Millions In "Angel Investment" Tax Credits Going To Out Of State Companies

North Dakota lawmakers are putting some scrutiny business tax incentives, trying to determine whether or not these programs are paying off for the taxpayers.

This is an area that’s ripe for review, I think, and already the effort is bearing fruit. Yesterday the interim Political Subdivision Taxation Committee heard testimony from Commerce Department co-Deputy Commissioner Justin Dever, and it was revealed that Angel Fund Investment Tax Credit has been giving credits to businesses that primarily operate out of state.

This is from Dever’s prepared testimony to the committee which he sent me a copy of, upon my request, this morning:

“We’re a little shocked,” Rep. Craig Headland, a Republican from Montpelier, said in response to these revelations per Mike Nowtazki.

“I thought the purpose of these tax credits was to benefit North Dakota more directly somehow,” Rep. Lawrence Klemin, a Republican from Bismarck, said.

No kidding. So how did this program end up with nearly half the companies it is subsidizing operating primary out of state? Again, from Dever’s testimony, we learn that oversight on the program has been somewhat lax:

That’s not what you like to hear.

Below you can see a chart, prepared by the Tax Department and included in Dever’s testimony, which shows where the Angel Fund dollars went (interestingly Doug Burgum’s company Arthur Ventures figures prominently). You can read Dever’s full testimony here.

You really have to wonder about the sort of investment which requires government incentive. If investors feel they aren’t going to get a decent return absent the taxpayers kicking in a credit, is it really the sort of investment the government should be backing?