Economic development panel approves measure to revive Angel Tax Credit

The Angel Tax Credit gave generous tax breaks to people who invested in early-stage Minnesota businesses with the hope that such investments would help a startup company grow into another Medtronic and give a big boost the Minnesota economy.

However, appropriations to make up for the lost revenue resulting from the tax breaks have been inconsistent.

Since the Angel Tax Credit was established in 2010, it has lost state funding twice, in 2018 and 2022.

Rep. Matt Norris (DFL-Blaine) sponsors HF1813, which would reenact the expired Angel Tax Credit – called the small business investment tax credit in statute – with $10 million per year for four years beginning in tax year 2023.

The House Economic Development Finance and Policy Committee approved the bill Wednesday and sent it to the House Taxes Committee.

Norris said the state is fortunate to have numerous large corporations that bring significant benefits to the Minnesota economy.

“Yet we can’t allow the success of these current Fortune 500 companies keep us from also looking ahead and cultivating the next generation of businesses that will drive Minnesota’s economy in the decades to come,” he said.

Minnesota’s Angel Tax Credit provides a 25% credit to investors or investment funds that make equity investments in startup companies focused on high technology, new proprietary technology, or a new proprietary product, process or service in specified fields.

The maximum annual refundable credit is $125,000 per person or $250,000 if filing jointly. Residents of other states and foreign countries are eligible, but businesses receiving investments must be headquartered in Minnesota and at least 51% of its employees must work in the state.

“When investment dollars are invested here in Minnesota, innovation flourishes and our economy diversifies,” said Mickayla Rosard, a partner at Groove Capital.

Her organization supported 25 “angel startups” across the state last year for a total investment of $1.5 million. When funds for the credit dried up in May 2022, her investment group saw a 63% decrease in investments. “That’s a significant amount of money that folks decided not to deploy [in the state],” she said.