Kansas Angel Investor Tax Credit
The Kansas Angel Investor Tax Credit, part of the Kansas Economic Growth Act, is a 10-year, $20 million program to be administered by Kansas Technology Enterprise Corporation (KTEC). Under this program, accredited investors can claim a 50 percent tax credit not to exceed $50,000 of cash investment in a qualified Kansas business. Credits are limited to five such cash investments per investor, with a total amount of $2 million in credits collectively available to all investors on an annual basis. (see Kansas Statutes 74-8131 to 74-8137 www.kslegislature.org) The purpose of the act is to facilitate the availability of equity investment in early-stage businesses and to assist in the creation and expansion of Kansas business by granting tax credits to investors. Qualified Kansas Business A business may certify that it meets certain criteria permitting it to be a “qualified business” as defined by statute. To be qualified, a Kansas business would have to be in operation for less than five years, have less than $5.0 million in annual gross revenues in the most recent tax year of business, and not primarily engaged in various enterprises named in the statute. The enterprises include: (a) the business of banking, savings and loan or lending institutions, credit or finance, or financial brokerage or investments; (b) the provision of professional services, such as legal, accounting or engineering services; (c) governmental, charitable, religious or trade organizations; (d) the ownership, development, brokerage, sales or leasing of real estate; (e) insurance; (f) construction or construction management or contracting; (g) business consulting or brokerage; (h) any business engaged primarily as a passive business, having irregular or non-continuous operations, or deriving substantially all of the income of the business from passive investments that generate interest, dividends, royalties, or capital gains, or any business arrangements the effect of which is to immunize an investor from risk of loss; (i) any Kansas certified capital formation company; and (j) any activity that is in violation of the law. Based upon the application submitted by the business and any additional investigation the staff of the corporation shall make, that the following criteria have been or shall be satisfied: (1) The business has a reasonable chance of success; (2) the ability of investors in the business to receive tax credits for cash investments in qualified securities of the business is necessary, because funding otherwise available for the business is not available on commercially reasonable terms; (3) the business has the reasonable potential to create measurable employment within the state; (4) the business has an innovative and proprietary technology, product and service; (5) the existing owners of the business and other founders have made or are committed to make a substantial financial and time commitment to the business; (6) the securities to be issued and purchased are qualified securities; and (7) binding commitments have been made by the business to the corporation for adequate reporting of financial data, including a requirement for an annual report, or, if required by the board of directors of the corporation, an annual audit of the financial and operational records of the business, the right of access to the financial records of the business and the right of the corporation to record and publish normal and customary data and information related to the issuance of tax credits that are not otherwise determined to be trade or business secrets. Accredited Investor An accredited investor is an individual who is incurring Kansas income tax and qualifies as an accredited investor as defined by the U.S. Securities and Exchange Commission Rule 501 Regulation D. Rule 501 Regulation D defines an ‘accredited investor’ as: any natural person whose individual net worth, or joint net worth with that person's spouse, at the time of his purchase exceeds $1,000,000 or any natural person who had an individual income in excess of $200,000 in each of the two most recent years or joint income with that person's spouse in excess of $300,000 in each of those years and who reasonably expects to reach the same income level in the current year. The tax credit could be sold if the investor is not subject to Kansas taxation and only the full credit for any one investment may be transferred. The Secretary of Revenue will limit tax credits per investor to $50,000 of investments in a single business and in no more than five Kansas businesses each year. The cumulative amount of tax credits available on an
annual basis can not exceed $2.0 million. The last year to receive a tax credit under the provisions of the bill will be 2016. To be eligible for the tax credit, an individual investor must file Schedule X, Application for Kansas Angel Tax Credit, with the Department of Revenue on or before April 15 of the year following the calendar year in which the investment was made. Investors should contact the Department of Revenue for additional application requirements.
Contact information KTEC 214 SW 6th, First Floor Topeka, KS 66603 Telephone: 785-296-8586 Facsimile: 785-296-1160 E-mail: kansasangels@ktec.com
What is the Kansas Angel Tax Credit program? The Kansas Angel Investor Tax Credit program will allow an accredited investor to receive a 50 percent tax credit, not to exceed $50,000 of cash investment in a qualified Kansas business. What is the purpose of the program? The purpose of the Kansas Angel Investor Tax Credit program is to facilitate the availability of equity investment in Kansas businesses in the early stages of commercial development and to assist in the creation and expansion of businesses in our state and in turn, the creation of jobs and wealth. The program’s primary goal is to encourage individuals to provide seed capital financing for emerging Kansas businesses engaged in the development, implementation and commercialization of innovative technologies, products and services. When will it take effect? Tax credits are available for cash investment each calendar year commencing January 1, 2005. Are the tax credits transferable? Yes. Any investor who is not subject to taxation under the provisions of article 32, chapter 79 of the Kansas Statutes Annotated and who makes a cash investment in a qualified security of a qualified Kansas business shall be deemed to acquire an interest in the nature of a transferable credit limited to an amount equal to 50 percent of this cash investment. This interest may be transferred to an investor and be claimed by this investor as a credit against the investor’s Kansas income tax liability beginning in the taxable year in which the cash investment is made. Can the tax credit be carried forward? Yes. If the amount by which that portion of the credit exceeds the investors’ liability in any one taxable year, beginning in the year 2005, the remaining portion of the credit may be carried forward until the total amount of the credit is used. What is KTEC’s role? KTEC administers the Kansas Angel Tax Credit Program together with the Department of Revenue. Primarily KTEC will be responsible for the qualification process for Kansas small businesses. As an investor, what information do I need to provide the Kansas Department of Revenue to verify “accredited investor” status? Investors must complete and submit to the Department of Revenue, Kansas Angel Tax Credit Schedule X that verifies under oath that you meet SEC guidelines as an accredited investor.
As a business seeking investment money, what type of information do I need to provide KTEC as part of the qualification process? The form and substance of the information required will be determined by KTEC, but shall include at least the following: (1) The name of the business and certified copies of the organizational documents of the business; (2) a business plan, including a description of the business and the management, product, market and financial plan of business; (3) a statement of the business’s innovative and proprietary technology, product or service; (4) a statement of the potential economic impact of the enterprise, including the number, location and types of jobs expected to be created; (5) a description of the qualified securities to be issued, the consideration to be paid for the qualified securities, the amount of any tax credits requested and the earliest year in which the tax credits may be redeemed; (6) a statement of the amount, timing and projected use of the proceeds to be raised from the proposed sale of qualified securities; and (7) any other information as KTEC may request, such as the names, addresses and taxpayer identification numbers of all investors who may qualify for the tax credit. Such list of investors who may qualify for the tax credits shall be amended as new qualified securities are sold or as any information on the list shall change. How does the qualification process work? The qualification process will commence November 1, 2005. It is recommended that interested companies should visit Kansasangels.com and complete the qualification information. Upon potential receiving qualification approval companies are recommended to solicit accredited investors to make cash investments in their companies starting January 1st, 2006 Whom should I contact? Michele Weigand, mweigand@ktec.com 785-296-1235.