Effective Jan. 1, 2022, the Indiana State legislature updated the popular Venture Capital Investment Tax Credit program (Indiana VCI Program) to (1) expand the Indiana VCI Program to Indiana investment funds; (2) increase the amount of tax credits generally available under the Indiana VCI Program; and (3) grant investors a greater amount of tax credits in connection with investments in women and minority-owned business enterprises (W/MBEs).
The Indiana VCI Program provides a nonrefundable tax credit to investors making certain investments in Indiana businesses. The Indiana VCI Program is designed to incentivize investment in fast-growing Indiana companies. To take advantage of the Indiana VCI Program, an investor must make a qualifying investment in a qualified Indiana business or investment fund.
Generally, to take advantage of the Indiana VCI Program:
- The business or investment fund must first be certified as a Qualified Indiana Business or Qualified Indiana Investment Fund by the Indiana Economic Development Corporation (IEDC).
- The investor must submit a Qualified Capital Investment Application to the IEDC before making its investment.
- After the Qualified Capital Investment Application is approved by the IEDC, the investor must invest in the business or investment fund and submit the required documentation of the investment to the IEDC.
- The IEDC will then issue the investor a Certification Letter. This Certification Letter must be submitted with the investor’s Indiana state tax return to claim the tax credit.
The amount of the tax credit available to an investor under the Indiana VCI Program in each calendar year is:
- Investments in a Qualified Indiana Business: 25% of the investment amount (e.g., $25,000 tax credit available for a $100,000 total investment), up to a total lifetime tax credit amount of $1,000,000.
- Investments in a Qualified W/MBE: 30% of the investment amount (e.g., $30,000 tax credit available for a $100,000 total investment), up to a total lifetime tax credit amount of $1,500,000.
- Investments in a Qualified Indiana Investment Fund: 20% of the investment amount (e.g., $20,000 tax credit available for a $100,000 total investment), up to an annual tax credit amount of $5,000,000.
The total amount of Indiana VCI Program tax credits available to all investors in each fiscal year is capped at $20,000,000, of which up to $7,500,000 may be issued for investments in Qualified Indiana Investment Funds.
Prior to 2022, (1) the total amount of tax credits available under the Indiana VCI Program per year was $12,500,000, and (2) the amount of the tax credit available to an investor under the Indiana VCI Program in a calendar year was 20% of the investment amount, up to a total lifetime tax credit amount of $1,000,000 — regardless of whether the business was a W/MBE. Investment funds were not eligible for the tax credit.
Investors considering an investment in an Indiana business or investment fund should ask the business or investment fund whether an Indiana VCI Program tax credit may be available to them. Out-of-state investors who do not file Indiana tax returns should also inquire, as it is possible to sell an Indiana VCI Program tax credit to an Indiana taxpayer.
Taft’s Venture Capital and Emerging Companies practice group has a wealth of experience in all aspects of venture capital transactions. Contact one of Taft’s Indiana-based Venture Capital attorneys for more information on how to take advantage of the Indiana VCI Program, as a startup or investor.
Taft associate Ed Bellows (admission pending in Indiana and New York) contributed to this article.