Buying Losses and Credits

In order to promote the growth of emerging businesses in the state of New Jersey, the legislature passed a law that was effective January 1, 1999 and later revised in June of that year. This law allows emerging technology and biotechnology companies to sell their net operating losses and research and development credits to companies that owe Corporate Business Tax (CBT) to New Jersey. These tax benefits are sold at a discount for cash that is then used as working capital to finance the selling company’s operations and/or growth.

Any company wishing to decrease its State tax burden can take advantage of the "Financial Assistance Program", by buying tax benefits at a discount, and getting credit for the full value against their State CBT. They can be used to reduce taxes for any year in which the return has not yet been filed. The rate of return on investment produces extremely attractive yields unattainable through investments such as CD’s or US Treasury bills. Even after you factor in federal taxes on the savings, the net after tax yield often exceeds 30%. As far as "risk" is concerned, as soon as the New Jersey Department of Taxation issues the seller’s certificate, the State will stand behind it, even if the NOL or R&D credit is reversed in audit or the seller goes out of business.   In essence, the buyer will be "buying" a tax credit certificate "guaranteed" by the State of New Jersey. There is no denying that this law not only helps profitable companies enhance their economic portfolios but at the same time serves as a tremendous financing vehicle to companies that are largely shut out of the capital markets or are unable to attain normal banking relationships.  With these benefits this program enhances the overall economic climate of the Garden State.

Tax Transfer Corporation of New Jersey will make this transaction easy.   Currently, we are pooling companies with NOL’s and/or R&D tax credits to produce a more marketable commodity beneficial to the potential buyer.   Our job is to locate sellers, educate them on the process, file the application, work with NJEDA to get them approved, assemble the pool to match the buyer’s requirements, complete the buy/sell agreements and other required documents, follow them through the process, arrange the transfer of funds to an attorney escrow account, execute the transaction and transfer funds to the sellers and the certificates to the buyers.

In July, 2002, the legislature enacted the Business Tax Reform Bill (A2501). This bill restricts companies with NOL carry-forwards from using them in 2002 and 2003 to offset income and thus increase their CBT. But, this bill also specifically (3. Section 4, (6), (F)) allows the use of NOLs and R&D tax credits purchased under this program from other companies. For 2004 and 2005, this Reform Bill was revised where a company could use its' own NOL's for 50% of its' CBT Liability. The only limitation arises from the implementation of Alternative Minimum Assessment (AMA). In years prior, a company could purchase tax benefits to reduce their NJ CBT to zero. At this time, tax benefits can only be used to reduce the CBT to the AMA level. Even so, the benefits are very attractive.

For more specific information please call us.
908-630-0087

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