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New Jersey: Changes to Business Development Credits and Incentives Signed Into Law


9/20/13

Synopsis:

New Jersey overhauled its business tax credits and incentive programs.  Two existing programs are being expanded and several tax credit, employment incentive, and business grant programs are being phased out.

Issue:

The New Jersey Economic Opportunity Act of 2013 was signed into law on September 18, 2013. The legislation expands two incentive programs operated through the state’s Economic Development Authority (EDA). These programs are available statewide but emphasize development in the Camden, Trenton, Passaic, and Paterson metropolitan areas.

Grow New Jersey Assistance Program
The Grow New Jersey Assistance program allows the EDA to grant tax credits to businesses that meet certain eligibility requirements. The purpose of this program is to encourage economic development, preserve jobs currently in New Jersey, and to create jobs. Credits generated under this program are available to reduce a business’s corporation business, employer withholding, and insurance premium taxes.

To be eligible for tax credits under this program, a business’s CEO or equivalent must demonstrate to the EDA that the business will make, acquire, or lease a capital investment of at least $20 million at a qualified business facility. The taxpayer will employ at least 100 full-time employees in retained full-time jobs at the facility, or create at least 100 new full-time jobs in an industry identified by the EDA as desirable for the state to maintain or attract. In order to qualify, the taxpayer must demonstrate that:

  • The capital investment and the job creation that results will yield a net positive benefit of at least 110 percent of the requested tax credit amount
  • Receiving an award of tax credits will be a material factor in the business’ decision to create or retain the minimum number of full-time jobs for eligibility under the program
     

The tax credit for an eligible business will be $5,000 per year for a period of ten years for each new or retained full-time job, determined by EDA, to be located at the qualified business facility. An additional $3,000 of credits per job is available for a business that:

  • Is in an industry identified by the EDA as desirable for New Jersey to maintain or attract
  • Locates or relocates to a qualified incentive area that is adjacent to, within walking distance, or within short-distance-shuttle service of a public transit facility
  • Creates jobs using full-time employees in eligible positions whose annual salaries are greater than the average full-time salary in New Jersey
     

A business must apply for this credit prior to July 1, 2014, and must submit supporting documentation to certify its credit no later than July 28, 2017.

Economic Redevelopment and Growth Program
The Economic Redevelopment and Growth (ERG) tax incentive program provides incentive grants to redevelopment projects that locate in specific target areas. ERG is an incentive for real estate development projects that have a financing gap. It can also apply to projects that have a below market development margin or rate of return. For a project to be approved, it must undergo a rigorous analysis of the sources and uses of funds, construction costs, and projected revenues.

The grant is equal to 75 percent of the annual incremental state and local tax revenue generated by the project, up to 20 percent of the total cost of the project. A developer seeking the incentive grant must make an equity participation of at least 20 percent of the project’s total cost. The redevelopment project must be located in a qualifying economic, redevelopment, and grant incentive area. The developer must not have started any construction at the proposed project site prior to submitting an application unless the Economic Development Authority deems that the project will not be completed without the grant. For newly-constructed residential projects, the developer must reserve at least 20 percent of the residential units for low or moderate income households. The overall public assistance provided to the project will result in net benefits to either the municipality where the redevelopment project is located or the state as a whole.

Expiring Credits and Incentives
The following three existing economic incentive programs are being phased out and are no longer accepting new applications:

  • Business Retention and Relocation Assistance Grants: Businesses that relocated operations and retained jobs in the state were granted a credit against the corporation business tax.
  • Business Employment Incentive Program: Businesses hiring new employees were granted a credit for either 50 percent or 80 percent of the new employee’s state withholding taxes.
  • Urban Transit Hub Tax Credit Program:  Businesses investing at least $75,000,000 in a qualified business facility were allowed a credit for that investment.

What Does CohnReznick Think?
The Economic Opportunity Act contains a number of useful incentives, especially for real estate developers with projects in the pipeline. These incentives can greatly benefit New Jersey businesses.


Contact:

For more information, please contact Patrick Duffany, Partner and State and Local Tax Practice Leader, at 860-368-3607.

To learn more about CohnReznick’s State and Local Tax Practice, please visit our webpage.


Circular 230 Notice: In compliance with U.S. Treasury Regulations, the information included herein (or in any attachment) is not intended or written to be used, and it cannot be used, by any taxpayer for the purpose of i) avoiding penalties the IRS and others may impose on the taxpayer or ii) promoting, marketing, or recommending to another party any tax related matters.

This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.

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