel Investor Tax Credit Program?
A: An investor may not invest more than $720,000 per year per business or more than $1.44 million per business total over the life of the program.
Q: Do convertible notes qualify as an investment under AITC?
A: LED will allow a convertible note to qualify as an investment but only upon conversion of the instrument from a note to an equity investment.
- Apply for Louisiana Entrepreneurial Business certification by submitting eligibility documents to firstname.lastname@example.org.
- Apply for AITC Reservation online.
- Application fee due within 10 days of reservation receipt and acknowledgement.
- Provide proof of investment in the form of subscription agreement to LED.
- LED issues tax credit certification letter stating the amount of the tax credit and the years in which it will be applied against Louisiana income tax and corporate franchise tax liabilities of the investor.
- Tax credits for all years are administered on a first come, first served basis.
Steve BahamManager, Business Incentives Services