- South Carolina: Governor Signs Legislation Providing Tax Credit for Certain Early Stage Investments
- July 19, 2013 | Authors: David M. Kall; Susan Millradt McGlone
- Law Firm: McDonald Hopkins LLC - Cleveland Office
On June 14, 2013, South Carolina Governor Nikki Haley signed the “High Growth Small Business Job Creation Act of 2013” (Act) which provides a nonrefundable income tax credit for investments by angel investors in certain early-stage businesses headquartered in South Carolina.
Businesses must register with and be certified by the Secretary of State in order to be recognized as a qualifying businesses in which an angel investor may obtain a tax credit under this Act for certain qualifying investments. In order to be a qualifying business, certain criteria must be met, including the following:
- Headquartered in South Carolina
- Formed no more than five years before the qualifying investment was made
- Gross income of $2 million or less on a consolidated basis in any complete fiscal year before registration
- Employ 25 or fewer people in South Carolina at the time of registration as a qualified business
- Primarily engaged in manufacturing, processing, warehousing, wholesaling, software development, information technology, research and development, and certain business services
To qualify for the tax credit under the Act, angel investors must:
- Be individual taxpayers or pass-through entities formed for investment purposes that have no business operations
- Not have committed capital under management exceeding $5 million
- Not be capitalized with funds raised or pooled through private placement memoranda directed to institutional investors
The following do not qualify as angel investors under the Act:
- Venture capital funds
- Commodity funds with institutional investors
- Hedge funds do not qualify as angel investors
An angel investor who makes a qualified investment in a qualified business will be entitled to receive a nonrefundable income tax credit of up to 35 percent of such qualified investment, which is capped at $100,000 per year. Fifty percent of such tax credit may be applied to the angel investor’s income tax liability in the first year the qualified investment is made, and the remainder may be carried forward for up to 10 years. Such tax credits may be transferred subject to certain limitations.
The total number of tax credits allowed under the Act will not exceed $5 million in any one calendar year. Investments made after December 31, 2012 are eligible for this tax credit.
South Carolina businesses should act quickly to become registered and certified with the Secretary of State so that their investors may take advantage of this tax credit.