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State Sen. Catherine Pugh, D-Baltimore City. (File photo)

Md. legislators consider tax break for ‘angels’

ANNAPOLIS — Investors in startup companies could receive state tax credits under a proposal being considered by the Maryland General Assembly.

The Angel Investors Tax Credit would provide nonrefundable tax credits of 50 percent of an investment — up to $50,000 — in a qualified “innovation company” that is developing a technology, product, or service.

Sen. Catherine Pugh, D-Baltimore City and sponsor of the bill, said the measure attempts to address an issue that came up during her time on the Augustine Commission, a joint legislative panel focused on how to improve the business and economic climate in the state.

“One of the things we heard a lot about were the angel investors and encouraging angel investors to invest in Maryland,” Pugh said.

The tax credit, if becomes law, would create a $5 million fund to provide tax credits to investors of companies certified by the Department of Business and Economic Development.

To be eligible, the company would have to meet certain qualifications including: not being in business for more than five years or being publicly traded; being based in the state, with 51 percent of its full-time employees living in Maryland; and having at least 51 percent of its payroll going to state residents.

Currently, the bill does not define the term “innovation company.” Pugh said the intent was to give some flexibility as to which companies could be eligible for the investments and to separate the program from existing tax credit programs for biotechnology and cybersecurity.

Maryland has more than 70 economic development incentive programs, second only to Oklahoma. About one-third of those programs are administered directly by the department, which is charged with providing financial assistance to attract businesses to the state and to help retain and expand businesses.

The tax credits created by Pugh’s bill would be provided to investors on a first-come, first-serve basis.

Some advocates say the tax credits would encourage more investment in young companies and ultimately benefit the state.

And while supporters, including investors and the Greater Baltimore Committee, say the bill is needed to bring investment capital to the table, some members of the Senate Budget and Taxation Committee expressed concerns about giving tax breaks to the wealthy.

Sen. Richard S. Madaleno Jr., D-Montgomery County and a member of the committee, estimated that only people who earn $200,000 or more would be able to participate in the program.

Madaleno asked if the investors “deserve a different tax reality” than lawyers and other professionals solely on the basis of their investments in startup companies.

“Is this really the best use of our money, to reward people through our tax dollars who are already among the wealthiest in the state?” Madaleno said.

Robert A. Rosenbaum, president and executive director of TEDCO, said the initial tax credits would reap tax benefits to the state when companies succeed.

“To me, it’s a fairly good trade-off for the state,” Rosenbaum said. “An investor who invests $10,000 and sees a 10-to-1 return will pay taxes on $100,000.”

But the bill faces some significant challenges, not the least of which is that its cost comes at a time when legislators and the governor are struggling to control budget growth and restore at least some of the cuts proposed for state agencies, employee salaries and education programs.

Additionally, some legislators expressed a desire to hold off on additional incentive packages until the Augustine Commission can complete its review of the business tax structure in the state. That report is expected in December.