New Jersey has committed in a big way to attracting new businesses to the state, and retaining those that are already there. In fact, the mere threat by a New Jersey business to leave the state can reap a large tax credit. The program at the forefront of this effort is, appropriately, called Grow NJ, or the Grow New Jersey Assistance Program. This program has combined the best pro-business features of four predecessor programs into a very beneficial financial stipend which encourages both the expansion of New Jersey businesses already in the state and company relocations into the state. The details of the program can be found in the New Jersey Economic Opportunity Act of 2013.
To enter this program, a business must either be relocating to the state or considering leaving it. The tax credit is available only to C Corporations, but the Division of Taxation and the NJ Economic Development Agency may issue transfer certificates so that the tax credits can be sold or assigned. The base tax credits range from $500 to $5,000 per job, with bonus credits available from $250 to $5,000 per credit item. These multiple bonus items can be aggregated by the taxpayer to increase the amount of credit allowed per job up to the maximum annual credit.
This credit incentive promotes job creation and capital investments in New Jersey. The provisions set minimum job and investment criteria. Taxpayers seeking a tax credit can benefit by either creating new jobs or retaining jobs previously created. For example, a Tech Start Up Company or Manufacturing Business can meet the job creation or retention requirement by either creating 10 new jobs or retaining 25 full- time jobs. Other targeted industries can meet the same requirements by creating 25 new jobs or retaining 35 full- time jobs. Targeted industries include transportation, energy, logistics, life sciences, technology, health, finance and manufacturing (excluding warehouse and distribution businesses). All other general business industries must create 35 new jobs or retain 50 full- time jobs. When calculating the credit, each new full- time job is eligible for 100% of the available tax credit and each retained full- time job is eligible for 50% of the applicable tax credit.
Along with job creation or retention, the taxpayer must also make significant capital investments into the state. The amount of the required investment is based on the cost per square footage of the proposed project. The capital investment requirement is met when the total cost of the project equals or exceeds the minimum cost per square footage times the actual square footage of the property. For example, the Grow NJ provisions have established that the minimum cost per square footage for a new construction project involving an office building is $120 per square foot. Thus, if a taxpayer is planning on building a new office building with 10,000 square feet, the minimum investment requirement is $1,200,000. A different minimum requirement has been established for industrial projects, with the minimum cost per square footage requirement for office building projects being double that established for industrial projects. This comparison is evidence that the Grow NJ legislation promotes certain projects over others.
In further support of this conclusion, the minimum capital investment and full- time employment requirements are more favorable in certain designated areas. These designated areas are the Garden State Growth Zones (GSGZ), which include the cities of Passaic, Paterson, Trenton and Camden; and eight South Jersey counties: Atlantic, Burlington, Camden, Cape May, Cumberland, Gloucester, Ocean and Salem. For projects planned in those areas, the minimum capital investment requirement is one-third lower (1/3) and the full- time employment requirement is one-fourth (1/4) lower than the required minimum amounts.
Once a taxpayer meets the eligibility requirements, the type of project planned will determine the amount of credit that can be obtained. The credit is calculated by adding an annual base amount and all applicable bonuses to calculate a total credit available per job created or retained. Multiple bonus types can be claimed in a given year. There are 7 project categories, each with a different base and maximum total award per job. From the various project categories, the maximum credit award per employee arises from mega projects and projects in Garden State Growth Zones. The annual base amount per job for these projects is $5,000, and the maximum award per job is $15,000. To qualify for a mega project, the taxpayer must either be engaged in target industries, such as logistics, manufacturing, energy, defense or maritime industries; or in general industries. If the taxpayer engages in one of the targeted industries, the business operations must be located in a port district. If the taxpayer engages in a general industry, the taxpayer must operate in an Aviation District or GSGZ. In addition to this requirement, the taxpayer must employ 250 full- time positions and make a capital investment of more than $20,000,000; or alternatively, employ 1,000 full- time positions (regardless of the amount of the investment).
Other project categories include projects located in Urban Transit Hub Municipalities, Distressed Municipalities, priority areas (such as a deep poverty pocket), disaster recovery projects, and other eligible areas (which provide the least amount of tax incentives).
As indicated above, the total tax credit is calculated by taking the base amount and adding all applicable bonuses. There are several different types of bonuses available. The more common annual bonuses include: Excess capital investments in industrial, mega or GSGZ projects, transit- oriented development projects, projects developed within half a mile of a new light rail station, creation of a targeted amount of jobs, or projects that exceed LEED Silver or complete substantial environmental remediation.
When combining the base amount and bonuses per new job, the annual credit can be substantial. For example, Company C develops a project that qualifies as a mega project and moves 300 jobs from Pennsylvania to Trenton, New Jersey. The company has applicable bonuses that meet the maximum award amount of $15,000. Given these facts, Company C’s annual credit is calculated as 300 jobs times $15,000 totaling $4,500,000. Since Company C created the 300 jobs, 100% of the credit is available.
New Jersey has put into place two provisions that limit the amount of credits that can be taken by a given taxpayer. Under the first limitation, if a given taxpayer’s credit exceeds $4,000,000 annually, the actual tax credit available is the lesser of the permitted statutory amount or an amount determined by the Economic Development Agency to be necessary to complete the project based on several variables. Thus, the annual credit could be reduced by the EDA if it determines that the project cost is less than the credit applied for. Additionally, Grow NJ offers credits annually over a ten- year period. New Jersey has set maximum awards that can be generated over those ten years for each project category. For mega projects, the maximum award allowed over a ten- year period is $300,000,000. Thus, the maximum annual award for mega projects is $30,000,000. Although $300,000,000 is the maximum amount of award available over a ten- year period (with $30,000,000 being the maximum annual credit allowed), a taxpayer may claim a different amount of credit each year over that ten- year period that is equal to or less than the $30,000,000 maximum annual amount, depending on the taxpayer’s job creation or retention policies.
The Grow NJ tax credits can be very lucrative to a business relocating to or expanding business facilities in New Jersey. The program is set to sunset on July 1, 2019. If you are a business owner who plans on developing a mega project, an application must be submitted by September 18, 2017.
The details of the credits available through the Grow NJ program, and the application process, can be quite complicated. Please contact your Friedman LLP professional for more information.