S445 Fiscal Note

Senate Bill No. 445 of 1996 provides a credit under the Corporation Business Tax for investment by corporate taxpayers in small New Jersey-based high-technology businesses that conduct research in New Jersey in certain fields of science and technology or that conduct pilot scale manufacturing in New Jersey in order to bring their high-technology innovations into market production.

The tax credit is based upon 10 percent of investments made in each small high-technology business with fewer than 225 employees, 75 percent of whom have jobs in New Jersey. The utilization of the credit is limited to $1 million per investment, per year, with carryforwards available for unutilized credits. The investment must be a non-refundable investment at risk in the small high-technology business. The small high-technology business must conduct pilot scale manufacturing or qualified research in New Jersey in the fields of advanced computing, advanced materials, biotechnology, electronic device technology, environmental technology, and medical device technology.

The Division of Taxation in the Department of the Treasury estimates that this bill could result in an annual, continuing loss of general fund revenue of $6.25 million per year beginning in fiscal year 1998. As shown below, the division bases this estimate on a proportion of the total, reported 1993 investment of venture capital in high-technology firms nationwide.

Worksheet Summary for S-445
	1993 Venture Capital Investment, U.S.		$3.1 billion
1	Share invested in New Jersey	8% (of $3.1 billion)	$250 million
2	Portion of State share of investment made in 6 high-tech categories	50% (of $250 million)	$125 million
3	Percent of qualified investment eligible for tax credit amount	10% (of $125 million)	$12.5 million
4	Annual 50% credit cap as percent of tax liability	50% (of $12.5 million)	$6.25 million in annual tax credits

The Office of Legislative Services (OLS) notes that more recent survey material from several of the large national accounting firms has placed the 1996 level of venture capital investment in New Jersey as high as $344 million, compared to the $250 million attributed by the Division of Taxation. All other things being equal, this would raise the potential cost of S-445's investment credit if the same methodology employed by the division is followed. However, it is not known how much of this venture capital investment is being made by corporations with New Jersey business tax liabilities, who would be able to claim an investment credit. Also, the broad nature of the definitions of small New Jersey-based high-technology businesses in which a taxpayer may invest under the bill make it difficult to determine which industrial classifications may or may not receive qualified investments.

While the actual value of corporate investment and tax credits may vary from the amount estimated by the Division of Taxation due to the lack of precise data, OLS believes that the division's assumptions and analysis are reasonable.

Co-prime sponsor Senator Robert W. Singer does not concur with the information presented herein.