Stephen Singer, AP
Finding investors in a weak economy is never easy, but John Marano hopes a new Connecticut tax credit will persuade some to take a chance with his medical equipment manufacturing company. Marano, president and CEO of Vascular Insights, which manufactures and sells equipment to treat varicose veins without surgery, anesthesia and hospital stays, said he's looking to the new state tax credit to attract more investors to the company.
“If it comes from one investor or multiple investors, we're looking for funds,” he said. Connecticut joins other states with the tax break for so-called angel investors – wealthy individuals who invest their own money in new companies, then cash in when the companies are sold or trade publicly.
In a state that already offers tax credits to encourage research and development, movie production, building natural gas filling stations and promoting numerous other activities, the newest credit is intended to spur investment, establish startup companies and lead to job growth.
Connecticut has a significant number of angel investors living here and “when it's time to make decisions where to invest money, they will look at states with tax structures that encourage them,” said Joan McDonald, commissioner of the state Department of Economic Development.
One investor said limits to the tax credit, which was recently signed into law by Governor M. Jodi Rell, could undermine its effectiveness. Manny Ratafia of Ratafia Ventures in Woodbridge said Connecticut investors who work in groups not based in Connecticut may not qualify for the tax credit because it is applied to Connecticut income taxes. Out-of-state residents typically do not pay Connecticut income taxes or pay very little if they have some income in the state. In addition, Ratafia said the requirement that investments be at least $100,000 to qualify for the tax credit could be too high. Many angel investors commit about $30,000 to a single investment, he said.
McDonald said the state is targeting small companies that are known for stronger job creation than larger firms. To qualify for the tax credit, angel investors must put money into businesses with gross revenue of less than $1 million and employ fewer than 25 workers with at least three-fourths living in Connecticut.
The credit cost Louisiana $22 million from 2005 to 2009 and generated $62 million in investments. Still, in a grim budget year, concerns about the cost were enough to sink the tax credit, which failed to win support in the final hours of the legislative session this year, Knapp said.