Minnesota’s Angel Tax Credit
What you need to know
April/May 2022 Footnote
Editor's note: Updated March 29, 2022
Minnesota seeks to encourage the growth and economic competitiveness of businesses of all sizes. The Angel Tax Credit is an important tool for assisting small startup businesses across the state get a foothold in the capital markets.
The Minnesota Angel Tax Credit1
provides a refundable 25% tax credit to investors and angel investment funds that make equity investments in small, emerging, primarily high-tech Minnesota businesses. Since the program’s inception in 2010, more than 530 Minnesota businesses have received more than $498 million in equity investments. By stimulating private investment, the tax credit provides the capital startup businesses need to fuel their growth.
Requirements to access the credit
Businesses interested in receiving investments through the Minnesota Angel Tax Credit program must be certified to participate. These businesses need to meet prescribed criteria2
including, but not limited to:
- Being headquartered in Minnesota.
- Engaging in or committed to engaging in technological innovation in Minnesota.
- Employing fewer than 25 employees (no employee minimum requirement).
- Operating the business for fewer than 10 years (20 years if seeking FDA approval).
- Having not previously received equity investment of more than $4 million.
- Committing to maintaining the majority of employees in Minnesota for five years (if they have employees).
Participating in the program
For an investor to participate, they must be a natural person, invest a minimum of $10,0003
and be an accredited investor per SEC Regulation D’s Rule 501 or be a non-accredited investor investing in a transaction exempted by Minnesota Chapter 80A4
. Angel investment funds need to have a minimum of three qualifying investors who are natural persons, be organized as a pass-through entity and make a minimum investment of $30,000. Investments by a potential angel business’s officer, principal, 20% or more owner, or a family member of one of these are ineligible for the tax credit.
A key feature of the program is that the tax credit is refundable. Investors need not have any Minnesota income tax liability to benefit from the program. Residents of other states and foreign countries are eligible; as a result, approximately 40% of investment dollars originate from outside of Minnesota.
To participate, the business and the investor or angel investment fund apply to DEED for certification. After both parties are certified, the business initiates a joint credit allocation application. Allocation requests are approved by DEED each business day until all credits
are exhausted. This allocation reserves the credit for 60 days to allow time for the qualified investment to close. The maximum tax credit is $125,000 per person, per year ($250,000 if filing jointly). Businesses may leverage the program to raise as much as $4 million in investment.
2022 program details
The 2022 program began the year with $5 million in credits. Of the $5 million in credits, $2.5 million is reserved for minority- and women-owned businesses, as well as businesses located in Greater Minnesota, until Sept. 30, 2022, at which time any unused reserved credits become available for investment in any qualified business. The 2022 Angel Tax Credit Program is currently accepting certification and allocation applications.
The Angel Tax Credit Program is currently authorized to operate through the end of 2022. The Walz-Flanagan supplemental budget submitted in March 2022 recommends allocating $7 million for the Angel Tax Credit in fiscal year 2023, and $10 million in fiscal years 2024–25; including funding for the program in the base budget. DEED’s aim is for the program to serve as a catalyst, with the goal that some of the recipient businesses become Minnesota’s next 3M or Medtronic in the years ahead — providing strong opportunities for the state’s workforce and economy.
For complete information about the program, including certification application information, visit www.mn.gov/deed/angelcredit.
Stephen Wolff is the interim manager of the Business Tax Benefit Unit at the Minnesota Department of Employment and Economic Development (DEED). You may reach him at email@example.com.
The Angel Tax Credit Program is authorized by Minn. Stat. 116J.8737 Small Business Investment Tax Credit. https://www.revisor.mn.gov/statutes/cite/116J.8737
See program page for complete list of qualifications at https://mn.gov/deed/business/financing-business/tax-credits/angel-tax-credit/for-businesses/
A minimum of $7,500 is allowed if investing in a
woman/minority/veterans-owned and managed business, or a business located in Greater Minnesota
These exemptions include: A small Corporate Registration Offering (SCOR) under Minn. Stat. 80A.50 (b), or A Limited Offering Exempt Transaction under Minn. Stat. 80A.46(14), or A MNvest Offering (crowdfunding) under Minn. Stat. 80A.461