New Legislation Offers Tax Credit for 'Angel' Investors
"Angel" investors—those who finance new businesses—play a crucial role in the economy, State Sen. Wayne Fontana says.
Pennsylvania is the nineteenth largest economy in the world, making our state a very attractive place for entrepreneurs to launch a business. However, newer businesses often need capital in order to build a company and banks often shy away from providing this necessary funding during the first few, high risk, years.
Last week, the Senate Finance Committee approved legislation I authored that would give certain start-up businesses the tools they need to establish and grow in our state. Senate Bill 141 (SB 141) would use excess Keystone State Innovation Zone dollars to provide a 25 percent tax credit for so-called “angel” investors who provide early stage financing for businesses that are less than five years old. An angel investor is an individual who provides capital for a business start-up, usually in exchange for convertible debt or ownership equity.
Angel investors play a crucial role in the economy that few people are willing to fill. These types of investors make personal, high risk investments in start-up companies, as most banks and venture capitalists typically shy away from newer companies until they are safer and have more of a track record. More importantly, angel investments have the potential to create many good paying jobs.
My legislation is limited to businesses that are headquartered and operate in Pennsylvania and employ a majority of Pennsylvania workers among their workforce. Furthermore, mechanisms are put in place so that a new business will remain in our state for at least five years following application. The measure also encourages out-of-state investors by allowing them to sell unused tax credits to Pennsylvania taxpayers.
SB 141 was drafted to reflect language similar to Wisconsin’s successful seven-year-old program that has created nearly 1,000 jobs. Twenty six other states offer angel investment tax credit programs and it is my hope that my legislation can pass the Pennsylvania General Assembly quickly so that we can start attracting new companies to form in our state.
Angel investments not only provide critical funding to encourage new growth in projects, but also give back to our communities through job creation and supplying individuals with products and services they need on a daily basis, close to home.
The Finance Committee vote was an important first step. I am hopeful that by working with my colleagues, the bill will be brought up for a full Senate vote in the near future and move this important economic development proposal to the House for their consideration.
Senator Wayne D. Fontana
42nd Senatorial District