CSG Law Alert: NJEDA NOL Program Application Deadline Approaching – LAST CHANCE TO APPLY!

The State of New Jersey allows certain technology companies to sell the value of the company’s net operating losses, as well as R&D tax credits, to profitable companies.  This allows a company – often a startup and typically during its R&D phase – to monetize its losses and tax credits often when it needs capital the most.  This is a non-dilutive way to raise money, but you must apply before the end of June to potentially take advantage of this opportunity.

The New Jersey Economic Development Authority (“NJEDA”) established the Technology Business Tax Certificate Transfer Program (“Program”) to permit certain NJ-based technology companies to sell a percentage of the tax offset from their unused net operating loss carryover (“NOL”) and research and development (“R&D”) tax credits to unrelated profitable corporations.

The Program provides $75 million of annual tax benefits for eligible companies.  NOLs and R&D tax credits may be sold for at least 80 percent of their value. However, the market price usually exceeds this value. Each eligible company has a maximum lifetime benefit of $20 million.

The Program has a $1,000 non-refundable application fee. If the company gets approved, there is a separate approval fee that is one percent of the tax benefit award for any award greater than $100,000. The maximum approval fee is $20,000 and the application fee is credited towards the approval fee.

Program Requirements To be eligible for the Program, the company must meet the following requirements:

  1. Primary Business – The company must be a New Jersey-based technology or biotechnology company whose business primarily involves a scientific process, product or service.
  2. Full-Time Employees – The company must meet New Jersey’s minimum full-time employee requirement which varies based on how long the company has been formed or incorporated. However, the business must have no more than 224 full-time employees and it must offer health benefits under a group health plan to full-time employees.
  3. Protected Proprietary Intellectual Property – The company must own, have filed for, or have a valid license to use protected, proprietary intellectual property (“PPIP”). A PPIP is defined as a patent or a registered copyright. Applicants must demonstrate that the PPIP is their primary business which allows them to meet the definition of a valid biotechnology or technology business.
  4. No Positive Net Operating Income – The business cannot have had positive net operating income on either of its previous two full-year income statements. The company cannot have a parent company with a positive net operating income or be part of a consolidated group of affiliates for federal tax purposes with positive net operating income. The company must provide financial statements from the previous two years of operation compiled, reviewed or audited by an independent CPA firm and prepared according to US GAAP.

The State offers numerous programs providing economic incentives and tax credits to businesses. The Program is another example of New Jersey’s efforts to help companies grow and gain working capital to fund their operations such as technology or biotechnology research.

Don’t miss out! Applications for the Program must be submitted to the NJEDA by 11:59 pm on June 30, 2023. For more information about this particular program or other State economic incentive programs, please contact your CSG Law attorney or the author of this alert.