If your business is considering relocating to New Jersey, you may be eligible for a significant tax-credit award. Through the Economic Opportunity Act of 2013 (the Act), New Jersey’s leaders have taken a giant step toward increasing economic development in New Jersey by awarding tax credits to businesses that create and retain jobs in the state. To see if your business could qualify for these incentives, a brief overview of the Act and its incentive programs is required. New Jersey Governor Chris Christie first signed the Act into law on September 18, 2013. The Act was created to maximize economic development and private-sector job growth. The Act, which is administered by the New Jersey Economic Development Authority (EDA), consolidated five existing economic incentive programs into two: the Grow New Jersey Assistance Program (Grow NJ) and the Economic Redevelopment Growth Program (ERG).
The Grow NJ program awards tax credits to businesses (other than point-of-sale retail businesses) that create or retain jobs in New Jersey and make a qualified capital investment at an appropriate business facility. Once an applicant meets certain threshold requirements, a business may be eligible for tax credits that are applicable to the business’s New Jersey state corporate income tax liability, insurance company tax, and franchise tax. These tax credits can be used for up to 10 years from the date that the business certifies compliance with the Grow NJ requirements.
One of the most appealing components of this program is that Grow NJ also permits the business to monetize the tax credits by applying for a benefit transfer certificate. The transfer certificates can be sold to another entity that has corporate tax liabilities to New Jersey. The EDA takes a relatively “hands-off” approach and simply requires that the tax credits be transferred for consideration not less than 75 percent of the transferred tax credit value. Although the values of tax credits fluctuate like any other traded commodity, the current market rate for tax credits is around 90 percent. Even if a business decides to sell its tax credits, the transferor must remain in compliance with the Grow NJ requirements.
To qualify for these lucrative incentives, Grow NJ has four eligibility requirements:
- The project is located in a “qualified incentive area;”
- The project meets or exceeds the applicable employment and capital investment requirements;
- The tax credits are a “material factor” in the applicant’s decision, and
- The capital investment and resultant creation of fulltime jobs will yield a net positive benefit of at least 110 percent to the State.
In addition to the eligibility requirements, Grow NJ also has performance-based requirements that include:
- Maintaining the project employment for 1.5 times the period in which the business received the tax credit (generally, 10 years);
- Maintaining a minimum of 80 percent of the full-time workforce from the last tax period prior to the grant approval, which is evidenced through annual reporting requirements; and,
- Submitting a certification from an independent certified public accountant regarding the actual capital investment and job creation/retention at the completion of the project.
The “base” tax credit amounts range from $500 to $5,000 per job per year depending on the location and type of project. For example, eligible projects located in a Garden State Growth Zone (GSGZ) or projects that qualify as a “Mega Project,” receive the statutory maximum amount of $5,000 per year for each new full-time job. There are five GSGZs under the Act: Atlantic City, Camden, Passaic, Paterson, and Trenton.
The Act supplements the base credits with “bonus” credits that are based on other characteristics. Let’s say that a business wants to open up a factory to manufacture widgets in Trenton. The project is expected to create 100 new full-time jobs. Assuming that the project meets the minimum capital investment requirements ($20/sf of gross leasable area for industrial projects), because Trenton is in a GSGZ, the project would receive $5,000 for each of the 100 jobs for 10 years, which equates to a total award of $5,000,000. Based on the amount of capital investment, the average salaries of the employees, the project’s industry or a host of other factors, the project could also qualify for bonus credits of more than $5,000 per job per year for 10 years. In other words, this business could receive more than $10,000,000 in tax credits, which it could apply toward its tax liability or monetize into non-dilutive capital. What’s more, that business can sell those tax credits and turn the award into non-dilutive capital. Because the market rate for Grow NJ tax credits is around 91¢ on the dollar, a business can expect to turn a $10,000,000 tax-credit award into approximately $9.1 million in cash.
Business that are considering a move to New Jersey should act quickly to take advantage of these favorable awards as all Grow NJ applications must be submitted by June 30, 2019. Where business owners have questions or need in assistance in preparing a Grow NJ application they should contact counsel experienced in such matters as the State of New Jersey carefully scrutinizes applications to ensure the business qualifies for the credit.
For more information about this article or if you have any questions regarding same, please contact either Kenneth Rosenberg, Esq., at 973-994-7510 or [email protected] or Adam Busler, Esq., at (609) 572-2238 or [email protected] or any other member of Fox Rothschild LLP.