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Why Missouri Doesn't Offer Angel Tax Credits To Startup Investors

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Thinking about launching your own technology startup in the Kansas City metro?  

Greg Kratofil, a technology attorney with Polsinelli law firm, has some advice.

"Incorporate in Kansas," Kratofil says. "Almost every company that we work with is thinking about accessing capital, some kind of round of financing to help them grow their business. You want to be in a place where you have tools that help your raise that money."

Of course, there are reasons to stay in Missouri, too – we wrote about them earlier this month in our profile of the Kansas City Startup Village – but unless a client has a clear preference, Kratofil says clients usually are better off in Kansas, where they can take advantage of angel tax credits and other incentives.

The program offers early investors a 50 percent tax credit for every dollar they give to a qualified Kansas startup company.

"Nobody invests in a technology company for a tax credit," Kratofil says. "Nobody would throw a dollar down the drain for fifty cents.

"But if you like the company, like the opportunity, like the management team and believe it's a good investment, the angel tax credits can really help an investor."

Why efforts to create an angel tax credit for Missouri haven't succeeded

For much of the past decade, Missouri and Kansas have been engaged in an economic border war, using economic incentives to lure businesses back and forth across the state line.

But Matthew Marcus, one of the original settlers in the Kansas City Startup Village, says most of the entrepreneurs he knows stay in the state where they incorporate.

"When you're hustling 16 hours a day to make your business grow, any incentives you can get don't matter as much as attracting customers," Marcus says. "I haven't really seen anyone do the hop, skip and jump you do hear about happening with the bigger corporations."

Marcus has had new settlers to the village tell him they're only interested in Kansas properties, though.

It makes sense to Kratofil. 

"Guys that are trying to start a business who are quitting a good job and chasing a dream, putting these startup expenses on their credit cards, (are) looking for programs, opportunities and advantages that help them along the way," he tells KCUR.

So why doesn't Missouri offer angel tax credits? Well, like most things, it comes down to politics.

The Missouri House of Representatives passed angel investor legislation in the most recent session, but it didn't advance in part because of a controversial amendment tacked on to bar investment in companies that do stem cell research. Lobbying group Missouri Right to Life threatened to oppose the bill and others like it without the language.

And though Missouri Gov. Jay Nixon has signed his support for ending the economic border war, he's also opposed new taxes that increase state expenditures.

Why angel tax credits may be less beneficial in Missouri than Kansas

Still, there's a lot of support in the metro for Missouri angel tax credits to level the playing field between the two states.

"If that happens, then there will be no clear-cut decision, no clear-cut differentiator between Kansas and Missouri," says Neil Anderson, one of the few Missouri-side residents of the Kansas City Startup Village.

Anderson, who lived on both sides of the state line growing up in the metro, looks across his backyard into Kansas and says right now it does feel like another state.

But even if Missouri lawmakers eventually earmark a pot of money for angel investors, it may not have the intended impact within the metro.

Because while Kansas City, Kan., captures the majority of angel dollars that the Kansas Department of Revenue makes available each year – really only competing with Wichita – Kansas City, Mo., would be up against metro St. Louis and mid-Missouri startups for state support.

This look at the Missouri-Kansas state line is part of KCUR's months-long examination of how geographic borders affect our daily lives in Kansas City. KCUR will go Beyond Our Borders  and spark a community conversation through social outreach and innovative journalism.

We will share the history of these lines, how the borders affect the current Kansas City experience and what’s being done to bridge or dissolve them. Be a source for Beyond Our Borders: Share your perspective and experiences on the state line with KCUR.

Elle Moxley covered education for KCUR.
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