New Jersey program allows tech companies to sell NOLs and R&D credits
INSIGHT ARTICLE |
The New Jersey Technology Business Tax Certificate Transfer Program enables approved New Jersey-based technology and biotechnology companies meeting the eligibility criteria to sell their unused net operating losses (NOL) and research and development (R&D) tax credits to unrelated, profitable New Jersey corporate taxpayers. This program allows unprofitable, New Jersey corporations to currently monetize their unused NOLs and R&D credits in order to support research, growth and operations by allowing these benefits to be sold at a discount, which cannot be less than 80 percent of the tax benefit value. That means that for every $1M in NOLs and R&D credits that are sold, the selling corporation can receive a minimum of $800,000 in cash. The purchasing corporation then receives $1M in tax benefits for a cost of only $800,000, making this mutually beneficial to both parties.
In order to be eligible for this program, companies must meet the following criteria:
- Have fewer than 225 employees (including parent company and all subsidiaries). Utilization of a Professional Employment Organization (PEO) will not necessarily preclude eligibility.
- Be a technology or biotechnology company whose primary business involves the provision of a scientific process, product or service.
- Own, have filed for, or have a license to use protected, proprietary intellectual property, which is defined as a patent or registered copyright.
- Has not had positive net operating income on either of its last two full-year GAAP income statements (as compiled, reviewed, or audited by an independent CPA firm), nor has a parent company or is a member of a consolidated group of affiliates (for federal income tax purposes) with positive net operating income.
- Have at least:
- One full-time employee working in New Jersey if incorporated or formed less than three years.
- Five full-time employees in New Jersey if incorporated or formed more than three but less than five years.
- Ten full-time employees in New Jersey if incorporated or formed more than five years ago.
- Healthcare coverage must be available and offered to all full-time New Jersey employees.
The program is authorized to provide $60M in benefits for each fiscal year, and each company is limited to a maximum lifetime tax benefit of $15M. Applications are due June 30 of each year, and there is a $2,500 non-refundable application fee. In 2017, 39 companies applied for and received a total of $46M in benefits under this program. It is important to note that to be eligible, an applicant must also file their corporate business tax return with all attachments and schedules with the New Jersey Division of Taxation by June 30. If the June 30 application deadline is missed, the company may still be permitted to sell any accumulated NOLs and R&D credits, up to the $15M lifetime maximum benefit, in future fiscal years.
Once approved, a business must maintain a headquarters or base of operation in New Jersey during the five years following the receipt of assistance under this program. In addition, funds issued under this program must be used for expenses incurred in connection with the operation of an emerging technology or biotechnology company in New Jersey. These costs include, but are not limited to, the expenses of fixed assets, such as the construction, acquisition and development of real estate, materials, start-up, tenant fit-out, working capital, research and development, and any other expenses determined by the authority to be necessary. If the business leaves the state or does not appropriately use the funds, the company will be required to remit all or part of the funds received.
This program can be an excellent source of non-dilutive, cash funding that can be reinvested back into the company to support research, product development, and staff augmentation. The provisions and requirements under this program are complex, and corporate taxpayers should consult their tax advisors to assess their eligibility.