RI Creates New Tax Credit for Small Business Investment Companies

By Joshua J. Butera

September 23, 2019

The Rhode Island General Assembly recently created a new program designed to promote private funding for Rhode Island small businesses. The program creates a tax credit for Small Business Investment Companies (“SBIC”) that invest in eligible Rhode Island businesses.

An SBIC is an investment fund recognized by federal law (15 U.S.C. § 681) and licensed by the U.S. Small Business Administration. The SBIC program incentivizes private investment in eligible small businesses by offering certain benefits, including favorable terms on federal loans (so the SBIC may invest the loan funds) and exempting the SBIC from both the Volcker Rule and SEC registration.

Rhode Island is now offering its own incentives for SBICs that invest in Rhode Island small businesses. The program will be administered by the Rhode Island Commerce Corporation. Beginning on the third anniversary from the initial capital investment, the tax credit takes effect and lowers the SBIC’s state tax liability by 21.5% multiplied by the amount invested.

To take advantage of this tax credit, the SBIC must invest in an “eligible business,” which is defined as (1) having fewer than two hundred fifty employees; (2) having no more than fifteen million dollars in net income from the preceding tax year; and (3) having its principal business operations located within Rhode Island. In addition, the funding is only available for certain industries that the General Assembly believes will contribute to economic growth, such as clean energy, life sciences, defense, shipbuilding, and composites. The list of industries is relatively broad (it includes food, design, hospitality and “advanced business services”) and SBICs may even petition the Commerce Corporation to allow the investment if the company is not within an enumerated industry so long as the Corporation determines that the investment will be beneficial to economic growth.

An SBIC seeking to certify a capital investment in an eligible Rhode Island business must apply to the Commerce Corporation. The Corporation begins accepting applications in Fall of 2019. For more information about this program or other business matters, contact Attorney Joshua J. Butera at 401-824-5100 or email jbutera@pldolaw.com.

Disclaimer: This blog post is for informational purposes only. This blog is not legal advice and you should not use or rely on it as such. By reading this blog or our website, no attorney-client relationship is created. We do not provide legal advice to anyone except clients of the firm who have formally engaged us in writing to do so. This blog post may be considered attorney advertising in certain jurisdictions. The jurisdictions in which we practice license lawyers in the general practice of law, but do not license or certify any lawyer as an expert or specialist in any field of practice.

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