Effective as of January 1, 2020, investors can take advantage of New Jersey’s expanded Angel Investor Tax Credit Program. The program, which provides a tax credit for a percentage of an angel investor’s investment in a qualifying emerging New Jersey technology or life science business, aims to help New Jersey startups and other early-stage companies attract capital.
“Increasing the benefit investors receive for injecting capital into young companies is an important step in positioning New Jersey as a leader in innovation,” Governor Phil Murphy said. “New Jersey’s most precious asset is its people, and encouraging investment in minority- and women-owned businesses will help to create the most diverse and inclusive innovation economy in the nation.”
Angel Investor Tax Credit Program
The New Jersey Angel Investor Tax Credit Program provides a refundable tax credit against New Jersey corporation business or gross income tax for qualified investments in an emerging technology or life sciences business with a physical presence in New Jersey that conducts research, manufacturing, or technology commercialization in the state. To be eligible for the program, businesses must have fewer than 225 employees, and at least three quarters of those employees must work in New Jersey.
An emerging business is defined as one that has qualified research expenses paid or incurred for research conducted in the state; conducts pilot scale manufacturing in the state; or conducts technology commercialization in the state in the fields of advanced computing, advanced materials, biotechnology, carbon footprint reduction technology; electronic drive technology; information technology; life sciences; medical device technology; mobile communications technology; or renewable energy technology. Meanwhile, qualified investments include non-refundable transfers of cash made directly to the New Jersey emerging technology business in connection with at least one of the following:
- Stock, interests in partnerships or joint ventures, licenses (exclusive or non-exclusive), rights to use technology, marketing rights, warrants, options, or any similar items, including but not limited to options or rights to acquire any of the listed; or
- A purchase, production, or research agreement.
To be considered non-refundable, these items must be held or not expire for at least two 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.
Greater Tax Benefits for Angel Investors
In June, Gov. Murphy signed legislation into law that expands the program to provide greater tax benefits. Specifically, the available tax credit increased from 10 percent to 20 percent of a qualified investment. There is also now an additional five percent bonus available for investments in a business located in a qualified opportunity zone, low-income community, or a business that is certified as minority- or women-owned by the State.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Dan Brecher, or the Scarinci Hollenbeck attorney with whom you work, at 201-806-3364.