Own a Technology Business in Virginia? Take Advantage of a Little Known Capital Gains Tax Exemption

21 Feb

Own a Technology Business in Virginia? Take Advantage of a Little Known Capital Gains Tax Exemption

Starting and managing a business is challenging, especially in the highly competitive technology sector. You have to ensure your product or service is on the cutting edge, while also juggling regulatory requirements and staying up-to-date with business taxes. Fortunately, the Commonwealth is taking some of the burden off your shoulders through the state tax code.

Entrepreneurs and investors who make qualified investments in early-stage technology, biotechnology and energy startups in Virginia through 2020, can seek exemption from paying state income tax on their long-term capital gains throughout the life of the investment, according to the Northern Virginia Technology Council.

This exemption was created as an incentive to encourage entrepreneurs to start and build their technology business in Virginia. It is also meant to encourage investors to make substantial investments in Virginia technology companies.

As a Virginia business planning attorney, I think it makes sense for business owners and/or investors in the technology field to take a hard look at this tax exemption.

If and when investments in these qualified companies are successful over the life of a company, any long-term capital gains attributable to the investment are exempt from Virginia’s income tax.

To qualify for this capital gains exemption, an investment must be made in a “qualified business.” The definition of “qualified business” under this exemption is defined as follows:

  1. The business must have annual gross revenues of no more than $3 million in its most recent fiscal year;
  2. The principal office or facility of the business must be in the Commonwealth;
  3. The business is engaged in, or does substantially all, of its business or production in the Commonwealth;
  4. The business has not obtained, during its existence, more than $3 million in aggregate gross cash proceeds from the issuance of its equity or debt investments (not including commercial loans from chartered banking or savings and loan institutions); and
  5. The business is primarily engaged, or is primarily organized to engage, in the fields of advanced computing, advanced materials, advanced manufacturing, agricultural technologies, biotechnology, electronic device technology, energy, environmental technology, information technology, medical device technology, nanotechnology, or any similar technology-related field determined by regulation by the Department of Taxation to fall under the purview of this section.

You can also qualify for the exemption if the investment in is any technology business approved by the Secretary of Technology, provided the business has its principal office or facility in the Commonwealth and less than $3 million in annual revenues in the fiscal year prior to the investment.

For more information about how to utilize this exemption, visit the Secretary of Technology’s website here: http://technology.virginia.gov/initiatives/capital-gains-exemption-for-technology-businesses/