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Tax Relief for Strategic Investments
Investors in New Jersey are finally getting some well deserved tax relief for their strategic investments. A new law, signed by New Jersey Governor Christie earlier his year on January 31, 2013, revives and expands the expired “Small New Jersey-Based High-Technology Business Investment Tax Credit” by establishing credits equal to 10% of a taxpayer’s qualified angel investor cash investment in an emerging technology business, up to a maximum allowed credit of $500,000 per year for each qualified investment against Corporation Business and Gross Income Taxes. The old credit had expired and was under-utilized.
The law went into effect immediately and shall apply to tax periods beginning on or after January 1, 2012.
The program applies to several industries including, but not limited to, hardware and software development, biotechnology, information technology, film and television production, life sciences, medical device technology, mobile telecommunications, and renewable energy. See definitions below.
For individual investors, the credit is first applied to the taxpayer’s New Jersey Gross Income Tax liability. Any excess is refunded.
For corporate business investors, if the tax credit amount exceeds the taxpayer’s Corporate Business Tax liability, the investor may choose between having the amount of the excess refunded or carried forward to be applied against tax liabilities in the next 15 years.
“Qualified investment” means the non-refundable transfer of cash to a New Jersey emerging technology business by a taxpayer that is not a related person (80% or more direct or indirect control) of the New Jersey emerging technology business, the transfer of which is in connection with either (1) a transaction in exchange for stock, interests in partnerships or joint ventures, licenses (exclusive or non-exclusive), rights to use technology, marketing rights, warrants, options or any items similar to those included herein, including but not limited to options or rights to acquire any of the items included herein; or (2) a purchase, production, or research agreement.
A “New Jersey emerging technology business” includes any company that has fewer than 225 employees, 75% of whom work in New Jersey, and who has (1) qualified research expenses, (2) conducts pilot scale manufacturing or (3) conducts “technology commercialization” in the fields of advanced computing, advanced materials, biotechnology, electronic device technology, information technology, life sciences, medical device technology, mobile communications technology, or renewable energy technology. The fields are further delineated below:
“Advanced computing” means a technology used in designing and developing computing hardware and software, including innovations in designing the full spectrum of hardware from hand-held calculators to super computers, and peripheral equipment.
“Advanced materials” means materials with engineered properties created through the development of specialized processing and synthesis technology, including ceramics, high value-added metals, electronic materials, composites, polymers, and biomaterials.
“Biotechnology”means the continually expanding body of fundamental knowledge about the functioning of biological systems from the macro level to the molecular and sub-atomic levels, as well as novel products, services, technologies and sub-technologies developed as a result of insights gained from research advances which add to that body of fundamental knowledge.
“Electronic device technology”means a technology involving microelectronics, semiconductors, electronic equipment, and instrumentation; radio frequency, microwave, and millimeter electronics; optical and optic-electrical devices; or data and digital communications and imaging devices.
“Information technology”means software publishing, motion picture and video production, television production and post-production services, telecommunications, data processing, hosting and related services, custom computer programming services, computer system design, computer facilities management services, other computer related services, and computer training.
“Life sciences” means the production of medical equipment, ophthalmic goods, medical or dental instruments, diagnostic substances, biopharmaceutical products, or physical and biological research.
“Medical device technology” means a technology involving any medical equipment or product (other than a pharmaceutical product) that has therapeutic value, diagnostic value, or both, and is regulated by the federal Food and Drug Administration.
“Mobile communications technology” means a technology involving the functionality and reliability of transmission of voice and multimedia data using a communication infrastructure via a computer or a mobile device, that shall include but shall not be limited to smartphones, electronic books and tablets, mp3 players, motor vehicle electronics, home entertainment systems, and other wireless appliances, without having connected to any physical or fixed link.
“Renewable energy technology” means a technology involving the generation of electricity from solar energy; wind energy; wave or tidal action; geothermal energy; the combustion of gas from the anaerobic digestion of food waste and sewage sludge at a biomass generating facility; the combustion of methane gas captured from a landfill; and a fuel cell powered by methanol, ethanol, landfill gas, digestor gas, biomass gas, or other renewable fuel but not powered by a fossil fuel.
New Jersey is a high tax state. Therefore, investors considering investments in New Jersey companies should carefully consider the investment to ensure availability of the valuable state tax credit. Our firm assists investors in researching and confirming the availability of the valuable state tax credit.