Michigan residents could claim state tax credits for small business investments under a bill proposed in Lansing.
The bill, sponsored by Democratic lawmakers, would allow individuals to claim a state income tax deduction of 50% of their investments, up to $3,000 per year per investment, and up to $3,000 per taxpayer for each qualified business they invest in.
Supporters of House Bill 4691 believe that by reinstating an investor tax credit similar to the one in effect from 2010 to 2012, it would increase the flow of capital for people starting small businesses in Michigan and increase the claims it will enable them to support locally owned businesses through direct assistance. investment.
“This is really a way to make sure Michiganders are investing in Michigan businesses,” said Congressman Abraham Ayyash.Hamtrak The Democrat and House Majority Leader told the House Taxation Committee in recent testimony at a Congressional hearing in Lansing.
“This would be a truly transformative policy that could be implemented right here in Michigan,” Ayyash said. “This is a great opportunity for small businesses to accelerate their investments. This gives people in our community more opportunities to put their skin in the game while supporting real communities.”
Individuals can claim tax deductions for up to 10 years after investing.
Small businesses eligible to receive debt or equity investments must be certified by the Michigan Strategic Fund in order for investors to receive tax credits. HB 4691 would not allow tax credits for investments made by family members of small business owners.
State lawmakers considered a similar bill in 2022. The bill passed out of committee on a bipartisan vote, but there was no further action in the state Legislature.
With HB 4691, “we have picked up the baton to continue this work,” Ayyash said. As an example of how tax credits work, he points to a neighbor who wants to open a coffee shop. He said his friends and neighbors who are not federally accredited investors could invest in their businesses and seek tax credits.
“This is one of the best ways to encourage young and old entrepreneurs alike to invest in their communities, and we are committed to helping the state foster small business growth this season.” We have talked a lot about and this will really establish that,” Ayyash said.
The Tax Policy Committee did not vote on HB 4691 after hearing testimony earlier this month. Since Congress is in recess this year, further consideration of the bill will have to wait until next year.
Committee chairwoman Rep. Cynthia Neely, D-Flint, said during a committee hearing this month that the bill has the support of the Michigan Small Business Association, the Michigan Manufacturers Association and the Michigan League of Cities. suggested. Neely said the Mackinac Center for Public Policy opposed the bill.
Chris Miller of Adrian, president of the nonprofit Citizens United, testified in favor of the bill. COmnity Capital cites a 2019 study conducted in the Canadian province of Nova Scotia that found a 30% tax credit for people who invested in a $2 million fund for small businesses with wages of $52 million and more than $24 million. reported that it contributed to the creation of 1,200 jobs at 116 small and medium-sized enterprises that pay 1 million tax revenue. He said the tax credit would cost the state $700,000 in revenue.
“I don't think there's anything else that's as efficient as this,” Miller said, adding that the investment tax credit would help underserved entrepreneurs in distressed communities and small business startups. We believe it will help entrepreneurs who cannot access traditional bank financing.
“One of the things we have realized over the last few years is that we need a way to strengthen local economies. They are going through difficult times for a variety of reasons and this is a way to ,” he said.
Rep. Karen Whitsett, D-Detroit, cited how lawmakers have created tax breaks for companies that make large business investments in the state.
“We love giving tax breaks to businesses. Now let's give tax breaks to our own people who actually live in our communities,” she said.
HB 4691 would require the Michigan Strategic Fund Board to create an application and approval process to qualify investments for tax credits and adopt parameters and criteria to be used to approve investments .
Tax-deductible investments are those that are headquartered or headquartered in Michigan, have a majority of their employees employed within Michigan, receive at least 80% of their gross receipts from Michigan operations, and that have at least 80% of their gross income from Michigan operations. need to be sent to small and medium-sized enterprises holding %. assets here.
The bill includes language that would require the Legislature to annually appropriate “sufficient funds” to the state's school attendance fund to offset the loss of revenue from tax credits.
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