ASSEMBLY, No. 2005

STATE OF NEW JERSEY

215th LEGISLATURE

 

PRE-FILED FOR INTRODUCTION IN THE 2012 SESSION

 


 

Sponsored by:

Assemblyman  TROY SINGLETON

District 7 (Burlington)

Assemblyman  DANIEL R. BENSON

District 14 (Mercer and Middlesex)

Assemblyman  TIMOTHY J. EUSTACE

District 38 (Bergen and Passaic)

Assemblyman  UPENDRA J. CHIVUKULA

District 17 (Middlesex and Somerset)

 

Co-Sponsored by:

Assemblyman Greenwald, Assemblywoman Lampitt, Assemblymen Wimberly, Ramos and Assemblywoman Watson Coleman

 

 

 

 

SYNOPSIS

     Provides corporation business tax and gross income tax credits for qualified investment in certain biotechnology businesses.

 

CURRENT VERSION OF TEXT

     As introduced.

  


An Act providing a corporation business tax credit and gross income tax credit for qualified investment in certain biotechnology businesses, supplementing P.L.1945, c.162 (C.54:10A-1 et seq.) and Title 54A of the New Jersey Statutes.

 

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

 

     1.    a.  A qualified investor shall be allowed a credit against the tax imposed for a privilege period pursuant to section 5 of P.L.1945, c.162 (C.54:10A-5), in an amount equal to 50 percent of the value of qualified investment in a qualified biotechnology business for the privilege period.

     The amount of creditable qualified investment per qualified investor per privilege period shall not exceed $250,000.

     The order in which credits allowed pursuant to this section and any other credits shall be applied against the tax imposed pursuant to section 5 of P.L.1945, c.162 (C.54:10A-5), shall be determined by the director.  If any amount of credit allowed pursuant to this section remains after the application of credit to tax imposed pursuant to section 5 of P.L.1945, c.162 (C.54:10A-5) that amount of credit shall be refunded to the qualified investor.

     The total amount of credit allowed pursuant to this section and section 2 of P.L.    , c.   (C.        ) (pending before the Legislature as this bill) for a State fiscal year shall not exceed $6,000,000.

     b.    (1) To qualify as a qualified biotechnology business a business entity shall apply to the authority for certification.  The application for certification as a qualified biotechnology business shall be prescribed and administered by the authority.  The application shall require the business entity’s duly authorized officer to attest to a business plan with the objective of maintaining the business entity as a qualified biotechnology business for at least two privilege periods after the close of a privilege period for which the business entity receives qualified investment.  Upon certification, the authority shall provide the certification to the qualified biotechnology business and provide a copy of the certification to the director.

     The authority shall prescribe and administer annual verification requirements for a business entity to maintain its certification as a qualified biotechnology business.   If a business entity ceases to qualify as a qualified biotechnology business the authority shall immediately notify the director for purposes of recapture pursuant to subsection c. of this section, if applicable, the business entity, and all qualified investors that have received initial approval for qualified investment in the business entity pursuant to paragraph (2) of this subsection.  

     (2)   For an investment to qualify as qualified investment, the qualified investor shall apply for initial approval from the authority.  The application for initial approval shall be prescribed and administered by the authority.  The application shall be due at least 30 calendar days before a qualified investor makes the investment.  The application shall require the qualified investor’s duly authorized officer to identify the qualified biotechnology business, list the amount and form of proposed investment, and attest to the qualified investor’s qualification as a qualified investor.

     The authority shall not grant initial approval for investment exceeding the limits of subsection a. of this section.  The authority shall grant initial approvals relative to the $6,000,000 State fiscal year limitation of subsection a. of this section in the order of receipt of complete applications.  Initial approval applications which would cause the State to exceed the $6,000,000 limitation of subsection a. shall not be approved by the authority.  Based on order of receipt, the authority may prescribe and administer a system for granting initial approvals denied due to the $6,000,000 limitation of subsection a., but that become allowable due to another claimant’s failure to complete the tax credit claim procedure.

     Except for applications denied due to the $6,000,000 limitation of subsection a. and subsequently allowed due to another claimant’s failure to complete the tax credit claim procedure, the authority shall have 30 calendar days from the date of receipt of a complete application to issue an initial approval of the tax credit amount allowable pursuant to this section.  Upon initial approval, the authority shall provide the initial approval with an anticipated allowable credit amount to the qualified investor and provide a copy of the initial approval to the director.

     The qualified investor shall have 30 calendar days from the date of the authority’s issuance of an initial approval to make the qualified investment.  The qualified investor shall have at least 10, but no more than 40, calendar days from the date the qualified investor makes the qualified investment to provide written notice of the qualified investment to the authority.  In the form and with the content prescribed by the authority, the written notice shall include proof of receipt of the qualified investment by the qualified biotechnology business. 

     Upon receipt of the notice, the authority shall have 30 calendar days to verify the notice relative to the initial approval and provide the qualified investor with a tax credit claim form, prescribed by the director, that includes the verified credit amount, which form and amount shall be copied to the director.  The tax credit claim form shall include, but not be limited to, conspicuous notice of the terms of recapture pursuant to subsection c. of this section.

     To claim the credit the qualified investor shall complete and include the claim form with the filing of their annual tax return.  For the two privilege periods immediately following the privilege period for which the credit is claimed, the qualified investor shall include a form, prescribed by the director, with the filing of their annual tax return denoting the status of the qualified investment relative to qualified investment disposal as a recapture event pursuant to subsection c. of this section.

     In consultation with the director, the executive director of the authority shall adopt rules and regulations in accordance with the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.) as the executive director deems necessary to implement this subsection.

     c.     (1) If a qualified investor disposes of a qualified investment entirely or a part thereto before the close of the second privilege period following the privilege period the qualified investment is made then the qualified investor’s tax credit allowed pursuant to this section shall be subject to recapture enforced by the director.  If a qualified investor disposes of a part of a qualified investment, the amount of credit subject to paragraph (2) of this subsection shall be the amount of credit allowed due to the part of the qualified investment disposed.

     If a qualified biotechnology business ceases to qualify as a qualified biotechnology business before the close of the second privilege period following the privilege period the qualified investment is made then the qualified investor’s tax credit allowed pursuant to this section shall be subject to recapture enforced by the director.  Provided however, recapture shall not apply if cessation as a qualified biotechnology business is based solely upon a failure to satisfy the requirement that a qualified biotechnology business have been in operation for no more than 15 years as a result of operation occurring subsequent to a qualified investment.

     (2)   The amount of tax credit recaptured pursuant to paragraph (1) of this subsection shall be determined by the privilege period in which the event prompting recapture occurs. 

     If the recapture event occurs in the privilege period for which the credit is claimed then the entire amount of credit subject to recapture shall be recaptured.

     If the recapture event occurs in the privilege period immediately following the privilege period for which the credit is claimed then two-thirds of the amount of credit subject to recapture shall be recaptured.

     If the recapture event occurs in the second privilege period immediately following the privilege period for which the credit is claimed then one-third of the amount of credit subject to recapture shall be recaptured.

     d.    (1) On or before the first State business day of March of each year, the director in consultation with the executive director of the authority shall submit a report to the Governor and the Legislature, in accordance with section 2 of P.L.1991, c.164 (C.52:14-19.1), concerning the tax credits authorized pursuant to this section and section 2 of P.L.    , c.   (C.       ) (pending before the Legislature as this bill) for the immediately preceding State fiscal year.  Provided however, this reporting requirement shall not commence until the tax credits authorized pursuant to this section and section 2 of P.L.    , c.   (C.      ) (pending before the Legislature as this bill) shall have been in effect for a full State fiscal year.  The first report due pursuant to this subsection shall include the information required pursuant to paragraph (2) of this subsection for the immediately preceding State fiscal year and the second immediately preceding State fiscal year. 

     (2) Reports submitted pursuant to this subsection shall provide for the immediately preceding State fiscal year:

      the total number of qualified biotechnology business certification applications received and approved by the authority pursuant to this section and section 2 of P.L.    , c.   (C.        ) (pending before the Legislature as this bill);

     the total number and value of initial approval applications received by the authority pursuant to this section and section 2 of P.L.    , c.   (C.        ) (pending before the Legislature as this bill), including the total number and value of initial approval applications attributable to each section;

     the total number and value of tax credits allowed pursuant to this section and section 2 of P.L.    , c.   (C.        ) (pending before the Legislature as this bill), including the total number and value of tax credits attributable to each section; and

     any other information pertaining to the administration of this section and section 2 of P.L.    , c.   (C.        ) (pending before the Legislature as this bill) that the director deems relevant.

     e.     As used in this section:

     “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 which add to that body of fundamental knowledge.

     “Qualified biotechnology business” means a business entity that is headquartered and predominately operated in this State, has been in operation for no more than 15 years, employs no more than 250 employees, is primarily engaged in biotechnology research, development, or production, that is without a property tax delinquency for property in this State, that is not a delinquent taxpayer for purposes of any State taxes, whose license to do business in the State is in good standing, if applicable, and is certified by the authority pursuant to subsection b. of this section.  A business entity that ceases operations does not qualify as a qualified biotechnology business.

     “Qualified investment” means the contribution of money in an amount no less than $25,000 for the privilege period that is at a risk of loss in exchange for stock, an interest in a partnership, or other ownership interest in a qualified biotechnology business, which investment is subject to initial approval from the authority pursuant to subsection b. of this section.  Qualified investment does not include a loan made to a qualified biotechnology business or the assumption of liability on behalf of the qualified biotechnology business.

     “Qualified investor” means a taxpayer that is without a property tax delinquency for property in this State, that is not a delinquent taxpayer for purposes of any State taxes, and whose license to do business in the State is in good standing, if applicable.       

 

     2.    a.  A qualified investor shall be allowed a credit against the tax imposed for the taxable year pursuant to the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq., in an amount equal to 50 percent of the value of qualified investment in a qualified biotechnology business for the taxable year.

     The amount of creditable qualified investment per qualified investor per taxable year shall not exceed $250,000.

     The order in which credits allowed pursuant to this section and any other credits shall be applied against the tax imposed pursuant to the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq., shall be determined by the director.  If any amount of credit allowed pursuant to this section remains after the application of credit to tax imposed pursuant to the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq., that amount of credit shall be an overpayment for the purposes of N.J.S.54A:9-7, except that subsection (f) of N.J.S.54A:9-7 shall not apply.

     The total amount of credit allowed pursuant to this section and section 1 of P.L.    , c.   (C.        ) (pending before the Legislature as this bill) for a State fiscal year shall not exceed $6,000,000.

     A qualified investor that is a business entity that elects to be treated as a partnership for federal income tax purposes shall not be allowed a credit directly under the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq., but the amount of credit of a taxpayer in respect of a distributive share of partnership income, shall be determined by allocating to the taxpayer that proportion of the credit acquired by the partnership that is equal to the taxpayer's share, whether or not distributed, of the total distributive income or gain of the partnership for its taxable year ending within or with the taxpayer's taxable year, except as otherwise provided by law.

     A qualified investor that is a New Jersey S Corporation shall not be allowed a credit directly under the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq., but the amount of credit of a taxpayer in respect of a pro rata share of S Corporation income, shall be determined by allocating to the taxpayer that proportion of the credit acquired by the New Jersey S Corporation that is equal to the taxpayer's share, whether or not distributed, of the total pro rata share of S Corporation income of the New Jersey S Corporation for its privilege period ending within or with the taxpayer's taxable year, except as otherwise provided by law.

     b.    (1) To qualify as a qualified biotechnology business a business entity shall apply to the authority for certification.  The application for certification as a qualified biotechnology business shall be prescribed and administered by the authority.  The application shall require the business entity’s duly authorized officer to attest to a business plan with the objective of maintaining the business entity as a qualified biotechnology business for at least two taxable years after the close of a taxable year for which the business entity receives qualified investment.  Upon certification, the authority shall provide the certification to the qualified biotechnology business and provide a copy of the certification to the director.

     The authority shall prescribe and administer annual verification requirements for a business entity to maintain its certification as a qualified biotechnology business.   If a business entity ceases to qualify as a qualified biotechnology business the authority shall immediately notify the director for purposes of recapture pursuant to subsection c. of this section, if applicable, the business entity, and all qualified investors that have received initial approval for qualified investment in the business entity pursuant to paragraph (2) of this subsection.  

     (2)  For an investment to qualify as qualified investment, the qualified investor shall apply for initial approval from the authority.  The application for initial approval shall be prescribed and administered by the authority.  The application shall be due at least 30 calendar days before a qualified investor makes the investment.  The application shall require the qualified investor’s duly authorized officer to identify the qualified biotechnology business, list the amount and form of proposed investment, and attest to the qualified investor’s qualification as a qualified investor.

     The authority shall not grant initial approval for investment exceeding the limits of subsection a. of this section.  The authority shall grant initial approvals relative to the $6,000,000 State fiscal year limitation of subsection a. of this section in the order of receipt of complete applications.  Initial approval applications which would cause the State to exceed the $6,000,000 limitation of subsection a. shall not be approved by the authority.  Based on order of receipt, the authority may prescribe and administer a system for granting initial approvals denied due to the $6,000,000 limitation of subsection a., but that become allowable due to another claimant’s failure to complete the tax credit claim procedure.

     Except for applications denied due to the $6,000,000 limitation of subsection a. and subsequently allowed due to another claimant’s failure to complete the tax credit claim procedure, the authority shall have 30 calendar days from the date of receipt of a complete application to issue an initial approval of the tax credit amount allowable pursuant to this section.  Upon initial approval, the authority shall provide the initial approval with an anticipated allowable credit amount to the qualified investor and provide a copy of the initial approval to the director.

     The qualified investor shall have 30 calendar days from the date of the authority’s issuance of an initial approval to make the qualified investment.  The qualified investor shall have at least 10, but no more than 40, calendar days from the date the qualified investor makes the qualified investment to provide written notice of the qualified investment to the authority.  In the form and with the content prescribed by the authority, the written notice shall include proof of receipt of the qualified investment by the qualified biotechnology business. 

     Upon receipt of the notice, the authority shall have 30 calendar days to verify the notice relative to the initial approval and provide the qualified investor with a tax credit claim form, prescribed by the director, that includes the verified credit amount, which form and amount shall be copied to the director.  The tax credit claim form shall include, but not be limited to, conspicuous notice of the terms of recapture pursuant to subsection c. of this section.

     To claim the credit the qualified investor shall complete and include the claim form with the filing of its annual tax return.  For the two taxable years immediately following the taxable year for which the credit is claimed, the qualified investor shall include a form, prescribed by the director, with the filing of the qualified investor’s annual tax return denoting the status of the qualified investment relative to qualified investment disposal as a recapture event pursuant to subsection c. of this section.

     In consultation with the director, the executive director of the authority shall adopt rules and regulations in accordance with the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.) as the executive director deems necessary to implement this subsection.

     c.     (1) If a qualified investor disposes of a qualified investment entirely or a part thereto before the close of the second taxable year following the taxable year the qualified investment is made then the qualified investor’s tax credit allowed pursuant to this section shall be subject to recapture enforced by the director.  If a qualified investor disposes of a part of a qualified investment, the amount of credit subject to paragraph (2) of this subsection shall be the amount of credit allowed due to the part of the qualified investment disposed.

     If a qualified biotechnology business ceases to qualify as a qualified biotechnology business before the close of the second taxable year following the taxable year the qualified investment is made then the qualified investor’s tax credit allowed pursuant to this section shall be subject to recapture enforced by the director.  Provided however, recapture shall not apply if cessation as a qualified biotechnology business is based solely upon a failure to satisfy the requirement that a qualified biotechnology business have been in operation for no more than 15 years as a result of operation occurring subsequent to a qualified investment.

     (2) The amount of tax credit recaptured pursuant to paragraph (1) of this subsection shall be determined by the taxable year in which the event prompting recapture occurs. 

     If the recapture event occurs in the taxable year for which the credit is claimed then the entire amount of credit subject to recapture shall be recaptured.

     If the recapture event occurs in the taxable year immediately following the taxable year for which the credit is claimed then two-thirds of the amount of credit subject to recapture shall be recaptured.

     If the recapture event occurs in the second taxable year immediately following the taxable year for which the credit is claimed then one-third of the amount of credit subject to recapture shall be recaptured.

     d.    This section is subject to the reporting requirements established pursuant to subsection d. of section 1 of P.L.    , c.   (C.       ) (pending before the Legislature as this bill).

     e.     As used in this section:

     “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 which add to that body of fundamental knowledge.

     “Qualified biotechnology business” means a business entity that is headquartered and predominately operated in this State, has been in operation for no more than 15 years, employs no more than 250 employees, is primarily engaged in biotechnology research, development, or production, that is without a property tax delinquency for property in this State, that is not a delinquent taxpayer for purposes of any State taxes, whose license to do business in the State is in good standing, if applicable, and is certified by the authority pursuant to subsection b. of this section.  A business entity that ceases operations does not qualify as a qualified biotechnology business.

     “Qualified investment” means the contribution of money in an amount no less than $25,000 for the taxable year that is at a risk of loss in exchange for stock, an interest in a partnership, or other ownership interest in a qualified biotechnology business, which investment is subject to initial approval from the authority pursuant to subsection b. of this section.  Qualified investment does not include a loan made to a qualified biotechnology business or the assumption of liability on behalf of the qualified biotechnology business.

     “Qualified investor” means a taxpayer that is without a property tax delinquency for property in this State, that is not a delinquent taxpayer for purposes of any State taxes, and whose license to do business in the State is in good standing, if applicable.

 

     3.    This act shall take effect immediately and apply to qualified investment occurring in privilege periods and taxable years beginning on or after the date of enactment.

 

 

STATEMENT

 

     This bill provides a Corporation Business Tax (CBT) credit and Gross Income Tax (GIT) credit for qualified investment in certain biotechnology businesses.  The purpose of this bill is to incentivize investment in New Jersey biotechnology businesses; promote New Jersey as a biotechnology business location; and encourage biotechnology business cluster development in New Jersey.  The bill is modeled after Maryland’s biotechnology investment incentive tax credit program.

     The bill allows tax credits for fifty percent of qualified investment in qualified biotechnology businesses (QBB).  Qualified investment must be in an amount of at least $25,000, but no more than $250,000, per investor per tax year.  The bill caps the amount of credit available to all investors to $6 million per State fiscal year.  Qualified investment is an amount at risk that is exchanged for an ownership interest in the QBB.  Qualified investment does not include a loan made to a QBB or an assumption of liability on behalf of a QBB. 

     The bill establishes criteria for determining what business entities qualify as a QBB.  To qualify as a QBB a business entity must be headquartered and predominately operated in this State, have been in operation for no more than 15 years, employ no more than 250 employees, be primarily engaged in biotechnology research, development, or production, have no State tax or property tax delinquency, and have a business license in good standing, if applicable.  The bill directs the Economic Development Authority (EDA) to administer a certification process for qualifying QBBs.

     The bill creates an initial approval process for qualified investors to be administered by the EDA to vet qualified investment and enforce the bill’s $6 million annual cap.  The initial approval process requires qualified investors to apply for initial approval from EDA at least 30 days before making investment.  In addition to providing the recipient, form, and amount of proposed investment, the investor applicant must attest to having no State tax or property tax delinquency and a business license in good standing, if applicable. 

     Generally, the EDA has 30 days within which to initially approve investment.  The EDA is authorized to devise a system based on order of receipt for approving applications denied due to the $6 million cap, but that subsequently become allowable due to a preceding applicant’s failure to complete the claim process.

     After receiving initial approval from EDA, the qualified investor has 30 days to make the investment.   The qualified investor then has at least 10 but no more than 40 days to provide notice and proof of the investment to the EDA.  The EDA then has 30 days to verify the investment relative to the initial approval and issue a tax credit claim form to the investor with a verified credit amount.  The qualified investor then completes and submits the tax credit claim form with their annual tax return.  Depending on the amount of credit allowed relative to the qualified investor’s tax liability and the order in which the Director of the Division of Taxation applies the credit in relation to other credits, excess qualified investment credit may be claimed as a refund.

     The bill imposes recapture of tax credit amounts for investment disposal and QBB disqualifications occurring before the end of the second full tax year after the investment.  The percentage of credit subject to recapture varies based on the year in which the recapture event occurs: the year of investment – 100%, the first full tax year after investment – 67%, and the second full tax year after investment – 33%.  For partial investment disposals, the amount of credit to be recaptured is subject to an initial calculation to determine the amount of credit generated by the portion of investment disposed before applying the recapture percentage.  The bill directs the director to make conspicuous notice of the terms of recapture on the tax credit claim form.

     The bill requires an annual report on the administration of the tax credit program to be produced by the Director of the Division of Taxation in consultation with the Executive Director of the EDA. 

     The bill allows the tax credit for qualified investment occurring in tax years beginning on or after the date of enactment.