Economy & Business
3:07 pm
Fri July 12, 2013

PA to Use Tax Credits to Spark High Tech Start Ups

Established, financially successful companies are looking to reduce their tax liability. Nascent tech firms are looking for an infusion of capital to jump start them. A new program that’s included in Pennsylvania’s tax code, signed this week by Gov. Tom Corbett, aims to accomplish both.

“Innovate in Pennsylvania,” sponsored by State Senator John Blake (D-Lackawanna), allows the commonwealth to auction $100 million in tax credits to insurance companies that will then use those credits to trim their tax liability in the future.

Blake said the auction is expected to generate $85 million that the state will then invest in start up and early-stage technology-related businesses. 

“That means about $42 million to the Ben Franklin Technology Partners, about $38 million to the Venture Investment Program, and it will also mean about $4.2 million for Life Sciences Greenhouses which are again a model for the nation and leverage their investments significantly with private capital.”

Pennsylvania had been investing about $50 million a year into the Ben Franklin program, but that has dropped to $14 million due to tight state budgets. A recent study indicated that the Ben Franklin program helped create more than 20,000 jobs from 2007-11 and that there’s a $3.60 return in revenues for every state tax dollar invested.

The insurance companies would be paying about 85 cents on the dollar for the tax credits but would not be able to start cashing in those credits until 2017 with the amount capped at $20 million per fiscal year.

“Innovate in Pennsylvania” is gambling that when the insurance companies start using those credits to reduce their tax liability, the start up companies will be successful.

“We expect the return to the commonwealth in terms of revenue and new jobs to much greater than the amount of money we’re investing in these companies,” Blake said. “It’s a proven model. We know we can get that return on the investment, perhaps up do $2.50 for every dollar we invest.”

The new tax code requires that each economic development program that receives funds from these tax credits provide annual reports to the legislature and the governor on the impact of the credits on job growth.