Key legislator optimistic in the future of Kansas’ angel tax credits

A Kansas lawmaker overseeing discussion on the future of the state’s angel investor tax credits is confident the program will be made a budgetary priority by his peers in legislature.

Kleeb

Rep. Marvin Kleeb, R-Overland Park, said that he and fellow members of the Kansas Committee on Taxation listened to thorough testimony Wednesday during a hearing on House Bill 2405 that drew about a dozen Kansas business leaders. The program offers accredited investors a tax credit of up to $50,000 on an investment in a Kansas business, helping to mitigate risk and encourage investments.

“There was compelling testimony from a number of businesses regarding the importance of venture capital and the fact that the angel investor tax credits have helped investors make the final decision to go into what was a potentially a riskier investment for them,” said Kleeb, who is chairman of the taxation committee that is responsible for forwarding HB 2405 to the House of Representatives for a vote. “The angel investment tax credits have been important for technology and bioscience companies. Kansas has been a leader in the past in supporting those areas and I believe we’ll want to be a player in the future.”

HB 2405 would extend the sunset of the $6 million annual program to 2021. An extension of the program has yet to face any vocal detractors, however, it’s the biggest hurdle remains to be Kansas’ financial situation. Kansas faces a projected $600 million budgetary shortfall as a result of the legislature’s slashing of personal income taxes in 2012 and 2013.

That budgetary issue is forcing careful scrutiny of each expenditure, Kleeb said.

“Our current financial situation is definitely able to be solved,” he said. “It does mean that we take a look at every proposal of any kind and run it through the filter: Is it important to the citizens of the state and there is a return on investment? I think the angel investment tax credits is one of those programs that helps with capital formation and job creation. … I think all members of the Legislature — not just the tax committee — have an opportunity to hear from the businesses and their constituents and I think they’ll find it to be a very positive plan to support.”

Kleeb said that his committee hopes to move HB 2405 to the House floor either next week or the following for a vote. After that, Kansas will face its legislative “turnaround,” which will take place at the end of February. The turnaround is the first major deadline for the legislative session in which all bills must be passed from their originating chamber to the opposite body — such as House bills heading to the Senate or vice versa.

Kleeb recognized talent retention and the challenge that entrepreneurs face in the Midwest in attracting capital as key components in his support of the measure.

“Venture capital is harder to come by in the central part of the country,” he said. “We need all the right economic development tools that we can have to help grow those particular industries (tech and bioscience). … We spend about $3 billion a year on K-12 and higher education and I think it’s very important we do all we can to have jobs and business opportunities for students in the state. It’s too bad when it comes to tech and bioscience that so many students are exported to other states. I think anything we can do to grow those industries here or support their ventures is very important.”

Since 2006, the program has helped 298 companies raise more than $342.9 million in capital, which has allowed the firms to create 1,188 new jobs, according to the Kansas Department of Commerce. The department also reports that the tax credits have helped create 549 jobs in the last four years.

The tax credit program is now accepting applications from eligible companies for its final year under the current bill. To apply, a business must have less than $5 million in revenue, be in operation for less than five years and have a proprietary technology or product. Application and registration fees cost $300.  

To illustrate how the program works, let’s use a fictional example.

Jane from Startland News is raising $500,000 in financing and has two angel investors that want to complete the round with two $250,000 investments. Jane applies for and is allocated $100,000 in angel tax credits from the Kansas Department of Commerce. That allows Startland offer each investor $50,000 in tax credits, knocking down their investment cost to $200,000.

The investors each write Startland a check for $250,000 and Jane files a report with the Department of Commerce, which sends each investor a certificate entitling them to a $50,000 income tax credit. The credits mitigate risk for an investor, encourages investments and helps Startland accelerate its business.