The Federal tax law changes surrounding research and development (R&D) expenses (Internal Revenue Code Section 174), which became effective January 1, 2022, have profoundly impacted life-science and technology companies’ cash flow. We have covered the law changes in two previous articles, “The Sun Is About To Set on Research & Development Expensing” and “2022 Changes to the Tax Treatment of Research and Development Costs”. However, to summarize: costs incurred for R&D activities are no longer immediately deductible. Instead, the costs will have to be capitalized and amortized over 5 or 15 years depending upon where the activities are performed, U.S. versus international.
New Jersey has recognized the negative impact of this Federal law change, and in an attempt to appeal to the life-science and technology industry, a new law, P.L. 2023, c. 96, was signed on July 3, 2023, which retroactively decouples from the Federal law by providing an immediate benefit/deduction for the New Jersey qualified research expenditures (QREs) starting with the 2022 tax year (specifically for taxable periods ending on or after July 31, 2022).
If your 2022 New Jersey Form CBT-100 has already been filed treating QREs consistent with federal law, consider filing an amended return pursuant to this new law. Please consult your WilkinGuttenplan tax advisor for further information.