ASSEMBLY COMMERCE AND ECONOMIC DEVELOPMENT COMMITTEE
SENATE, No. 3054
with committee amendments
STATE OF NEW JERSEY
DATED: DECEMBER 8, 2011
The Assembly Commerce and Economic Development Committee reports favorably and with committee amendments Senate Bill No. 3054.
Senate Bill No. 3054, with committee amendments, expands certain corporation business tax credit programs to the gross income tax. The purpose of this bill is to provide gross income taxpayers with the same incentives available to corporation business taxpayers for investment and hiring, particularly sole proprietors, partnerships, and limited liability companies. The bill creates gross income tax credit authority for the corporation business tax credit programs summarized below and conditions that authority on several uniform requirements addressed after the overview of credits provided below:
· The Business Retention and Relocation Assistance Grant Program provides escalating tax credit award amounts for jobs relocated or maintained at and above 50 jobs. The per-employee tax credit begins at $1,500 for between 50 and 250 full-time employees and ends at $9,000 for more than 1,000 full-time employees. There is a bonus award of 50% of the job credit for relocating at least 2,000 jobs from a location in New Jersey into a designated urban area. There is also a bonus award for capital investment that is 200% or more of the amount of the job retention tax credits issued. The total value of credits approved may not exceed $20 million annually.
· The Urban Transit Hub Tax Credit Act provides credit for capital investment made for a facility within a qualified proximity of an urban transit hub. Generally, this credit has two overarching components, the business facility credit and residential facility credit. Generally, the business facility component allows a credit of up to 100% of the investment in a business facility if the capital investment in the facility is at least $50 million and at least 250 full-time employees work in the facility. Generally, the residential facility component allows a credit of up to 35% of the total project investment if the capital investment in the facility is not less than $50 million. The credit also has variations for qualifying tenant facilities and mixed-use facilities. Linked to the Urban Transit Hub Tax Credit Act is the wind energy facility tax credit. This credit allows a credit for 100 percent of capital investment qualified wind energy facility located within an eligible wind energy zone. The Urban Transit Hub Tax Credit Act credits are capped cumulatively at $1.5 billion.
· The Qualified Municipality Open for Business Incentive Program provides two tax credits, one which rewards capital investment in qualified municipalities and a second which rewards the creation of new full-time employment in the first two year’s of a taxpayer’s expansion of operations in a qualified municipality. At the time of enactment the sole qualifying municipality appears to have been Camden. Generally, the capital investment component offers a taxpayer that locates or expands operations in a qualified municipality, during the municipality's period of rehabilitation and economic recovery, a partial rebate of its corporation business tax or gross income tax payments. Generally, the rebate is computed by calculating 96 percent of the product of (i) the tax liability for that year, and (ii) the fraction of the business's total New Jersey-sited capital investment property that year that consists of new or expanded business property in the municipality. The amount of the credit can be up to 100% of that amount. Generally, the new full-time employment credit component of this program provides a taxpayer with $2,500 for each new full-time position in year 1 of a taxpayer’s expansion of operations in a qualified municipality. For year 2, the taxpayer may be allowed a credit of $1,250 for each new full-time position.
· The Neighborhood Revitalization State Tax Credit Act provides tax credits to businesses that invest in neighborhood revitalization and preservation projects sponsored by nonprofit corporations. A business entity that contributes financial assistance to a nonprofit sponsor may be granted a tax credit certificate that may be applied against tax liability on business income. The tax credits may be granted in an amount up to 100 percent of the approved assistance provided to a nonprofit organization to implement a qualified project that is part of an approved neighborhood preservation and revitalization plan. No more than $10,000,000 in tax credits may be authorized under the program for a single fiscal year.
· The Enterprise Zone tax credit program has an employee and capital investment component. The employee component of this credit allows a qualified business actively engaged in business at a location within a zone a one-time credit of $1,500 for each qualifying new full-time and permanent employee that was unemployed for 90 days, or was dependent upon public assistance. There is also a one-time credit of $500 for each qualifying new full-time and permanent employee residing in the qualifying municipality that does not meet the $1,500 credit requirements. The investment component of this credit allows qualified businesses which are not eligible for the employee credit component a one-time credit in an amount equal to 8% of qualified investment made by the business pursuant to an agreement with the New Jersey Urban Enterprise Zone Authority.
· The Manufacturing Equipment and Employment Investment Tax Credit Act also has a capital investment component and an employee component. The capital investment component allows a credit in the amount of 2% of the cost of qualified equipment, which is generally manufacturing equipment and certain energy generation equipment. The credit percentage is increased to 4% if the taxpayer has 50 or fewer employees and taxable income less than $5 million. The employment component provides a credit in the amount of 3% of the cost of qualified equipment used for the manufacturing equipment credit in each of the two years following the year of investment, but in an amount that may not exceed the number of new employees multiplied by $1,000.
· The tax credit for purchase of certain effluent treatment equipment credit for CBT taxpayers who purchase certain treatment equipment designed to take effluent from a wastewater treatment system for purposes of additional treatment and subsequent reuse in an industrial process. Generally, the credit is allowed in an amount equal to 50 percent of the cost of treatment equipment.
· The tax credit for qualified digital media content production expenses provides a credit in an amount of up to 20% of qualified digital media content production expenses. At least $2 million of digital media content production expenses must be expended in New Jersey and a significant percentage as determined by EDA must be for the employment of full-time employees in New Jersey.
· The research expense tax credit has essentially two components to it, the credit for increased research activity and the credit for basic research. The credit for increased research activity is allowed in an amount that is equal to 10% of the taxpayer’s increase in “qualified research expenses” (research performed by or for the taxpayer) in a tax year over the base amount of those expenses. Generally, the base amount represents a multi-year average of the amount of qualified research expenses relative to annual gross receipts. The research expense tax credit also includes a credit for 10% of “basic research payments” (university research funded by the taxpayer) made in a tax year. As connected to the research expense tax credit, the bill’s gross income tax authority also extends to the New Jersey Emerging Technology and Biotechnology Financial Assistance program’s tax credit transfer certificate component and unused net operating loss carryover component.
· The New Jobs Investment Tax Credit Act is available for investment in new or expanded business facilities that create new jobs in New Jersey. The credit is allowed in an amount equal to a percentage of certain costs of new or expanded business facilities in this State. The percentage of credit allowed depends upon the kind of investment made and the number of new jobs created, but can equal up to 20% of the investment costs. The cost of property considered as a "qualified investment" and allowed in the calculation of the credit is based upon the expected depreciation life of the property for federal income tax purposes. The investment must create at least 5 new jobs (50 new jobs for large businesses) with a qualified median annual compensation level. The credit is conditioned on the number of new jobs created by the new investment, in that the qualified investment amount is allowed as a credit amount to the extent new jobs are created. The rate of creditable return varies depending on the scale of the business and job growth. A small or mid-sized business’ percentage of creditable investment is increased by one percent for each 5 new jobs created over the 5 new job minimum, up to a 20 percent credit for 100 new jobs created. A taxpayer that is not a small or mid-sized business must create a minimum of 50 new jobs to be allowed a credit of one half of one percent of the qualified investment. The percentage of creditable investment is increased by one-half of one percent for each additional 50 new jobs created over the 50 new job minimum, up to a 10 percent credit for 1000 new jobs created.
· The New Jersey Urban Development Corporation Act’s employment credit allows a taxpayer actively engaged in the conduct of a business within a qualified project a credit of $1,500 for each new employee employed at that location during the first two years after the agreement to undertake the project was entered into. The employees must be employed by the taxpayer for six consecutive months and must have been unemployed for 90 days prior to employment or dependent upon public assistance as a primary source of income.
In addition to extending gross income tax authority to the aforementioned credits, the bill also establishes several requirements that will be imposed upon the gross income tax component of each credit. The bill prohibits the duplicative use of a creditable activity to secure a gross income tax credit claim authorized under this bill.
The bill imposes a maximum amount of taxpayer liability against which a credit may be applied for a taxable year, which is that share of a taxpayer’s total liability attributable to the inclusion of income of the taxpayer’s credited business entity in the taxpayer’s gross income, determined according to the following ratio. The numerator of the ratio is that part of the taxpayer’s income for the taxable year in respect of the credited business entity that the net income from the category of gross income in which the income from the credited business entity for the taxable year falls bears to all sources of gross income in that category for the taxable year. The denominator of the ratio is the gross income of the taxpayer for the taxable year determined pursuant to N.J.S.54A:5-1 and N.J.S.54A:5-2, before itemized exclusions and deductions. This ratio shall be multiplied by the taxpayer’s total tax liability for the taxable year, before credits, to determine the share of the taxpayer’s liability against which a credit may be applied for a taxable year. Any amount of credit which may not be applied to liability because of this subsection may be carried forward pursuant to the terms of allowable carry forward, if any, under each credit. This limitation shall not reduce the amount of credit that may otherwise be available for a tax credit transfer certificate
Additionally, the bill provides that a business entity that elects to be treated as a partnership for federal income tax purposes shall not be allowed a gross income tax credit directly. Instead, the amount of credit of a taxpayer shall be determined by allocating to the taxpayer that proportion of the credit that is equal to the taxpayer's distributive share of the partnership except as otherwise provided by law.
The bill also provides that a New Jersey S Corporation shall not be allowed a credit directly under the gross income tax. Instead, the amount of credit of a taxpayer shall be determined by allocating to the taxpayer that proportion of the credit that is equal to the taxpayer's pro rata share of S Corporation income.
The bill directs that applications for credits or transfer certificates authorized pursuant to P.L. , c. (C. ) (pending before the Legislature as this bill) shall be made by the business entity of a taxpayer, except as otherwise prescribed by the director.
Lastly, the bill grants the Director of the Division of Taxation rulemaking authority to administer the gross income tax credits allowed pursuant to this bill on substantially similar terms to the related corporation business tax credits.
The amendments make technical changes to the bill. Notable changes are addressed below.
The amendment adds a provision under the Qualified Municipality Open for Business Incentive Program to specify that unused incentive payment deposits of an ineligible gross income taxpayer are to be remitted to the Property Tax Relief Fund.
The amendment adjusts the definition of small or mid-size business for purposes of the New Jobs Investment Tax Credit to tie the annual payroll and annual gross receipts qualification to the existing corporation business tax levels.
The amendments add a new section 39 to the bill to address cross references between the Urban Transit Hub Tax Credit program and its residential development component. The amendments allow the EDA to grant gross income tax credits for the residential development component of the credit.
The amendment also adds a provision to the uniform provisions governing the tax credits authorized by this bill requiring that applications for credits or transfer certificates shall be made by the business entity of a taxpayer, except as otherwise prescribed by the director. This is an administrative provision designed to address tax credit applications involving a business entity that represents the interest of multiple taxpayer-owners.