Changes may be coming to research tax breaks in New Jersey.
In December 2022, the New Jersey legislature moved bills in both the General Assembly and the Senate to committees putting them a couple of steps from votes in both houses. The bills were introduced in May 2022. The identical bills are A2487 and S2707 (Assembly and Senate respectively). These bills aim to increase the qualified research expenses tax credit for corporate businesses (in targeted industries), increase the basic research payment tax credit and allow the credit to be refundable.
First of all the bill increases the qualified research expenses tax credit from 10 to 15 percent. The bill currently states that the tax credit will be determined on a fixed percentage of annual gross receipts. Research is defined to include the “sum of in-house research expenses and contract research expenses that are paid or incurred during the privilege period.”
What will the targeted industries be? That is a little tricky. There is a required initial list These include; “advanced transportation and logistics, manufacturing, aviation, autonomous vehicle and zero-emission vehicle research or development, clean energy, life sciences, hemp processing, information and high technology, finance, and insurance, professional services, film and digital media, non-retail food and beverage businesses including food innovation, and other innovative industries that disrupt current technologies or business models.”
The New Jersey Economic Development Authority (NJEDA) will “periodically” identify from a list of targeted industries. Presumably, the list is not limited to the initial list. NJEDA is an independent government agency that works to grow New Jersey’s economy. One way they work toward this goal is by strengthening the state’s long-term economic competitiveness. Determining what sorts of businesses should get an R&D tax credit would certainly fall under their purview.
The current law in New Jersey states that the research tax credit cannot be refunded, but the unused portion may be carried forward. This new version of the law would allow taxpayers to receive a portion of the credit as a tax refund (they may also elect to carry it forward).
The bills are not yet law, but they seem to be moving in the right direction. There will possibly be changes and clarifications to any final law (including when it goes into effect). Keep an eye on the Hito LLC blog for updates and feel free to contact us with questions about state research tax breaks.