ASSEMBLY, No. 966

STATE OF NEW JERSEY

216th LEGISLATURE

 

PRE-FILED FOR INTRODUCTION IN THE 2014 SESSION

 


 

Sponsored by:

Assemblyman  TROY SINGLETON

District 7 (Burlington)

Assemblyman  DANIEL R. BENSON

District 14 (Mercer and Middlesex)

Assemblyman  BENJIE E. WIMBERLY

District 35 (Bergen and Passaic)

Assemblyman  RAJ MUKHERJI

District 33 (Hudson)

 

 

 

 

SYNOPSIS

     Establishes a cybersecurity investment incentive tax credit program.

 

CURRENT VERSION OF TEXT

     Introduced Pending Technical Review by Legislative Counsel

  


An Act establishing tax credits for investments in cybersecurity companies and supplementing Title 34 of the Revised Statutes.

 

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

 

     1.    As used in this act:

     “Authority” means the New Jersey Economic Development Authority.

     "Chief executive officer" means the chief executive officer of the New Jersey Economic Development Authority. 

     “Company” means any entity of any form duly organized and existing under the laws of any jurisdiction for the purpose of conducting business for-profit, but does not include a sole proprietorship.

     “Cybersecurity company” means a company organized for-profit that is engaged primarily in the development of innovative and proprietary cybersecurity technology.

     “Cybersecurity technology” means products or goods intended to detect or prevent activity intended to result in the unauthorized access to, infiltration of, manipulation of, or impairment to the integrity, confidentiality, or availability of an information system or information stored on or transiting an information system.

     “Cybersecurity technology panel” means the panel that the authority may establish pursuant to section 3 of P.L.   , c.    (C.       ) (pending before the Legislature as this bill) composed of experts in the area of cybersecurity technology.

     “Investment” means the contribution of money in cash or cash equivalents expressed in United States dollars, at a risk of loss, to a qualified New Jersey cybersecurity company in exchange for stock, a partnership or membership interest, or any other ownership interest in the equity of the qualified New Jersey cybersecurity company, title to which ownership interest shall vest in the qualified investor, but such an investment shall not include debt. 

     “Qualified investor” means any individual or entity that invests at least $25,000 in a qualified New Jersey cybersecurity company and that is required to file an income tax return in any jurisdiction, but does not include a qualified pension plan, an individual retirement account, or any other qualified retirement plan under the Employee Retirement Income Security Act of 1974 (29 U.S.C. s.1001 et seq),  or fiduciaries or custodians under these plans, or similar tax–favored plans or entities under the laws of other countries.

     “Qualified New Jersey cybersecurity company” means a cybersecurity company that meets the criteria set forth in subsection b. of section 4 of P.L.    , c.    (C.        ) (pending before the Legislature as this bill) and has been determined under subsection c. of section 4 of P.L.    , c.    (C.        ) (pending before the Legislature as this bill) to qualify for investments that are eligible for the tax credit under P.L.    , c.    (C.        ) (pending before the Legislature as this bill).

     “Reserve fund” means the Cybersecurity Investment Tax Credit Reserve Fund established pursuant to section 6 of P.L.    , c.   (C.   ) (pending before the Legislature as this bill).

     “Tax credit program” means the program established pursuant to P.L.    , c.    (C.        ) (pending before the Legislature as this bill) providing tax credits to qualified investors for investments made in qualified New Jersey cybersecurity companies.

 

     2. a. Subject to the provisions of subsections b. and c. of this section and sections 3 and 5 of P.L.    , c.    (C.        ) (pending before the Legislature as this bill), for the taxable year in which an investment in a qualified New Jersey cybersecurity company is made, a qualified investor may claim a credit against the tax imposed pursuant to the “New Jersey Gross Income Tax Act,” N.J.S.54A:1-1 et seq., in an amount equal to the amount of tax credit provided in the final credit certificate approved by the chief executive officer for the investment as provided pursuant to P.L.    , c.    (C.        ) (pending before the Legislature as this bill).

     b. To be eligible for the tax credit described in subsection a. of this section, the qualified investor shall be:

     (1) duly organized and in good standing in the jurisdiction under the laws under which it is organized if the investor is a company;

     (2) in good standing and authorized or registered to do business in the State if the investor is a company;

     (3) current in the payment of all tax obligations to the State or any unit or subdivision of the State; and

     (4) not in default under the terms of any contract with, indebtedness to, or grant from the State or any unit or political subdivision of the State.

     c. To be eligible for the tax credit described in subsection a. of this section, the qualified investor shall not, after making the proposed investment, own or control more than 25 percent of the equity interests in the qualified New Jersey cybersecurity company in which the investment is made.

 

     3. a. The authority may establish a cybersecurity technology panel composed of experts in the area of cybersecurity technology.  The cybersecurity technology panel shall assist the authority in its determination as to whether a company is a qualified New Jersey cybersecurity company.

     b. No member of the cybersecurity technology panel shall be eligible to receive tax credits under P.L.    , c.    (C.        ) (pending before the Legislature as this bill).

     4. a. At least 30 days prior to making an investment in a qualified New Jersey cybersecurity company for which a qualified investor may be eligible for an initial tax credit certificate, the qualified investor shall submit an application to the authority.

     b.  The application shall evidence that the qualified New Jersey cybersecurity company has satisfied the following minimum requirements for consideration as a qualified New Jersey cybersecurity company:

     (1) has its headquarters and base of operations in this State;

     (2) has not received a tax credit for more than one prior fiscal year;

     (3) has been in active business no longer than five years;

     (4) has an aggregate capitalization of at least $100,000;  

     (5) owns or has properly licensed any proprietary technology;

     (6) has fewer than 50 full–time employees; 

     (7) does not have its securities publicly-traded on any stock exchange; 

     (8) is in good standing and authorized or registered to do business in the State; 

     (9) is current in the payment of all tax obligations to the State or any unit or subdivision of the State;

     (10) is not in default under the terms of any contract with, indebtedness to, or grant from the State or any unit or political subdivision of the State; and 

     (11) meets any other reasonable requirements of the authority evidencing that the company is primarily engaged in the development of innovative and proprietary cybersecurity technology.

     c.  The authority shall provide first preference to qualified investors in qualified New Jersey cybersecurity companies which are engaged in public-private partnerships with New Jersey research universities, and approve all other applications that qualify for tax credits under this section on a first–come, first–served basis.  Within 30 calendar days of receipt of an application, the authority shall certify the amount of any approved tax credits to a qualified investor, and determine whether a cybersecurity company qualifies for investments that are eligible for the tax credit under section 2 of P.L.    , c.    (C.        ) (pending before the Legislature as this bill).

     (1) After the date on which the authority issues an initial tax credit certificate under this section, a qualified investor shall have 30 calendar days to make an investment in a qualified New Jersey cybersecurity company. 

     (2)Within 10 calendar days after the date on which a qualified investor makes the investment, the qualified investor shall provide to the authority notice and proof that the investment has been made, which shall include, but not be limited to, the following:

     (a) The date of the investment;

     (b) The amount invested; 

     (c) Proof of the receipt of the invested funds by the qualified New Jersey cybersecurity company;

     (d) A complete description of the nature of the ownership interest in the equity of the qualified New Jersey cybersecurity company acquired in consideration of the investment; and

     (e) Any reasonable supporting documentation the authority may require.

 

     5.  a  Subject to the provisions of P.L.    , c.    (C.        ) (pending before the Legislature as this bill), the chief executive officer shall issue an initial tax credit certificate for each approved investment in a qualified New Jersey cybersecurity company eligible for a tax credit.

     b. An initial tax credit certificate issued under this section shall state the maximum amount of tax credit for which the qualified investor is eligible.

     c. The tax credit allowed in the initial tax credit certificate issued pursuant to section 4 of P.L.    , c.    (C.        ) (pending before the Legislature as this bill) shall be equal to 33 percent of the investment in a qualified New Jersey cybersecurity company, and shall not exceed $250,000.

     d.  During any fiscal year, the chief executive officer may not certify eligibility for tax credits for investments in a single qualified New Jersey cybersecurity company that, in the aggregate, exceed 15 percent of the total appropriations to the New Jersey cybersecurity investment tax credit reserve fund for that fiscal year.

     e.  If the tax credit allowed pursuant section 2 of P.L.   , c.  (C.   ) (pending before the Legislature as this bill) in any taxable year exceeds the total tax otherwise payable by the qualified investor for that taxable year, the qualified investor may claim a refund in the amount of the excess or apply the excess as a credit against the tax imposed pursuant to the “New Jersey Gross Income Tax Act,” N.J.S.54A:1-1 et seq. for succeeding taxable years until the earlier of:

     (1) The full amount of the excess is used; or

     (2) The expiration of the seventh taxable year after the taxable year in which the investment expense was incurred.

 

     6. a.  There is established in the General Fund a separate, non-lapsing, dedicated account to be administered by the authority and to be known as the “Cybersecurity Investment Tax Credit Reserve Fund.”

     b. The money in the reserve fund shall be invested and reinvested by the State Treasurer, and any interest and earnings shall be credited to the General Fund.

     c.  The money in the reserve fund may be used by the authority to pay the costs of administering the tax credit program.

     d. Except as otherwise provided in this section, for any fiscal year, the chief executive officer may not issue initial tax credit certificates for credit amounts in the aggregate totaling more than the amount appropriated to the reserve fund for that fiscal year, as approved by the Governor and Legislature, as reduced by the amount needed to pay the costs of administering the tax credit program.

     e. If the aggregate credit amounts under initial tax credit certificates issued in a fiscal year total less than the amount appropriated to the reserve fund for that fiscal year, any excess amount shall remain in the reserve fund and may be issued under initial tax credit certificates in a subsequent fiscal year.

     f. For any fiscal year, if funds are transferred from the reserve fund under the authority of any provision of law other than under subsection f. of this section, the maximum credit amounts in the aggregate for which the chief executive officer may issue initial tax credit certificates shall be reduced by the amount transferred.

     g. Except as otherwise provided in section 6 and section 8 of          P.L.    , c.    (C.        ) (pending before the Legislature as this bill), money appropriated to the reserve fund shall remain in the reserve fund.

     h. For each fiscal year, the Legislature shall include in the annual appropriations act an appropriation to the reserve fund.

 

     7. a. Based on the actual amount of an investment made by a qualified investor, the chief executive officer shall issue a final tax credit certificate to the qualified investor.

     b. Within 15 days after the end of each calendar quarter, the authority shall notify the State Treasurer as to each final credit certificate issued during the quarter with information including, but not limited to:

     (1) the maximum credit amount stated in the initial tax credit certificate for the investment; and 

     (2) the final certified credit amount for the investment.

 

     8.  a.  The authority may submit quarterly invoices for costs that have been incurred in administering the tax credit program. 

     b. The State Treasurer shall transfer money from the reserve fund to the authority to pay for costs that have been incurred in administering the tax credit program.

     c. (1) From the amount appropriated to the reserve fund, the authority may not issue initial tax credit certificates for credit amounts in the aggregate that exceed $2,000,000 in each fiscal year following enactment of P.L.    , c.    (C.        ) (pending before the Legislature as this bill).

     (2) On notification that an investment has been certified, the State Treasurer shall transfer an amount equal to the credit amount stated in the initial tax credit certificate for the investment from the reserve fund to the General Fund.

     (3) Any amount remaining in the reserve fund after the issuance of initial tax credit certificates shall revert to the General Fund at the expiration of the program.

 

     9. a. A tax credit claimed under section 2 of P.L.    , c.    (C.     ) (pending before the Legislature as this bill) shall be recaptured pursuant to subsection b. of this section, if within two years from the close of the taxable year for which the credit is claimed:

     (1) The qualified investor sells, transfers, or otherwise disposes of the ownership interest in the qualified New Jersey cybersecurity company; or

     (2) The qualified New Jersey cybersecurity company that the qualified investor invested in ceases operating as an active business with its headquarters and base of operations in the State.

     b.  The amount required to be recaptured under subsection a. of this section is the product of multiplying:

     (1) The total amount of the credit claimed or, in the case of an event described in paragraph (1) of subsection a. of this section, the portion of the credit attributable to the ownership interest disposed of; and 

     (2) (a) 100 percent, if the event requiring recapture of the credit occurs during the taxable year for which the tax credit is claimed;  

     (b) 67 percent, if the event requiring recapture of the credit occurs during the first year after the close of the taxable year for which the tax credit is claimed; or

     (c) 33 percent, if the event requiring recapture of the credit occurs more than one year but not more than two years after the close of the taxable year for which the tax credit is claimed.

     c. The qualified investor that claimed the tax credit shall pay the amount to be recaptured as determined in subsection b. of this section as taxes payable to the State for the taxable year in which the event requiring recapture of the credit occurs.

     d. The authority may revoke its initial or final certification of an approved tax credit under P.L.    , c.    (C.        ) (pending before the Legislature as this bill) if any false representation is made in connection with the application for the certification as determined by the authority, or if the qualified investor does not provide proof of the required investment within 40 calendar days after the date on which the authority issues an initial tax credit certificate under section 4 of P.L.    , c.    (C.        ) (pending before the Legislature as this bill).

     (1) The revocation may be in full or in part as the authority may determine and, shall be communicated to the qualified investor and the State Treasurer.

     (2) The qualified investor shall have an opportunity to appeal any revocation to the authority prior to notification of the State Treasurer.

     (3) The State Treasurer may make an assessment against the qualified investor to recapture any amount of tax credit that the qualified investor has already claimed.

     (4) The credit amount allocated to the rescinded certificate shall revert to the reserve fund and shall be available in the applicable fiscal year for allocation by the authority to other initial tax credit certificates in accordance with the provisions of section 3 of P.L.    , c.    (C.        ) (pending before the Legislature as this bill).

 

     10. a. On or before January 10 of each year, the authority shall report to the Governor, and pursuant to section 2 of P.L.1991, c.164 (C.52:14-19.1), to the Legislature, on the initial tax credit certificates awarded under P.L.    , c.    (C.        ) (pending before the Legislature as this bill) for the prior calendar year.  The report shall include for each initial tax credit certificate awarded:

     (1) The name of the qualified investor and the amount of credit awarded or allocated to each investor;

     (2) The name and address of the qualified New Jersey cybersecurity company that received the investment giving rise to the credit under section 2 of P.L.    , c.    (C.        ) (pending before the Legislature as this bill) and the county where the qualified New Jersey cybersecurity company is located; and

     (3) The dates of receipt and approval by the authority of all applications for initial tax credit certificates.

     b. The report shall also provide summary statistics about the tax program’s operations, including: 

     (1) The total number of applicants for initial tax credit certificates in each calendar year;

     (2) The number of applications for which initial tax credit certificates were issued in each calendar year; and

     (3) The total initial tax credit certificates authorized for all calendar years.

 

     11.  The Chief Executive Officer and the State Treasurer shall adopt rules and regulations pursuant to the “Administrative Procedure Act” P.L.1968, c.410 (C.52:14B-1 et seq.) necessary to effectuate the provisions of this act including any criteria and procedures concerning administration of the program.

 

     12.  This act shall take effect July 1, 2014, and shall be applicable to all taxable years beginning after December 31, 2014, but before January 1, 2020. This act shall remain in effect for a period of six years and, on July 1, 2020 with no further action required by the Legislature, this act shall expire thereafter.

 

 

STATEMENT

 

     The bill establishes a temporary tax credit program for qualified investments in New Jersey based cybersecurity companies.  The program is to be administered by the New Jersey Economic Development Authority (“EDA”).  The bill directs the Legislature to make an annual appropriation to fund the program.  The EDA is to issue tax credits utilizing funds appropriated each year, with an annual limit of $2 million per year, or $12 million over the life of the program to be issued.  The EDA is permitted to establish a panel of experts in the area of cybersecurity technology to assist the EDA in determining when a company is qualified for the tax credit under the bill.

     The EDA will grant first preference in the awarding of tax credits to investors in companies that engage in public private partnerships with New Jersey research universities, and then shall grant the awards of tax credits on a first come, first served basis.  In order to claim the tax credit, a qualified investor must:  (1) make an investment in a qualified New Jersey cybersecurity company; (2) meet the qualifications of the program; and (3) submit an application to the EDA.  The refundable credit is equal to 33 percent of the qualified investment, not to exceed $250,000.  The EDA may not certify investments in a single cybersecurity company that exceeds 15 percent of the total appropriations to the reserve fund for that fiscal year.

     A qualified company is defined as a for-profit entity that is primarily engaged in the development of innovative and proprietary cybersecurity technology and meets specified criteria including requirements that the company: (1) has been in business for no more than five years; (2) has less than 50 full time employees; (3) has its headquarters and base of operations in New Jersey; (4) is not publicly traded on any exchange; (5) has not participated in the tax credit program for more than one prior fiscal year; (6) owns or has properly licensed any proprietary technology; and (7) has an aggregate capitalization of at least $100,000.

     The bill is scheduled to become effective on July 1, 2014 and be effective for six years, with the program expiring January 1, 2020.