Provides an angel investor credit against certain taxes imposed in a city of one million or more for investment in certain qualified emerging companies

Eligible taxpayers granted an angel investor credit for a qualified investment against the city personal income tax shall be ineligible for an angel investor credit against the unincorporated business tax for such investment

Sets forth definitions for 1) a "qualified investment", 2) "related member", and 3) "affiliates".

Such credit shall be refundable and allowed against the unincorporated business tax paid on or after January 1, 2013.

No later than October 1, 2012, the NYC Department of Finance shall establish by rule procedures for the allocation of the angel investor credit to eligible taxpayers.

Any local law adopted pursuant to this Act may provide for a credit for a maximum of 3 consecutive calendar years, but shall not apply to taxable years beginning on or before January 1, 2013 or after January 1, 2016.

Section 2 mirrors the provisions of section 1, except that:

1. Such section applies to the city personal income tax,

2. Eligible taxpayers granted an angel investor credit for a qualified investment against the unincorporated business tax shall be ineligible for an angel investor credit against the city personal income tax for such investment;

3. In the case of a resident taxpayer, the credit provided shall be against the credit provided shall be allowed against the city personal income tax for the taxable year reduced by the credits already taken

against the PIT. If the credit exceeds the tax as so reduced, the credit shall be refundable;

4. If a taxpayer changes residency status during the taxable year from resident to nonresident, or from nonresident to resident, the credit shall be prorated according to the number of months in the period of residence; and

5. In the case of a husband and wife who file a joint return, but who are required to determine their city personal income taxes separately, the angel investor credit may be applied against the tax of either or divided between them as they may elect. In the case of a husband and wife who are not required to file a federal return, the credit under this subsection shall be allowed only if such taxpayers file a joint city personal income tax return.

Section 3 provides that the aggregate amount of tax credits allowed under this act in any calendar year shall be up to $3 million. Such aggregate amount of credits shall be allocated by the New York City department of finance among taxpayers in order of priority based upon the date of filing an application for allocation of the angel investor credit with such department. If the total amount of allocated credits applied for in any particular year exceeds the aggregate amount of tax credits allowed for such year, such excess shall be treated as having been applied for on the first day of the subsequent year.

Statement in support

The Angel Investor Tax Credit would provide an incentive for investment in small, early stage biotech and medtech businesses in New York City. It is designed to aid the formation of promising firms by lowering their cost of capital. It would provide accredited investors with a credit of up to 10% of their investment. Angel Investors look for fast growing firms and as a result Angel Credits can be a significant source of job growth over time. Investors would receive a refundable credit equal to 10% of eligible investment Credits would be limited to a maximum credit of $100,000 payable over 5 years (about $20,000 per year) Given that nationally the typical angel's investment in a single firm is around $325,000, we expect most credits to be well under the limit. The credit would be against the City's personal income tax, or for partnerships; against the unincorporated business tax. The total credits that the City could issue in a given year will be capped at $3 million. Why an Angel Credit? Like the City's Biotech Tax Credit, an angel investor tax credit for biotech and medtech would attract capital to a promising sector in the city and could be viewed as part of a long term effort to diversify the City economy. Nationally, this is a rapidly growth export sector that makes use of growing demand in the world economy.

BACKGROUND Angel Investors An angel investor is an affluent individual who provides personal capital to start-up companies, often through a trust, fund, or business. They are distinct from venture capitalists who invest other persons' capital through a professionally-managed fund. Angel investors are particularly critical for small start-ups seeking capital, because most venture capital funds are not interested in investments of less than $1 million. Indeed, angel investments are highly sought after by high- growth start-ups, particularly after spending their own personal resources.

Angel investments in the United States account for almost as much in aggregate as those of venture capitalists. In 2010 angel investors provided $20.1 billion in capital. Angel investors however, furnish capital to 20 times as many businesses as do venture capitalists. In 2010 61,900 firms were served by angel investors, versus 3,047 busi- nesses by venture capitalists. According to the Center for Venture Research, there were 258,000 angel investors in the United States in 2007 In 2010 healthcare/medical firms accounted for 30% of angel investments. In comparison, software, biotech and industrial/energy firms comprised 16%, 15%, and 8% of angel investments respectively.

Angel Credits in Other States. Currently, more than 20 states have some form of an Angel Investor Credit. New Jersey is among them.

Fiscal impact

The credit will have no impact on the New York State Budget. The New York City Council Finance Division estimates that the credit will reduce City personal income tax a unincorporated business tax revenues by $600,000 in City Fiscal Year 2014, rising to $1.8 million in City Fiscal Year 2016.

Effective date

Immediate