For those operating or investing in Massachusetts Life Sciences Companies, you should be familiar with the following programs:
Massachusetts Companies
The Massachusetts Life Sciences Center Tax Incentive Program application window is now open and is offering lucrative tax savings to eligible companies. Companies that apply and are accepted into this program can benefit from various tax benefits, such as:
- Life Sciences Investment Tax Credit (pursuant to M.G.L c. 62, §6(m) and c. 63, §38U)
- Extension of Net Operating Losses (NOLs) from 5 to 15 years (pursuant to M.G.L. c. 63, §30(17))
- Designation as R&D Company for Sales Tax Purposes (pursuant to M.G.L. c. 63, §42B)
- Sales Tax Exemption for Certain Property (pursuant to M.G.L. c. 64H, §6(xx))
- FDA User Fees Credit (pursuant to M.G.L. c. 62, §6(n) and c. 63, §31M)
- And several other tax benefits
Applicants should meet the following criteria:
- Companies must be registered to do business in Massachusetts
- Companies must employ at least 10 permanent FTEs (35 hours/week) as of December 31, 2023
- Companies must commit to hiring at least 10 net new jobs in calendar year 2024 and be able to retain those jobs through 2028
Online applications and additional information can be found on the Massachusetts Life Sciences Center website.
Applications are due at noon EST on February 2, 2024, so interested companies should act fast.
Massachusetts Investors
Investors funding early-stage life sciences companies in Massachusetts may be eligible for generous tax incentives under the Angel Investor Tax Credit Program.
What Investors Qualify?
Investors must be “accredited” investors. Accredited investors are defined as such by the U.S. Securities and Exchange Commission (SEC) pursuant to 15 USC section 77b(15)(ii). Additionally, investors can’t be principal owners of the business or involved with the business in a full-time professional capacity. Investments can be made by “pass-through” entities, such as a partnership, rather than a specific individual or corporation. However, they can’t be venture capital funds, hedge funds, or commodity index funds with institutional investors. The investor must be making a monetary investment that is at -risk and is not secured or guaranteed.
What Companies Qualify?
Companies must have 20 or fewer full-time employees at the time of investment and less than $500,000 of revenue in the year prior to the investment. The principal place of business must be in Massachusetts and at least half of the employees must be based there. The business must have a written business -plan, forecasts, and other financial information. The investment must be used for capital improvements, plant equipment, R&D, or working capital. The investment can’t be used to pay dividends, fund or repay shareholder loans, redeem shares, repay debts, pay wages, or be put towards other benefits of the taxpayer investor. The business can’t be involved in retail, real estate, professional services, gaming, or financial services.
What Are the Tax Savings?
Taxpayers may be eligible for a credit on 20% of the qualifying investment amount. Additionally, taxpayers investing in companies located in a “gateway municipality” may qualify for a higher, 30% credit. Gateway municipalities are defined as a municipality with a population greater than 35,000, but less than 250,000. Additionally, the municipality’s median household income and rate of educational attainment of a bachelor’s degree must be below the commonwealth’s average.
A specific taxpayer’s credit is capped on investments up to $125,000 per business per year and $250,000 of cumulative investment, per business. The annual credit on all investments is capped at $50,000 per investor.
How Do I Monetize the Tax Savings?
There is a two-step online application being administered by the Massachusetts Life Sciences Center. The application requires information from both the investor and the qualifying business. There are also annual reports that must be submitted to ensure compliance. Applications are currently live online here. The credit is monetized on the investor’s tax return with the Commonwealth of Massachusetts. The credit can be claimed in the initial year of investment and if not fully monetized, can be carried forward to the subsequent 3 tax years. If the business no longer has its principal place of business in the Commonwealth during the subsequent 3 years, the credit must be forfeited or repaid.
Applications are due by 5 PM EST on January 16, 2024, so interested investors should act fast.
Author: Robert Traester, CPA, MST | [email protected]
Contact Us
For assistance with these programs or any other program, please contact a member of Withum’s Life Sciences Services Team.
