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A Second Look At Georgia’s Revised Intrastate Crowdfunding Rules

A Second Look At Georgia’s Revised Intrastate Crowdfunding Rules

Editor's Note: The following was written by Laurie Thomas Vass, a registered investment advisor, and regional economist. Vass manages The Private Capital Market, a crowdfunding platform. Guest contributors' opinions are their own and do not necessarily represent the views of

In 2012, Georgia was one of the first states to implement, via administrative rule-making, intrastate crowdfunding rules. Along with the new administrative rules, the General Assembly of Georgia adopted laws related to the crowdfunding rules and implemented tax incentives designed to encourage investments in Georgia technology companies by Georgia citizens, see Attracting Technology Start-Ups: A Tale of 2 State Tax Strategies.

Unfortunately, Georgia securities administrators and legislators relied on a defective template for intrastate crowdfunding, palmed off on other states by the North Carolina Secretary of State, through her leadership capacity at the North American States Securities Association, a globalist political lobbying agency oriented to protecting Blue Sky review by all 50 states, all the Canadian provinces, all the Mexican states, and various and a sundry other sovereign governments. (How North Carolina’s Flawed Intrastate Crowdfunding Law Infected 16 Other States).

A series of articles critical of the Georgia crowdfunding initiatives appeared in CrowdSourcing, in 2013. (Analysis of Georgia's Intrastate Crowdfunding Laws.)

At that time of the articles, it was not public knowledge of the role of NASAA, or the N. C. Secretary of State, in coordinating the political efforts across state and national boundaries. The N. C. Secretary of State had decided to keep her initiatives at NASAA secret, and hidden from the public, including the members of the North Carolina General Assembly, where she had attempted to pass her version of the bill in 2013, and again in 2015.

Subsequent to those articles about Georgia, further examination of the laws adopted in 2014 and 2015, by 16 other state legislatures, revealed a common template, whose genesis was unknown to non-NASAA members. This was just like the research of the Jesus Seminar, whose investigators kept coming across text in the Biblical apocrypha of hundreds of unrelated documents that had the same basic language.

All the state laws had exactly the same language and format as the template created by the North Carolina Secretary of State.

All the other states relied on the defective North Carolina template, which incorporated into law, administrative rules that should have either been left to various state administrators, or left out entirely, from any rules. Putting the rules into the legislation subjected CEOs of companies to both civil and criminal prosecution for violation of any minor transgression, as interpreted by hundreds of state bureaucrats.

This was the exact goal of the North Carolina Secretary of State, to enhance the unchecked power of state regulators vis-à-vis the Federal Government. The SEC recently made all the state laws obsolete with new rules on intrastate crowdfunding, and now, all the other states that implemented the defective template will need to amend their laws.

The amendment process will be more difficult for them than it was in Georgia, because the other states will need to amend legislation, not administrative rules.

Georgia amended their rules by simply changing the text in the old rules on intrastate crowdfunding. No companies were using the rules anyways, because they contained so many burdensome barriers to raising capital. Since 2012, only two Georgia companies, Groundfloor and Bohemian Guitars, have used the intrastate rules, raising just over $2 million.

According to Amy Cortese, in her recent article, “Georgia, a Crowdfunding Pioneer, Marks Another First for Intrastate Crowdfunding,” “Georgia officials decided to raise the offering threshold after it became clear the $1 million threshold limited the usefulness of the exemption. First, Groundfloor, an Atlanta-based company that has used IGE to offer Georgia investors a piece of local real estate deals, began bumping up against the $1 million aggregate limit.”

“Issuers were telling us they needed higher limits,” explained Georgia Secretary of State Brian Kemp at the recent Crowdfunding Professional Association summit in Washington.

Georgia got some of the recent reforms right, and left many needed reforms under the boardwalk. This article takes a second look at what Georgia got right, and what more they need to do to make their rules effective as an economic development tool.

The Effectiveness of Georgia Angel and Crowdfunding Laws and Rules

The series of 2013 critical articles about the Georgia’s crowdfunding initiatives identified the top four policy initiatives in the state.

  • The Georgia House Bill 318, titled, The Invest Georgia Fund, passed on March 25 during the 2013 Georgia General Assembly. Governor Deal signed the legislation on April 29, 2013. The Invest Georgia fund is a $100M tax funded, state investment fund that will allocate tax money to private venture capital and private equity firms that will invest in Georgia-based companies. The target companies are primarily new ventures and startup firms.
  • Georgia Angel Tax Credit of 2010. Georgia House Bill 1069, titled, “Georgia Angel Investor Tax Credit,” passed on April 29, 2010, and was signed into law June 4, 2010. The 2010 law was extended in the 2013 Georgia Legislative Session to 2015. The law provides an individual state tax credit of up $50,000 on an annual basis for individual angel investors who invest in early stage, “qualified” Georgia companies.
  • Georgia Research Alliance Fund of 2008. House Bill 1196 gives a 25% tax credit only to limited partners within the fund. The GRA fund is seeded with taxpayer funds of between $7,000,000 and $10,000,000.
  • On December 8, 2011, the Georgia State Securities Division promulgated new rules known as the Invest Georgia Exemption (IGE). The modification in the state regulations did not require legislation from the Georgia General Assembly. The rule allows for-profit in-state Georgia companies to raise up to $1 million annually from non-accredited and accredited investors, resident Georgia investors without the added expense of filing a registration statement with the state or federal government.

It is this last policy, called the Invest Georgia Initiative that was recently modified by Georgia Secretary of State Brian Kemp.

All of the crowdfunding policy initiatives have been linked to a much bigger legislative package of tax initiatives whose common goal is economic development. Part of the problem in Georgia is that there are so many different pieces of the puzzle, all aiming at the same goal, without any apparent strategic vision.

As noted by Allysa D. Piché, “Georgia has offered a piecemeal approach, relying on private and institutional actors to fill in the gaps…Overall, as admitted by the Georgia Chamber of Commerce and the Technology Association of Georgia in 2012, Georgia is not improving in new business creation, entrepreneurial activity, and number of venture capital deals. Policy analysts have even described Atlanta's technology sector as stagnant. Overall, given the context of Georgia's start-up community, the state appears to have put the cart before the horse by focusing on investors instead of the start-ups themselves.”

In their review of all Georgia tax incentives and tax credits, Sherman A. Cooper and Laura Wheeler identified at least six different tax incentives related to economic development policy. (Georgia Tax Credits:Details of the Business and Personal Credits Allowed against Georgia’s Corporate and Individual Income Tax, September 22, 2015,

Currently, 26 other states offer some form of tax credit for accredited investors who take a stake in early-stage companies. Tax credits are a form of special treatment within the income tax code that results in a reduction in the taxpayer’s tax liability. Tax credits are a very common method of providing preferential tax treatment for certain groups or activities in most states.

Based on Georgia’s current income tax rate of 6%, investors who invest in Georgia firms would be able to offset a grand total of $833,333 in taxable income by investing the maximum amount $142,857 into one or more eligible businesses per year.

The less one group of tax payers pay because of credits, the more other tax payers, not eligible for the credits, must pay in taxes. (Principle of Don’t tax me, tax the guy behind the tree).

For example, the Angel Tax Credit during the next 3 years is capped to a statewide total of $5,000,000 each year. That means that all applications received during a year may need to be prorated based on overall demand. The five million in taxes not paid because of the tax credit must be paid by other tax payers.

A colloquial political term to describe tax credits is “pork.” State economic development professionals engage in a great “War Between The States” to see who can be the most competitive in giving away citizen tax dollars to special interests, in the name of promoting economic growth.

The following six tax incentive rules are related to the same economic mission as the crowdfunding rules:

1. Investment Tax Credit for existing manufacturing and telecommunication facilities (also referred to as the Manufacturer’s Investment Tax Credit, DOR credit #106). Taxpayer must invest a minimum of $50,000 per project per location during the tax year to receive credit. There is also the requirement that the number of full-time employees equal or exceed 1,800. However, these do not have to be new jobs to Georgia. Eligible taxpayers must have been in operation for the immediately preceding three years. Leased property for a period of five years or longer is eligible for the credit. 

Effective:Taxable years beginning on or after January 1, 1994. 

Date of Last Modification: 2000.

Cost of Utilizing Credit over 2009-2013*: $115,333,988

2. Optional tax credit for existing manufacturing and telecommunications facilities (also referred to as the Optional Investment Tax Credit, DOR credit #107). An alternative investment tax credit available for investments in manufacturing or telecommunications facilities or support facilities that have been operating for the three immediately preceding years.

Effective:Taxable years beginning on or after January 1, 1996.

Date of Last Modification: 2000.

Cost of Utilizing Credit over 2009-2013: $5,382,680

3. Tax credit for qualified research expenses (DOR credit #112). This credit is for expenses resulting from research conducted in Georgia by businesses engaged in the manufacturing, warehousing and distribution, processing, telecommunications, tourism, or research and development industries. A tax credit is allowed provided that the business enterprise for the same taxable year claims and is allowed a research credit under Section 41 of the Internal Revenue Code of 1986, as amended.

Effective:Taxable years beginning on or after January 1, 1998.

Date of Last Modification: 2012

Cost of Utilizing Credit over 2009-2013*: $50,598,766.

4. New Manufacturing Facilities Property Credit (DOR credit #120). This is an incentive for a manufacturer who has operated a manufacturing facility in this state for at least three years and who spends $800 million on a new manufacturing facility in this state. There is also the requirement that the number of full-time employees equal or exceed 1,800. However, these do not have to be new jobs to Georgia. An application is filed which a panel must approve. 

Taxable years beginning on or after January 1, 2003.

Date of Last Modification: 2005.

Cost of Utilizing Credit over 2009-2013*: Not Available

5. Tax credit for qualified investments (also referred to as the Seed Capital tax credit, DOR credit #126). This provides a tax credit for certain qualified investments made on or after July 1, 2008, in a research fund, the purpose of which is to provide early-stage financing for businesses formed as a result of the intellectual property resulting from the research conducted in the research universities in this state.

Effective:Applicable to investments made on or after July 1, 2008.

Date of Last Modification: 2008

Cost of Utilizing Credit over 2009-2013*: $474,956

6. Income tax credit for certain qualified investments for a limited period of time(also referred to as the Angel Investor Tax Credit, DOR credit #132). A tax credit for qualified investments made in certain Georgia headquartered small businesses. Qualified investments include investments in a corporation, LLC, or general or limited partnership that is headquartered in the state and which was organized no more than three years before the qualified investment was made. The business must have no more than 20 employees and $500,000 or less in gross annual consolidated revenue and less than $1 million in aggregate gross proceeds from the issuance of equity or debt instruments. A venture capital fund or commodity fund with institutional investors or a hedge fund shall not qualify as a qualified investor.

Effective:January 1, 2011.

Date of Last Modification: 2015

Cost of Utilizing Credit over 2009-2013*:$54,105.

The package of 6 tax credits are in addition to the tax benefits related to The Invest Georgia Fund, (IGF), passed on March 25 during the 2013 by the Georgia General Assembly. The IGF is a $100 million tax-funded, state investment fund that will allocate tax money to private venture capital and private equity firms that will invest in Georgia-based companies.

The package of 6 tax credits, and the IGF, are also in addition to the Georgia Research Alliance Fund of 2008. This private equity mutual fund gives a 25% tax credit only to limited partners within the fund. The GRA fund is seeded with taxpayer funds of between $7,000,000 and $10,000,000.

The package of 6 tax credits, the IGF and the GRA, are in addition to Senate Bill 402, titled “Employees’ Retirement System of Georgia Enhanced Investment Authority Act, passed on March 29, 2012, and was signed into law, April 6, 2012.

House Bill 249, titled “Firefighter’s Pension Fund Alternative Investment,” passed April 27, 2010, and was signed into law May 24, 2010.

Both Senate Bill 402 and House Bill 249 allow the use of public retirement funds to be invested in private firms, as determined by political insiders.

Certainly, no one can nay say the good intent of Georgia legislators to do something good for economic growth, but the strategy and implementation is not working, and no companies or investors are using either the angel credits or the intrastate crowdfunding rules.

As Tyler Disk, of Smith and Howard noted about the Angel Tax Credit, “What is surprising is the dearth of businesses and investors that have taken advantage of this benefit. Although there is a limit on the amount of credits that are allowed to be issued per year, the first two years saw claims of less than 3 and 7 percent, respectively, of the total credits allowed. (The Investor Angel Tax Credit and How It Can Help Your Business Posted on May 27, 2015).

Since 2011 when the tax credit law was first enacted, 200 net new jobs in Georgia with a payroll of about $10 million can be linked to the Angel tax credit.

Alysa Piche, in her article cited above, noted that "Between 2002 and 2012, twenty-five high-tech companies left Georgia in search of better funding environments. . . . One study conducted by the Georgia Institute of Technology found that 40 percent of high-tech start-ups in Atlanta leave within three years, and 60 percent leave within five years."

Something is not working in the State of Georgia. The bushel basket of peach state tax incentives and crowdfunding rules does not smell right. And, simply raising the capital limit that companies can raise in intrastate crowdfunding is not going to improve their problem.

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