As states fiercely compete to attract new business and innovation within their borders, New Jersey has revamped an old program on the books since 2013 for which businesses and investors alike stand to be the overwhelming beneficiaries. On June 30, 2019 Governor Phil Murphy signed Bill A5604 which increases the New Jersey Angel Investor Tax Credit (NJAITC) from 10% to 20% with the potential to increase to 25% in certain situations effective tax years beginning on and after January 1, 2020.
Since its inception in 2013 NJ has budgeted $25 million annually to fund the NJAITC. Currently, tax credits are issued equivalent to 10% of the qualified investment in a qualified emerging technology business, up to a maximum of $500k per investment. Effective January 1, 2020 the 10% tax credit will increase to a minimum of 20%, retaining the same $500k cap per investment. The law also extends a special rate of 25% if the investment is made in a qualified emerging technology business located in a qualified opportunity zone, low-income community, or is a certified minority or a woman-owned business. Below is an example illustrating the effect of this new legislation.
Example: Taxpayer makes a qualified investment of $100k into a qualified New Jersey emerging technology business.
|Current Law||Updated Law||Updated Law – Special Rate|
|Gross Credit||$ 10,000||$ 20,000||$ 25,000|
|Net Benefit||$ 7,500||$ 17,500||
*Application fees adjust according to the size of the investment. Please refer to the NJ EDA website here for more information.
There are important terms and requirements that are consistent when reviewing the potential utilization of the NJAITC. Below is an introduction to the most basic terminology:
Qualified New Jersey emerging technology business – must meet the following criteria:
- Employs fewer than 225 full-time employees, at least 75% of whom work in NJ
- Does business, employs or owns capital or property, or maintains an office in NJ
- Has its primary business as an eligible technology (as listed below.)
- Conducts at least one of the following activities in NJ:
- Incurs qualified research expenses in the State
- Conducts pilot scale manufacturing in the State
- Commercializes one or more of the following eligible technologies in the State: Advanced Computing, Advanced Materials, Biotechnology, Electronic Devices, Information Technology, Life Sciences, Medical Devices, Mobile Communications, and Renewable Energy Technology
Qualified investments include non-refundable transfers of cash made directly to the NJ emerging technology business in connection with at least one of the items listed below. To be considered non-refundable, these items must be held or not expire for at least 2 calendar years from the date of the transfer of cash, with an exception being made for initial public offerings (IPOs), mergers and acquisitions, damage awards for the business’s default of an agreement, or other return of initial cash outlay beyond the investor’s control.
Credits may be treated as an overpayment and refunded (but no interest on the overpayment will be paid.), For corporate taxpayers, the tax credits may be carried over up to 15 tax years following the tax year for which the credit was allowed. Individuals cannot carry forward the tax credits.
Deadline – six months from date of investment to submit an application to the NJ Economic Development Authority.
Since every investment and emerging technology business is unique it is important to work alongside your tax advisor in order to maximize all benefits available through the New Jersey Angel Investor Tax Credit program.