Preserving Tax Credits

Posted on March 18, 2013

While many people know that Virginia has a Qualified Equity and Subordinated Debt Investment Tax Credit program that offers investors a state income tax credit of up to 50% of their investment in a qualified entity, most people are not aware that the credit applies only to companies in certain targeted industries. Our Emerging Technology Team recently assisted an early stage company whose application for designation as a qualified business had been denied by the tax authorities. The Company had raised $470,000 of new equity capital in 2012 and was anxious to offer this tax credit to each new investor. We obtained additional information about the Company’s technology and determined that its technology qualified as “Advanced Manufacturing” — one of the designated industry groups. We drafted a response to the denial letter, which outlined in clear detail the Company’s technology and its business plan and how the Company clearly fit within the targeted industry group. Approval was received 12 days after our letter was delivered, and this Company will be able to offer up to $235,000 of Virginia income tax credits to its new investors.