What Businesses Need to Know About New Jersey’s Tax Incentive Legislation

What Businesses Need to Know About New Jersey’s Tax Incentive Legislation

After months of negotiation, Gov. Phil Murphy and leaders in both houses of the New Jersey Legislature have reached a deal on new tax incentive programs...

After months of negotiation, Gov. Phil Murphy and leaders in both houses of the New Jersey Legislature have reached a deal on new tax incentive programs. The “New Jersey Economic Recovery Act of 2020” establishes a wide range of programs that could total $11.5 billion over six years. Together, they aim to spur New Jersey’s economic recovery in the wake of the COVID-19 pandemic and position the State to attract businesses in the years to follow.

Key Components of the New Jersey Economic Recovery Act of 2020

Introduced on December 16, 2020, the 137-page New Jersey Economic Recovery Act of 2020 (Senate Bill 3295/ Assembly Bill 4) contains a mix of new and previously expired incentive programs. As Gov. Murphy highlighted in response to questions about the speed at which the legislation is being considered, many of the new programs reflect proposals that the Murphy Administration previously introduced about a year ago.

Below is a brief summary of the key provisions of the legislation:

• Historic Property Reinvestment Act: Provides tax credits for part of the cost of rehabilitating historic properties.
• Brownfields Redevelopment Incentive Program Act: Provides tax credits to compensate developers of redevelopment projects located on brownfield sites for remediation costs. 
• New Jersey Innovation Evergreen Act: Auctions off tax credits for cash and then uses the funds to invest in New Jersey-based startups.
• Food Desert Relief Act: Provides tax credits in order to incentivize businesses to establish and retain new supermarkets and grocery stores in food desert communities.
• New Jersey Community-Anchored Development Act: Provides tax credits to anchor institutions to incentivize the expansion of targeted industries in the State and the continued development of certain areas of the State.
• New Jersey Aspire Program Act: Provides tax credits to encourage redevelopment projects by covering certain project financing gap costs.
• Emerge Program Act: Provides tax credits to encourage economic development, job creation, and the retention of significant numbers of jobs in imminent danger of leaving the State.
• Main Street Recovery Finance Program Act: Provides grants, loans, and loan guarantees to small businesses.
• New Jersey Ignite Act: Establishes a public-private partnership providing start-up rent grants to collaborative workspaces to support the early months of an early-stage innovation economy business’s rent at the collaborative workspace. 
• Economic Development Authority Integrity and Protection Act: Creates an Office of the Economic Development Inspector General, which will operate independent of the oversight or management of the New Jersey Economic Development Authority (EDA), and mandates the employment of Chief Compliance Officer to manage the Division of Portfolio Management and Compliance in the EDA.

Funding Caps on Incentive Programs

The combined value of all tax credits awarded under the New Jersey Economic Recovery Act of 2020 would be subject to an overall cap of $11.5 billion over a six-year period. Of this $11.5 billion, $2.5 billion would be reserved for “transformative projects” approved under the Aspire Program or the Emerge Program. The legislation also establishes the following annual limitations for the programs.

• Historic Property Reinvestment Act: The total value of tax credits annually awarded during the six-year period would be capped at $50 million.
• Brownfield Redevelopment Incentive Program Act: The total value of tax credits annually awarded during the six-year period would be capped at $50 million;
• New Jersey Innovation Evergreen Act: The total value of tax credits annually awarded during the six-year period would be capped at $60 million;
• Food Desert Relief Act: The total value of tax credits annually awarded during the six-year period would be capped at $40 million;
• New Jersey Community-Anchored Development Act: The total value of tax credits annually awarded during the six-year period would be capped at $200 million, except that during each of the first three years of the six-year period, the EDA would annually award tax credits valuing no greater than $130 million for projects located in the 13 northern counties of the State, and award tax credits valuing no greater than $70 million for projects located in the eight southern counties of the State. 
• New Jersey Aspire Program Act and Emerge Program Act: Not including tax credits awarded for transformative projects, the total value of tax credits annually awarded during the six-year period would be capped at $1.1 billion, except that during each of the first three years of the six-year period, the EDA would annually award tax credits valuing no greater than $715 million for projects located in the northern counties of the State, and award tax credits valuing no greater than $385 million for projects located in the southern counties of the State.
• Transformative Projects: The total value of tax credits awarded during the six-year period must not exceed $2.5 billion.  The total value of tax credits awarded for transformative projects in a given year would not be subject to an annual limitation, except that no more than 10 transformative projects could be awarded tax credits during the six-year period, and the total value of tax credits awarded to any transformative project could not exceed $250 million.

Impact on the NJ Business Community

The program aims to significantly increase the amount of venture capital investment available in New Jersey by auctioning off tax credits to existing businesses and then using the funds raised to make investments in New Jersey-based startups. Money generated by auctioning off the tax credits would be deposited into the Evergreen Fund, along with matching funds from venture capital (VC) firms. The State and the VCs would then invest jointly in New Jersey-based startups, with the Evergreen Fund receiving the proceeds from startup exit events, such as initial public offerings and acquisitions. Those proceeds would then be primarily used for reinvestment. Startups that receive funding must maintain their operations in New Jersey. In addition, businesses that receive tax credits must commit to providing mentorship, networking, and collaboration opportunities to startups that receive funding under the program.

What’s Next?

The New Jersey Economic Recovery Act of 2020 is quickly making its way through both houses of the New Jersey Legislature. Full floor sessions in both chambers are scheduled for December 21, 2020, and we anticipate that a vote will be held on Senate Bill 3295 and Assembly Bill 4.  Assuming the legislation is approved and signed into law, many details of the programs will still need to be finalized. The attorneys of Scarinci Hollenbeck will continue to provide updates regarding the status of the tax incentive programs and encourage you to contact us with any questions.

If you have questions, contact us

If you have any questions or if you would like to discuss the matter further, please contact me, Ted Schwartz, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.