Indiana’s economic development leaders are committed to helping early-stage firms and start-ups succeed. By instituting common sense business tax incentives, including a flat state corporate tax rate on adjusted gross income, no gross receipts tax and venture capital credits, the state has become a hub of entrepreneurial achievement.
Description
The Venture Capital Investment Tax Credit program improves access to capital for fast growing Indiana companies by providing individual and corporate investors an additional incentive to invest in early stage firms. Investors who provide qualified debt or equity capital to Indiana companies receive a credit against their Indiana tax liability.
Eligibility
This credit is available to any taxpayer who is an individual or entity that has any state tax liability. Pass through entities whose shareholders have Indiana income tax liabilities are also eligible for the credit. A taxpayer wishing to obtain a credit for investing in a qualified Indiana business must apply to the IEDC for a certification. The total amount of tax credits certified by the IEDC for any calendar year may not exceed $12.5 million.
Upon certification, the taxpayer must provide qualified investment capital to a qualified Indiana business according to the taxpayer's certified investment plan within two years after the date on which the IEDC certifies the investment plan.
After a taxpayer makes the investment, the taxpayer must submit proof of investment to the IEDC from which the IEDC shall issue the taxpayer a letter indicating that the taxpayer is entitled to a tax credit.
Certification Process for Qualified Indiana Businesses
The first step in the process is for the business to be certified under the program as a Qualified Indiana Business. A qualified business refers to an independently owned and operated business that is certified by the IEDC as satisfying the requirements of Indiana Code 6-3.1-24-7(a) regarding certain types of businesses, revenues, and employees.
Indiana businesses that desire to be certified must submit a Venture Capital Investment Tax Credit Application to IEDC using the Qualified Indiana Business Application form. No fee is required.
After the application is submitted, the IEDC will conduct a review to determine whether the business shall be certified as a Qualified Indiana Business. During the review process, the IEDC may request additional documentation from the company to determine whether the standards have been satisfied. Once the review process is complete, and upon approval, the IEDC will issue a certification letter.
The certification letter will set forth the conditions, including that the Qualified Indiana Business must maintain its headquarters in Indiana and have at least 50% of its employees residing in Indiana or 75% of its assets located in Indiana. The Qualified Indiana Business must also agree to inform its investors about the IEDC’s process for approving the investment, including that the investment cannot be made before the investment plan is approved by a written letter from the IEDC .
Qualified Investment Capital Certification
The next steps are for the investor to submit an investment plan to be reviewed and approved by the IEDC and then to seek a certification for the VCI tax credit based upon the investment.
The taxpayer must submit an investment plan using the Qualified Capital Investment Application form. The investment plan must contain a proposal for the taxpayer to make a qualified investment into a Qualified Indiana Business. The IEDC will review the plan and if it is approved, issue an approval letter. Pursuant to Indiana Code 6-3.1-24-12.5, an investment made before the date of the approval letter does not qualify for the VCI tax credit.
An investor may be an individual or an entity. Any investor who or which holds a majority ownership position in the Qualified Indiana Business or who or which, as a result of making the proposed investment, will hold a majority ownership position, is not eligible for the VCI tax credit. An investor holds a de facto majority ownership position, and is not eligible for the VCI tax credit, when such investor (1) could potentially derive a financial benefit from a tax credit when another investor claims such tax credit, or (2) has tacit or express control over the interests of another investor in the Qualified Indiana Business, and in either such case the combined interest of those investors constitutes at least a majority ownership position in the Qualified Indiana Business. For the purpose of clarity, such benefit or control shall automatically be presumed to be associated with an individual investor in the following circumstances: (a) with respect to the spouse and unemancipated children of such individual investor; (b) with respect to any trust, family limited partnership, family limited liability company or other estate planning entity, the beneficiaries, partners or members of which include such individual investor or such individual investor’s spouse or unemancipated children; and (c) with respect to any partnership, corporation, limited liability company, joint venture, association, trust, or other such organization in which such individual investor possesses any ownership interest.
The term “qualified investment capital” refers to debt or equity capital. This type of investment must be made the sooner of two years from the date of the approval letter or by the program’s termination date, which is currently set as December 31, 2016. Please note that debt instruments in the approved investment plan will qualify only to the extent that the principal may not be paid or repaid prior to the expiration of a period of at least 36 months and that equity investments must result in, or increase, ownership position for the investor.
After the IEDC issues a letter approving the investment plan, the investor must then submit satisfactory evidence that the investment was made. After review and approval, the IEDC will then issue a certification letter to the investor. This letter is used to claim the Indiana income tax credit.
APPLICATION FORMS
Both the Qualified Indiana Business Application and the Qualified Capital Investment Application are available:
Qualified Capital Investment Application
Qualified Indiana Business Application
Completed applications must be submitted to IEDC at:
Indiana Economic Development Corporation
Development Finance Office - VCI Tax Credit Program
One North Capital, Suite 700
Indianapolis, Indiana 46204
The applications may also be emailed to Lee Robinson, VCI Program Manager, at lrobinson@iedc.in.gov.
Calculation of Credits
The maximum amount of tax credits available to investors in a qualified Indiana business equals the lesser of:
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The total amount of qualified investment capital provided to the qualified Indiana business in the calendar year, multiplied by 20 percent; or
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$1,000,000
If the amount of the credit determined in this program for a taxpayer in a taxable year exceeds the taxpayer's state tax liability for that taxable year, the excess credit may be carried over for a period not to exceed following five taxable years. The amount of the credit carryover from a taxable year shall be reduced to the extent that the carryover is used by the taxpayer to obtain a credit under this chapter for any subsequent taxable year. A taxpayer is not entitled to a carry-back or a refund of any unused credit amount.
Fact Sheet
VCI Tax Credit