CSG Law Alert: New Economic Legislation Helps Businesses Expand and Prosper in New Jersey
The New Jersey Economic Recovery Act of 2020 (“Act”), signed into law by Governor Murphy on January 7, 2021, creates a multi-billion-dollar package of tax incentives to attract and retain New Jersey businesses and real estate development projects. On July 2, just 6 months after its enactment, Governor Murphy signed into law Assembly Bill No. 5939 (“A-5939”), which makes substantial changes to the Act. In part, these amendments reflect the pandemic’s impact on the workforce.
A portion of the Act created a new incentive program – New Jersey Emerge (“Emerge”) –that provides “tax credits to encourage economic development, job creation and the retention of significant numbers of jobs in imminent danger of leaving the State,” according to the New Jersey Assembly Committee Statement. This program is administered by the New Jersey Economic Development Authority (“NJEDA”). Emerge is of particular importance to New Jersey business owners, large and small, who plan on expanding their workforce and facilities and making capital investments. The program can also benefit businesses in neighboring states, such as New York, that are considering moving across the Hudson to take advantage of New Jersey’s more affordable office space leasing options. Because A-5939 expanded the Emerge program, additional businesses may now qualify for tax credits than under the original legislation.
Opportunities in Targeted Regions
Emerge gives preference to communities disproportionately affected by various socioeconomic factors, providing opportunities for businesses looking to locate or expand in a targeted area. Targeted areas fall into three, statutorily defined categories: (1) Government Restricted Municipalities, such as Trenton and Atlantic City; (2) Enhanced Areas, including Camden and Salem; and (3) Distressed Municipalities, such as Perth Amboy and Secaucus. In the aggregate, tax credits for projects will be divided between locations in the northern counties and southern counties. The lion’s share of tax credits will go to projects located in the northern counties.
Opportunities for Key Industries
New Jersey seeks to promote certain targeted industries through the Act, including autonomous vehicle and zero-emission vehicle research and development, clean energy, life sciences, hemp processing, information technology, and other innovative industries. The program provides minimum job creation requirements that vary based on the size of the business and the industry. With respect to the job creation requirements, small businesses must grow their workforce by 25%, businesses in targeted industries must create 25 new full-time jobs, and all other businesses must create 35 new full-time jobs. Some businesses may also receive tax credits for retaining a certain minimum number of jobs. At least 80% of the employees counted towards the job creation or retention requirements must pay individual income taxes to New Jersey. A-5939 has relaxed the amount of time such employees must spend working in-state from 80% to 60% for their employers to qualify for certain tax credits. This obligation to work a majority of the time in-state is an especially important consideration given the hybrid and work from home policies many businesses are embracing. A-5939 attempts to accommodate these long-term workforce changes triggered by the pandemic.
Emerge also sets forth minimum capital investment requirements. For industrial, warehousing, logistics, and research and development industries, the investment threshold is $60 per square foot of leasable space for new construction and $20 per square foot of leasable space for renovated buildings. For all other industries, the investment threshold is $120 per square foot of leasable space for new construction and $40 per square foot of leasable space for renovated buildings.
If a business meets these qualifications, it is eligible for tax credits between $500 and $4,000 per employee. Businesses can apply to the NJEDA, which began accepting applications in May 2021. No applications have been approved yet.
During the approval process, the NJEDA determines whether the capital investment resulting from the award and creation or retention of full-time jobs will yield a positive economic benefit. The net positive benefit to New Jersey must range from 200% to 400% of the award, depending on the location.
After completing the application and receiving approval from the NJEDA, the business has three years to submit evidence of compliance with the employment and investment requirements. The seven-year eligibility period begins when the NJEDA accepts certification that the requirements were met. A business may apply the credit to its corporate tax or premiums tax in the tax period in which the credit was issued or may carry the credit forward to any of the next seven tax periods.
Businesses that have an interest in potential job growth, innovation, or investment in New Jersey should consider whether their projects qualify for the Emerge program. This program is a clear inducement to cultivate and nurture your project and business in New Jersey. It is time for companies to take advantage of this new economic engine.