Expands clean energy tax-credit transfers

Summary#

A-5693 would amend New Jersey’s laws governing the corporation business tax benefit certificate transfer program. It would add clean energy product manufacturers to the definition of technology companies and raise the maximum lifetime value of tax benefits a company may transfer from $20 million to $40 million. The stated goal is to let more kinds of companies use the program; the bill is introduced and is not law.

  • The New Jersey Economic Development Authority (NJEDA), working with the Division of Taxation, would continue to review and approve applications. The program lets eligible companies exchange unused research and development tax credits or net operating loss benefits for private financial assistance from another taxpayer.
  • Clean energy product manufacturers would be exempt from the rule requiring fewer than 225 employees in the United States. Other eligibility requirements, including New Jersey employee requirements, would still apply.
  • The lifetime cap on a company’s surrendered tax benefits would double to $40 million. The program’s annual cap of $75 million would remain.
  • A company receiving assistance must use it for eligible business expenses. It must maintain a New Jersey headquarters or base of operations for five years, unless it is liquidated, or some or all of the assistance may be recaptured under rules set by NJEDA and the Division of Taxation.
  • A buyer of a certificate must provide private financial assistance worth at least 80% of the surrendered tax benefit. The buyer cannot be affiliated with the company surrendering the benefits under the bill’s five-percent ownership-or-control test.

What it means for you#

  • Clean energy product manufacturers: The bill would include them as technology companies for the program and remove the 225-employee U.S. limit. The bill does not remove the other stated requirements, including minimum New Jersey staffing based on company age.
  • Other eligible technology and biotechnology companies: The maximum lifetime value of benefits they may surrender would rise to $40 million. They would still need to meet the program’s eligibility rules, including the restriction on companies that showed positive net operating income in either of the previous two full years.
  • Businesses buying certificates: They could use approved transferred tax benefits on corporation business tax returns, in exchange for providing at least 80% of the benefit’s value as private financial assistance. They cannot be affiliated with the company surrendering the benefits under the stated test.
  • Other residents and taxpayers: The bill does not directly change personal income taxes, create a new public benefit, or require a business to apply to the program.

Money#

The bill sets program limits but provides no estimate of its public cost or revenue effect.

  • The annual limit on tax benefits transferred would remain $75 million. The bill raises the lifetime limit for each company from $20 million to $40 million.
  • Companies receiving assistance must receive private financial assistance of at least 80% of the value of the surrendered tax benefits.
  • The bill does not provide a staffing budget or cost estimate for NJEDA or the Division of Taxation.

What is unclear#

  • The bill refers to the legal definition of “clean energy product manufacturer” in another law, but that law is not included in the supplied material.
  • The supplied bill text does not spell out how its changes fit with all existing program rules. The parent Acts were not supplied, so the current law and the full effect of the amendments could not be independently verified.
  • The bill requires rules for recapturing assistance in certain cases, but the supplied text does not give the rules, amounts, or process for deciding on recapture.
  • The bill does not provide an estimate of how many additional companies might qualify or how much of the annual cap they might use.

Case for#

  • A possible argument for the bill is that clean energy product manufacturers could qualify even if they have 225 or more U.S. employees, while still having to meet the program’s other requirements.
  • Raising the lifetime limit could allow an eligible company to transfer more unused tax benefits in total, in exchange for private financial assistance.
  • The program requires that assistance go toward expenses connected with the company’s New Jersey operations, and allows recapture in specified cases.

Case against#

  • The higher lifetime limit may allow companies to transfer more tax benefits over time, but the bill gives no estimate of the resulting effect on state tax revenue.
  • Exempting clean energy manufacturers from the U.S. employee limit could extend eligibility to larger companies than the existing limit permits for other technology companies.
  • Important details about recapture depend on rules that the bill requires agencies to establish; the bill does not set out the full process or the amount to be recovered.