On Monday, Senate Budget Committee Chairman Paul Sarlo introduced legislation (S3305) to amend the State’s main corporate tax incentive program. Among other things, the bill addresses issues related to the transfer and sale of tax credits under the Grow New Jersey Assistance Program (“Grow NJ”).
Created under the Economic Opportunity Act of 2013, Grow NJ is the State’s main job creation and business retention incentive program. The purpose of the program is to “encourage economic development and job creation and to preserve jobs that currently exist in New Jersey but which are in danger of being relocated outside of the State.” N.J.S.A. 34:1B-244(a).
Determination of the size of an award is based on the project’s location, the corresponding capital investment, and the jobs created or retained at a qualified business location. Applicants must demonstrate that the project will yield a net positive benefit to the State and must indicate that the award of tax credits under the program is a material factor in the business decision to make a capital investment and locate in the State. N.J.S.A. 34:1B-244(b)(3).
Upon project completion and certification, Grow NJ tax credits can be applied against corporate business tax (“CBT”) liability. Because, in most cases, only C corporations have CBT liability, businesses structured in other forms (e.g., S corporation, LLC, LLP, etc.) must sell or assign, fully or partially, CBT credits to monetize the incentive. In lieu of applying the tax credits against the businesses own tax liability, the business may apply for a tax credit transfer certificate to sell or assign the credits. Currently, the Grow NJ program bars the tax credits from being sold for less than 75 percent of their value. N.J.A.C. 19:31-18.13(b).
Notably, while businesses are permitted to sell their unused tax credits, due to a discount associated with the sale and certain tax liability applied to the proceeds, the actual amount realized by the original recipient is almost certainly less than the amount of the original tax credit award, reducing the economic development power of the incentive.
Realizing that this may become an issue as more recipients of Grow NJ awards seek to sell there unusable tax credits, Senator Sarlo’s bill provides solutions aimed at eliminating this concern.
First, the bill amends provisions related to the tax liability associated with the sale of unused tax credits. Currently, the gain realized from the sale of tax credits is considered income, imposing the State’s gross income tax on the seller, greatly reducing the value of the tax credit. The bill would exclude the gain or income derived from the sale or assignment, so that those businesses which cannot apply the tax credit to their tax liability may receive gains closer to the original incentive amount.
In addition, the bill would extend the time period in which a purchaser may use the tax credits. Currently, a purchaser may only apply the tax credits for up to three years, as opposed to carrying them forward for 20 years, as is the case for the original recipient. The bill extends the time period for the purchaser to 20 years. The bill also removes the requirement that the tax credits must be sold for 75 percent of their value in the case of a sale or assignment to an affiliate business of the original tax credit awardee.
The Grow NJ program has been wildly popular and incredibly successful. Since its implementation, 233 projects have received awards, totaling over $4.4 billion in tax credits. Once certified, the 233 projects will drive over $3.9 billion in private capital investment, create over 29,000 new jobs, and retain over 28,000 jobs at risk of leaving the State.
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