New Jersey businesses now have access to about $14 billion in tax incentives designed to encourage companies to create and maintain jobs, complete development and redevelopment projects, rehabilitate qualified New Jersey historic properties, and establish and retain new supermarkets and grocery stores in food desert communities.
Signed into law on January 7, 2021, by Gov. Phil Murphy, the New Jersey Economic Recovery Act of 2020 provides approximately $1.5 billion in annual tax breaks over a six-year period. An additional $2.5 billion in tax incentives could be awarded over the same six-year period for larger projects such as housing and mixed-use developments.
The tax credit programs will be administered by the New Jersey Economic Development Authority (Authority). With the exception of the Innovation Evergreen Act credit, all the tax credits outlined below require employers to pay a prevailing wage to employees conducting development, redevelopment, rehabilitation and remediation activities.
New Jersey businesses interested in the potential benefits of the the tax credits should be aware of the application and approval requirements that must be met prior to obtaining and utilizing the tax credits.
Newly Enacted Business Tax Incentives
The Act provides numerous new tax credits and amends existing tax credit programs. New tax credits were enacted under the following acts: (1) the Emerge Program Act; (2) the Aspire Program Act; (3) the Historic Property Reinvestment Act; (4) the Brownfields Redevelopment Incentive Program Act; (5) the Innovation Evergreen Act; (6) the Food Desert Relief Act; and (7) the Community-Anchored Development Act.
Emerge Program Act and Aspire Program Act – The Emerge Program Act provides tax credits to encourage economic development, job creation, and retention of a significant number of jobs in imminent danger of leaving New Jersey. A business eligible for the credit must submit an application to the Authority and demonstrate that , among other requirements, (1) the business will make, acquire, or lease a capital investment equal to or greater than the value of the credits; (2) the business will create or retain full-time jobs; (3) the tax credit will be a material factor in the decision to create or retain jobs; and (4) the net benefit to the state will equal at least 400% of the requested tax credit. The base amount of the Emerge Program Act tax credit is between $500 and $4,000 for each new or retained full-time job, depending upon the location of the jobs and the net benefit that the project brings to New Jersey. The tax credit is transferable subject to certain limitations.
The Aspire Program Act provides tax credits to encourage redevelopment projects by covering project financing gap costs. A business that is eligible for the credit must submit an application and demonstrate that:
- the redevelopment project is not economically feasible without the incentive award
- a project financing gap exists
- the project is located in an incentive area
- the developer has not commenced construction prior to submitting the application
The tax credit is transferable subject to certain limitations. Unused credit may not be carried forward unless the developer was unable to use the credit because the redevelopment was directly impacted by a natural disaster, state emergency, national emergency, or situation outside of the developer’s control.
Total tax credits that may be awarded as part of the Emerge Program and the Aspire Program are capped at $1.1 billion for the first six years. Of that amount, $715 million will be allocated for northern New Jersey counties and $385 million for southern New Jersey counties. The $1.1 billion cap does not apply to transformative projects, which are projects that have a total project cost of at least $100 million.
Historic Property Reinvestment Act – The Historic Property Reinvestment Act provides a tax credit of up to 40 percent of the cost paid by a business entity for rehabilitation of a qualified property or transformative project. A business eligible for the credit must submit an application and demonstrate that:
- without the tax credit, the rehabilitation project is not economically feasible
- a project financing gap exists
Any unused credit may be carried forward for up to nine years and the credits are transferable subject to certain limitations.
Brownfields Redevelopment Incentive Program Act – The Brownfields Redevelopment Incentive Program Act provides tax credits to incentivize redevelopment of brownfield sites. Up to $50 million in tax credits are available to reimburse developers for remediation costs. The credit is limited to the lesser of 40 percent of actual remediation costs, 40 percent of projected remediation costs, or $4 million.
A business eligible for the credit must submit an application and demonstrate that:
- the developer has not commenced remediation or clean up at the site
- the project is located on a brownfield site
- without the tax credit, the redevelopment project is not economically feasible
- a project financing gap exists
- the developer has obtained and submitted a support letter from the municipal government in which the project will be completed
Unused credit cannot be carried forward. However, a developer may apply for a tax credit transfer certificate, which would allow the developer to transfer the tax credit for use by a third party.
Innovation Evergreen Act – The New Jersey Innovation Evergreen Act provides that the Authority will auction off up to $300 million of tax credits, which will be used to invest in innovation as a catalyst for economic growth and to advance competitiveness of New Jersey businesses in the global economy. Requested tax credits may not be less than $1 million per taxpayer and may not be purchased for less than 85 percent of the amount of the tax credit.
Food Desert Relief Act – The Food Desert Relief Act provides up to $40 million of tax credits over six years to incentivize businesses to establish and retain grocery stores in food desert communities – those communities in which residents are without adequate access to nutritious foods. A business eligible for the credit must submit an application, which provides that the business is committed to accepting benefits from federal nutrition assistance programs such as the Supplemental Nutrition Assistance Program (SNAP) and the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). The New Jersey Economic Development Authority, New Jersey Department of Agriculture, and the Department of Community Affairs will designate up to 50 geographic areas in need of a grocery store, food retailer, or supermarket.
The total amount of the tax credits shall not exceed 40 percent of the total project cost for the development of the first supermarket or grocery store in a designated food desert community and 20 percent of total project cost for development of the second. The tax credit shall not exceed the initial operating costs of the first supermarket or grocery store, and one-half the initial operating costs of the second supermarket or grocery store. Any unused credit may be carried forward for the next ten tax years.
Community-Anchored Development Act – The Community-Anchored Development Act provides tax credits to certain governmental or non-profit entities in the areas of health care, education, culture, community development, and economic development. Businesses that are eligible for the credit must submit an application which demonstrates that:
- the community-anchored project will result in a capital investment in a New Jersey opportunity zone, metropolitan area or economically distressed area
- the project has not commenced
- the value of the tax credit needed to finance the project
- the award of the tax credits will be converted to an investment in the community-anchored project and the anticipated current and deferred returns on that investment
The Authority may award tax credits to qualifying businesses, which may convert the tax credits into an investment in a community-anchored project, on the condition that the businesses either sell and transfer the tax credit, or adopt a plan to use the tax credits to finance the completion of the community-anchored project. Any sale or financing proceeds must be invested in or loaned to community-anchored project to attract partners, tenants, investors, and owners, to the community-anchored project. The credit is transferable subject to certain limitations.
Amendments to Existing Business Tax Incentives
In addition to the newly enacted tax credits, the Act also amends existing tax credit programs. The Act expands the Film Production and Digital Media Tax Credit by providing an additional $200 million in tax credits over 13 years. The Act amends the New Jersey Angel Investor Tax Credit Act by adding a “diverse entrepreneur” classification for minority and women-owned businesses, and expands the annual cap to $35 million. The Act also expands the Economic Redevelopment and Growth Grant Program by adding $220 million in tax credits.
Additional information with respect to New Jersey’s corporation business tax credits and incentives can be found at the New Jersey Division of Taxation’s website.