The Commonwealth of Virginia has enacted a tax incentive for investment income from technology and science start-ups which exempts from Virginia taxation long-term capital gain and carried interest income from investments in small technology and science start-up companies. In order to qualify for this exemption a taxpayer must report this income for federal tax purposes in taxable years beginning on or after January 1, 2011 for investments made in small technology or science companies made between April 1, 2010 and June 30, 2013.
For purposes of this exemption, the investment must be made in a company which:
1) Has annual gross receipts for the most recent fiscal year which are not more than $3 million.
2) Has its principal office or facility in Virginia.
3) Is engaged in business primarily in or substantially produces its product in Virginia.
4) Has not obtained during its existence more than $3 million, in aggregate, equity and debt, not including bank debt, financing.
5) Is primarily engaged, or is primarily organized to engage in, the fields of advanced computing, advanced materials, advanced manufacturing, agricultural technologies, biotechnology, medical device technology, nanotechnology, or any similar technology related field determined by the Virginia Department of Taxation.
The Virginia Secretary of Technology is also authorized to approve any other business as qualified.
Finally, if a taxpayer has claimed a Virginia qualified equity and subordinated debt investment tax credit in a qualified business, the taxpayer is not eligible for the tax incentive for investment income for technology and science start-ups for the same business. The Virginia qualified equity and subordinated debt investment tax credit is a credit of up to $50,000. Eligible taxpayers can claim either the incentive for investment income for technology and science start-ups or the qualified equity and subordinated debt investment tax credit. Taxpayers should analyze which tax incentive provides the greatest tax benefit based on the facts and circumstances.
If you have any questions regarding the above described tax incentive or the qualified equity and subordinated debt investment tax credit, please call or e-mail Robert Tobey at rtobey (at) kshgs (dot) com.