New Jersey Law

CHAPTER 140

An Act clarifying the corporation business tax surrendered tax benefit certificate transfer program for new or expanding emerging technology and biotechnology companies in this State, amending and supplementing P.L.1997, c.334.

Be It Enactedby the Senate and General Assembly of the State of New Jersey:

C.34:1B-7.42 Definitions relative certain corporation tax benefit program.

1. As used in P.L.1997, c.334 (C.34:1B-7.42a et al.):

"Authority" means the New Jersey Economic Development Authority established pursuant to section 4 of P.L. 1974, c.80 (C.34:1B-4);

"Biotechnology" means the continually expanding body of fundamental knowledge about the functioning of biological systems from the macro level to the molecular and sub-atomic levels, as well as novel products, services, technologies and sub-technologies developed as a result of insights gained from research advances that add to that body of fundamental knowledge;

"Biotechnology company" means an emerging corporation that has its headquarters or base of operations in this State and that is engaged in the research, development, production, or provision of biotechnology for the purpose of developing or providing products or processes for specific commercial or public purposes, including but not limited to, medical, pharmaceutical, nutritional, and other health-related purposes, agricultural purposes, and environmental purposes, or a person whose headquarters or base of operations is located in this State, engaged in providing services or products necessary for such research, development, production, or provision;

"New or expanding" means a technology or biotechnology company that has fewer than 225 employees, of whom 75% are New Jersey-based employees filling a position or job in this State; and

"Technology company" means an emerging corporation that has its headquarters or base of operations in this State and that employs some combination of the following: highly educated or trained managers and workers, or both, employed in this State who use sophisticated scientific research service or production equipment, processes or knowledge to discover, develop, test, transfer or manufacture a product or service.

2. Section 1 of P.L.1997, c.334 (C.34:1B-7.42a) is amended to read as follows:

C.34:1B-7.42a Corporation business tax benefit certificate transfer program.

1. a. The New Jersey Economic Development Authority shall establish within the New Jersey Emerging Technology and Biotechnology Financial Assistance Program established pursuant to P.L.1995, c.137 (C.34:1B-7.37 et seq.), a corporation business tax benefit certificate transfer program to allow new or expanding emerging technology and biotechnology companies in this State with unused amounts of research and development tax credits otherwise allowable which cannot be applied for the credit's tax year due to the limitations of subsection b. of section 1 of P.L.1993, c.175 (C.54:10A-5.24) and unused net operating loss carryover pursuant to subparagraph (B) of paragraph (6) of subsection (k) of section 4 of P.L.1945, c.162 (C.54:10A-4), to surrender those tax benefits for use by other corporation business taxpayers in this State, provided that the taxpayer receiving the surrendered tax benefits is not affiliated with a corporation that is surrendering its tax benefits under the program established under P.L.1997, c.334. For the purposes of this section, the test of affiliation is whether the same entity directly or indirectly owns or controls 5% or more of the voting rights or 5% or more of the value of all classes of stock of both the taxpayer receiving the benefits and a corporation that is surrendering the benefits. The tax benefits may be used on the corporation business tax returns to be filed by those taxpayers in exchange for private financial assistance to be provided by the corporation business taxpayer that is the recipient of the corporation business tax benefit certificate to assist in the funding of costs incurred by the new or expanding emerging technology and biotechnology company.

b. The authority, in cooperation with the Division of Taxation in the Department of the Treasury, shall review and approve applications by new or expanding emerging technology and biotechnology companies in this State with unused but otherwise allowable carryover of research and development tax credits pursuant to section 1 of P.L.1993, c.175 (C.54:10A-5.24), and unused but otherwise allowable net operating loss carryover pursuant to paragraph (6) of subsection (k) of section 4 of P.L.1945, c.162 (C.54:10A-4), to surrender those tax benefits in exchange for private financial assistance to be made by the corporation business taxpayer that is the recipient of the corporation business tax benefit certificate in an amount equal to at least 75% of the amount of the surrendered tax benefit. Provided that the amount of the surrendered tax benefit for a surrendered research and development tax credit carryover is the amount of the credit, and provided that the amount of the surrendered tax benefit for a surrendered net operating loss carryover is the amount of the loss multiplied by the new or expanding emerging technology or biotechnology company's anticipated allocation factor, as determined pursuant to section 6 of P.L.1945, c.162 (C.54:10A-6) for the tax year in which the benefit is transferred and subsequently multiplied by the corporation business tax rate provided pursuant to subsection (c) of section 5 of P.L.1945, c.162 (C.54:10A-5). The authority shall be authorized to approve the transfer of no more than $50,000,000 of tax benefits over State fiscal year 2000 and $40,000,000 of tax benefits over each State fiscal year thereafter. If the total amount of transferable tax benefits requested to be surrendered by approved applicants exceeds $50,000,000 for State fiscal year 2000 or $40,000,000 for each State fiscal year thereafter, the authority, in cooperation with the Division of Taxation in the Department of the Treasury, shall not be authorized to approve the transfer of more than $50,000,000 for State fiscal year 2000 or more than $40,000,000 for each State fiscal year thereafter and shall allocate the transfer of tax benefits by approved companies using the following method:

(1) an eligible applicant with $250,000 or less of transferable tax benefits shall be authorized to surrender the entire amount of its transferable tax benefits;

(2) an eligible applicant with more than $250,000 of transferable tax benefits shall be authorized to surrender a minimum of $250,000 of its transferable tax benefits;

(3) an eligible applicant with more than $250,000 of transferable tax benefits that was approved to surrender tax benefits in the prior fiscal year shall be authorized to surrender a minimum of 50% of the transferable tax benefits surrendered in the prior fiscal year or $250,000 whichever is greater, provided that the amount of transferable tax benefits authorized shall not exceed the applicant's transferable tax benefits for the current fiscal year;

(4) an eligible applicant with more than $250,000 shall also be authorized to surrender additional transferable tax benefits determined by multiplying the applicant's transferable tax benefits less the minimum transferable tax benefits that company is authorized to surrender under paragraph (2) or (3) of this subsection by a fraction, the numerator of which is the total amount of transferable tax benefits that the authority is authorized to approve less the total amount of transferable tax benefit approved under paragraphs (1), (2) and (3) of this subsection and the denominator of which is the total amount of transferable tax benefits requested to be surrendered by all eligible applicants less the total amount of transferable tax benefits approved under paragraphs (1), (2) and (3) of this subsection.

If the total amount of transferable tax benefits that would be authorized using the above method exceeds $50,000,000 for State fiscal year 2000 or $40,000,000 for each State fiscal year thereafter, then the authority, in cooperation with the Division of Taxation in the Department of the Treasury, shall limit the total amount of tax benefits authorized to be transferred to $50,000,000 for State fiscal year 2000 or $40,000,000 for each State fiscal year thereafter by applying the above method on an apportioned basis.

For purposes of this section transferable tax benefits include an eligible applicant's unused but otherwise allowable carryover of net operating losses multiplied by the applicant's anticipated allocation factor as determined pursuant to section 6 of P.L. 1945, c.162 (C.54:10A-6) for the tax year in which the benefit is transferred and subsequently multiplied by the corporation business tax rate as provided in subsection (c) of section 5 of P.L.1945, c.162 (C.54:10A-5) plus the total amount of the applicant's unused but otherwise allowable carryover of research and development tax credits. An eligible applicant's transferable tax benefits shall be limited to net operating losses and research and development tax credits that the applicant requests to surrender in its application to the authority and shall not, in total, exceed the maximum amount of tax benefits that the applicant is eligible to surrender.

The maximum lifetime value of surrendered tax benefits that a corporation shall be permitted to surrender pursuant to the program is $10,000,000. Applications must be received within 30 days from enactment of P.L.1999, c.140 (C.34:1B-7.42b et al.) for State fiscal year 2000 and on or before June 30 for each subsequent State fiscal year.

The private financial assistance shall be used to fund expenses incurred in connection with the operation of the new or expanding emerging technology or biotechnology company in the State, including but not limited to the expenses of fixed assets, such as the construction and acquisition and development of real estate, materials, start-up, tenant fit-out, working capital, salaries, research and development expenditures and any other expenses determined by the authority to be necessary to carry out the purposes of the New Jersey Emerging Technology and Biotechnology Financial Assistance Program.

c. The authority, in cooperation with the Division of Taxation in the Department of the Treasury, shall review and approve applications by taxpayers under the Corporation Business Tax Act (1945), P.L.1945, c.162 (C.54:10A-1 et seq.), to acquire surrendered tax benefits approved pursuant to subsection b. of this section which shall be issued in the form of corporation business tax benefit transfer certificates, in exchange for private financial assistance to be made by the taxpayer in an amount equal to at least 75% of the amount of the surrendered tax benefit of an emerging technology or biotechnology company in the State. The private financial assistance shall assist in funding expenses incurred in connection with the operation of the new or expanding emerging technology or biotechnology company in the State, including but not limited to the expenses of fixed assets, such as the construction and acquisition and development of real estate, materials, start-up, tenant fit-out, working capital, salaries, research and development expenditures and any other expenses determined by the authority to be necessary to carry out the purposes of the New Jersey Emerging Technology and Biotechnology Financial Assistance Program.

d. The authority shall coordinate the applications for surrender and acquisition of unused but otherwise allowable tax benefits pursuant to this section in a manner that can best stimulate and encourage the extension of private financial assistance to new and expanding emerging technology and biotechnology companies in this State. The applications shall be submitted and the authority shall approve or disapprove the applications.

The authority shall, in consultation with the New Jersey Commerce and Economic Growth Commission, the New Jersey Commission on Science and Technology and any institution of higher education in New Jersey, develop criteria for the approval or disapproval of applications. Such criteria shall include, but need not be limited to, an evaluation of the new or expanding emerging technology or biotechnology company's actual or potential scientific and technological viability, a determination that the new or expanding emerging technology or biotechnology company's principal products or services are sufficiently innovative to provide a competitive advantage, a determination that the proposed financial assistance will result in significant growth in permanent, full-time employment in the State, a determination made by the authority that the new or expanding emerging technology or biotechnology company does not have sufficient resources to operate in the short term or cannot secure financial assistance from venture capital, stock issuance, product sales revenue, a parent corporation or other affiliates, bank or any other method of obtaining capital, and a determination that the financial assistance provided pursuant to this act demonstrates the prospect of a significant positive change in the applicant's net income. The authority shall establish the weight of importance to be given each criterion utilized in its application approval process. No application shall be approved in which the new or expanding technology or biotechnology company (1) has demonstrated positive net income in any of the two previous full years of ongoing operations as determined on its financial statements; or (2) has demonstrated a ratio in excess of 110% or greater of operating revenues divided by operating expenses in any of the two previous full years of operations as determined on its financial statements; or (3) is directly or indirectly at least 50% owned or controlled by another corporation that has demonstrated positive net income in any of the two previous full years of ongoing operations as determined on its financial statements or is part of a consolidated group of affiliated corporations, as filed for federal income tax purposes, that in the aggregate has demonstrated positive net income in any of the two previous full years of ongoing operations as determined on its combined financial statements.

Once an application has been approved, the applicant shall be permitted to surrender, subject to the limitations set forth in subsection b. of this section and the net operating loss carryover and research and development tax credit carryover time periods pursuant to subparagraph (B) of paragraph (6) of subsection (k) of section 4 of P.L.1945, c.162 (C.54:10A-4) and subsection b. of section 1 of P.L.1993, c.175 (C.54:10A-5.24), the surrendered tax benefits that are requested in the application regardless of whether the applicant continues to meet the eligibility criteria set forth in the act in subsequent years.

The authority shall require a corporation business taxpayer that acquires a corporation business tax benefit certificate to enter into a written agreement with the new or expanding emerging technology or biotechnology company concerning the terms and conditions of the private financial assistance made in exchange for the certificate. The written agreement may contain terms concerning the maintenance by the new or expanding emerging technology or biotechnology company of a headquarters or a base of operation in this State.

3. Section 2 of P.L.1997, c.334 (C.54:10A-4.2) is amended to read as follows:

C.54:10A-4.2 Attachment of certificate to return for net operating loss carryover.

2. a. Notwithstanding the provisions of paragraph (6) of subsection (k) of section 4 of P.L.1945, c.162 (C.54:10A-4) to the contrary, a taxpayer that has acquired a corporation business tax benefit certificate pursuant to the provisions of section 1 of P.L.1997, c.334 (C.34:1B-7.42a), that includes the right to a net operating loss carryover deduction shall attach that certificate to any return the taxpayer is required to file under P.L.1945, c.162 (C.54:10A-1 et seq.), and shall determine the amount of its net operating loss carryover deduction by multiplying the surrendered net operating loss by the new or expanding emerging technology or biotechnology company's anticipated allocation factor determined pursuant to subsection b. of section 1 of P.L.1997, c.334 (C.34:1B-7.42a) and subsequently dividing the amount by the taxpayer's allocation factor determined pursuant to section 6 of P.L.1945, c.162 (C.54:10A-6) for the tax year in which the surrendered tax benefit is used. The taxpayer shall otherwise apply the net operating loss carryover deduction as evidenced by the certificate according to the provisions of subsection (k) of section 4 of P.L.1945, c.162 and any rules or regulations the director may adopt to carry out the provisions of this section.

b. A new or expanding emerging technology or biotechnology company that has surrendered an unused net operating loss carryover pursuant to the provisions of section 1 of P.L.1997, c.334 (C.34:1B-7.42a), shall not be allowed a net operating loss carryover deduction based upon the right to such a deduction as evidenced by the corporation business tax benefit certificate and shall attach a copy of the certificate to any return the taxpayer is required to file under P.L.1945, c.162 (C.54:10A-1 et seq.).

4. Notwithstanding any provision of P.L.1968, c.410 (C.52:14B-1 et seq.) to the contrary, the New Jersey Economic Development Authority and the Division of Taxation in the Department of the Treasury may adopt, immediately upon filing with the Office of Administrative Law, such regulations as the authority or division respectively deems necessary for it to implement the provisions of P.L.1999, c.140 (C.34:1B-7.42b et al.), which regulations shall be effective for a period not to exceed 180 days from the date of the filing. Such regulations may thereafter be amended, adopted or readopted by the authority or the division as the authority or division deems necessary in accordance with the requirements of P.L.1968, c.410.

5.This act shall take effect immediately and apply to tax years beginning on and after January 1, 1999.
Clarifies the corporation business tax surrendered tax benefit certificate transfer program for new or expanding emerging technology and biotechnology companies in this State.

Approved June 28, 1999.

Home |  Selling Losses | Buying Losses | ProvenResults   
  The Law | Contact Us  | About Us |  Glossary

Copyright © 1999-2006Tax Transfer Corporation of New Jersey All Rights Reserved.
Revised: 2/08/2006

Home |  Selling Losses | Buying Losses | ProvenResults   
  The Law | Contact Us  | About Us |  Glossary

Copyright © 1999-2003 Tax Transfer Corporation of New Jersey All Rights Reserved.
Revised: April 25, 2003