Tax credits for breweries, is this a real thing? Yes it is!
The South Carolina High Growth Small Business Job Creation Act, also known as the Angel Investor Act (the “Act”), provides tax credits to angel investors who make qualified investments in qualified businesses. The intent behind passage of the Act was to encourage investment in early-stage, high-growth job-creating businesses; increase the number of high-quality, high-paying jobs in South Carolina; and ultimately expand the state’s economy by enlarging the base of wealth-creating businesses.
Registration as a Qualified Business
Although angel investors must apply for tax credits through the South Carolina Department of Revenue, “qualified businesses” (Yes a brewery does qualify!) must apply for registration with the South Carolina Secretary of State. Please refer to S.C. Code of Laws §11-44-30 to determine whether an entity meets the requirements for registration. Approval of registration constitutes certification by the South Carolina Secretary of State for twelve months after being issued. A qualified business may renew its registration as long as it continues to meet the statutory requirements for qualified business.
In order for a business to qualify under the Act, the company must:
- Be less than five years old.
- Be headquartered in SC.
- Have 25 or fewer employees in the state.
- Have gross income under $2 million in any previous fiscal year.
- Be engaged in manufacturing, processing, warehousing, wholesaling, software development, IT services, R&D, and certain service-related facilities.
- Complete an application with the Secretary of State and receive approval before receiving a qualifying investment.
Application for Tax Credit
To apply for a tax credit under the Act, angel investors must complete an Angel Investor Credit Application. First-time registrants should have completed an application for registration as a qualified business. Businesses that were previously approved to register as a qualified business and that are seeking to renew their registration file a renewal application for registration as a qualified business.
In addition, the angel investor must:
- Be accredited per SEC rules.
- Make the investment after the company has been qualified by the Secretary of State.
- Follow these instructions to complete an application for the credit before December 31st of the year in which the investment is made.
- File a tax credit form with your tax return.
For a qualified investment, an angel investor can claim a tax credit that:
- Is equal to 35% of the investment amount (e.g. a $10,000 investment would be eligible for up to a $3,500 credit).
- Can be taken up to 50% in the year of the investment, with the remainder available in subsequent years (up to 10 years from the year of investment).
- Is a maximum of $100,000 for a single taxpayer in a single tax year – so an individual investor can claim a tax credit for up to $285,714 of qualified investments in a single year ($285,714 times 35% = $100,000). Married taxpayers can take $100,000 each.
- Is eligible to be carried forward for up to ten years if not used.
- May be sold, exchanged, or transferred, but only once. Non-SC investors (with no SC income tax liability) or SC investors that cannot use the credit can sell their credit to a SC taxpayer.
You may review a listing of qualified businesses registered with the Secretary of State (PDF) or use the Secretary of State’s online corporation search engine to look up a business by name to see if it has registered as a qualified business.
Pursuant to S.C. Code of Laws §11-44-60 of the High Growth Small Business Job Creation Act, the South Carolina Secretary of State is required to publish an aggregated statewide report of qualified businesses (PDF) on an annual basis.
If you would like to learn more about tax credits for breweries please reach out to our Alcohol Law Practice Group for more information.