At the close of 2010, the Michigan legislature approved and the governor signed into law the Michigan Venture Tax Credit. The Venture Tax Credit has a narrow focus: it may be used only against the Michigan Income Tax (not the Michigan Business Tax) and will be available only for investments made in 2011 and 2012. The credit equals 25% of an investor's "qualified investment" in a "qualified business."
A qualified investment is an investment of at least $20,000 that is made alongside or through a seed venture capital or angel investor group that is registered with the Michigan Strategic Fund. An investment in life sciences technology does not qualify unless it meets the definition of life science in the Michigan strategic fund act.
A qualified business is:
a "seed or early stage business," which is either a business that has not fully established commercial operations (including engaging in continued research and product development), or a business engaged in product, service, or technology development and initial manufacturing, marketing, or sales activities; headquartered and domiciled in this state, and has a majority of its employees in this state; have a preinvestment valuation of less than $10,000,000 and fewer than 100 full-time equivalent employees; and have been in existence for less than 5 years or have been in existence less than 10 years if the business activity is derived from research at most private or public universities, or a tax exempt entity located in this state.
The Strategic Fund must certify these conditions are met. To claim the credit, the taxpayer must request a certification from the MSF within 60 days after making the investment. The Michigan strategic fund can certify only $9,000,000 of credit per calendar year (equivalent to $36,000,000 in qualified investments) and not more than $250,000 of credits ($1,000,000 in qualified investments) in any one business.
Overall, a taxpayer may not claim a credit of more than $250,000 for qualified investments in all qualified businesses in any one year. Over the two year period of eligible investments under this Act, a taxpayer is limited to a total of $500,000 in tax credits. If a taxpayer receives a credit, the credit must be used by the taxpayer in two equal installments beginning in the year in which the Strategic Fund issues its certificate. The credit is non-refundable; any unused credit at the end of a tax year may be carried forward for up to five years, after which it will expire.
Some taxpayers are ineligible for the Venture Tax Credit. Generally, the investor must be unrelated to the business. No member of the investor's family may be an employee or owner of the business, and no investor, nor any investor family member, may have a preexisting fiduciary relationship with the business. In addition, a taxpayer who has unpaid tax or who has been convicted of a felony involving certain financial crimes is ineligible for the credit.