Published in Small Business
State Rep. Bronna Kahle, R-Adrian, at a committee hearing earlier this year. State Rep. Bronna Kahle, R-Adrian, at a committee hearing earlier this year. COURTESY PHOTO

Lawmakers, administration reach compromise on investment tax credit bill

BY Thursday, June 16, 2022 11:02am

State lawmakers have reached a compromise on a bill that would allow taxpayers to claim an income tax credit on their investment in a Michigan-based small business.

House Bill 4116, sponsored by Rep. Bronna Kahle, R-Adrian, was presented to the House Tax Policy Committee on Wednesday. The bill allows taxpayers to claim an income tax credit of up to 50 percent on their investment in a Michigan small business. It also would cap the tax credits that a taxpayer could receive in a year for a qualified investment to $3,000, a limit that an initial bill version lacked.

The cap addresses an earlier concern of Gov. Gretchen Whitmer’s administration about the potential effect that investor tax credits could have on the state budget. 

Kahle told the House Tax Policy Committee during a hearing that the substitute version of the bill was crafted since November after “extensive” work and “many, many” discussions with the state Department of Treasury, the Michigan Economic Development Corp. and others “that are supportive of healthy economic growth in our state and moving Michigan forward.”

“Great progress has been made and solutions to concerns that have previously come up have been addressed and solved,” said Kahle, who called addition of the $3,000 annual cap to the bill a “big and significant change.”

Allowing a credit on the state income tax would allow anyone making an investment in a small business that’s based in Michigan to qualify for an income tax credit, she said.

Investments could come under the Michigan Invests Locally Exemption (MILE) Act. Enacted in 2013, the MILE Act allows residents who do not meet the federal definition for accredited investors to invest up to $10,000 in a Michigan-based business through an online platform.

“We’re not talking about big business. We’re not talking about corporate tax breaks. We’re talking about everyday people having the opportunity that only accredited investors, or venture capitalists, or angel investors would have previously had,” Kahle said. “We’re talking about small businesses. We’re talking about thriving main streets in your local communities.”

The legislation gained support from the Michigan Municipal League and Michigan Manufacturers Association. The MEDC also supports the bill, as long as the state budget includes an appropriation covering the annual cost of the investment tax credits, said Rep. Matt Hall, R-Portage, who chairs the House Tax Policy Committee.

H.B. 4116 would require the Michigan Strategic Fund to develop an application process for investors seeking the tax credit and certify that a business meets requirements for them to receive the credit.

Qualifying investments under the bill would have to go to a small business based or domiciled in Michigan that generates at least 80 percent of its gross revenue from operations, and have at least 80 percent of its assets in the state.

Michigan had an investor tax credit from 2010 to 2012. Under what was known as the “venture investment credit,” taxpayers could claim a 25-percent credit on a qualified investment, for up to $250,000 a year total or for any one business.

In testimony Wednesday to the House Tax Policy Committee, Chris Miller, the former economic development leader in Adrian who worked to secure passage of the MILE Act, said no other state in the U.S. has an investor tax credit like the one proposed in H.B. 4116.

A similar tax credit in Nova Scotia in Canada amounted to about $700,000 in 2019 and generated $2 million in small business investment that helped to create 1,200 full-time jobs with $52 million in annual wages and salaries, and $25 million in provincial taxes, according to Miller.

“That’s the kind of expectation that we hope to have moving forward,” Miller said. “This is a tool to help small Michigan businesses and small Michigan communities thrive and build local wealth.”

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