New Jersey Governor Chris Christie recently signed legislation which provides for a tax credit against corporation business tax and personal income tax for angel investor cash invested in companies engaged in emerging technology businesses in the state. The credit is equal to 10% of a taxpayer’s qualified investment in the company, up to a maximum allowed credit of $500,000 annually for each qualified investment. The tax credit is available for periods beginning on or after January 1, 2012.
Individual investors may apply the tax credit towards their New Jersey personal income tax liability. Even better, the State will issue a refund to the individual investor for the excess credit. Corporate investors can also request a refund of any excess credit or choose to have the credit carried forward for a period of 15 years.
Which Businesses Qualify for the Credit:
In order for an investor to qualify for the credit, the investment must be made in an “emerging technology business” which is defined as a company with less than 225 employees, of whom at least 75% are filling a position in New Jersey, that is doing business, employing or owning capital or property, or maintaining an office in this State and: (1) has qualified research expenses paid or incurred for research conducted in this State, (2) conducts pilot scale manufacturing in this State, or (3) conducts technology commercialization in New Jersey in the fields of:
- "Advanced computing" means a technology used in designing and developing computing hardware and software, including innovations in designing the full spectrum of hardware from hand-held calculators to super computers, and peripheral equipment.
- "Advanced materials" means materials with engineered properties created through the development of specialized processing and synthesis technology, including ceramics, high value-added metals, electronic materials, composites, polymers, and biomaterials.
- "Biotechnology" means the continually expanding body of fundamental knowledge about the functioning of biological systems from the macro level to the molecular and sub-atomic levels, as well as novel products, services, technologies and sub-technologies developed as a result of insights gained from research advances which add to that body of fundamental knowledge.
- "Electronic device technology" means a technology involving microelectronics, semiconductors, electronic equipment, and instrumentation; radio frequency, microwave, and millimeter electronics; optical and optic-electrical devices; or data and digital communications and imaging devices.
- "Information technology" means software publishing, motion picture and video production, television production and post-production services, telecommunications, data processing, hosting and related services, custom computer programming services, computer system design, computer facilities management services, other computer related services, and computer training.
- "Life sciences" means the production of medical equipment, ophthalmic goods, medical or dental instruments, diagnostic substances, biopharmaceutical products, or physical and biological research.
- "Medical device technology" means a technology involving any medical equipment or product (other than a pharmaceutical product) that has therapeutic value, diagnostic value, or both, and is regulated by the federal Food and Drug Administration.
- "Mobile communications technology" means a technology involving the functionality and reliability of transmission of voice and multimedia data using a communication infrastructure via a computer or a mobile device, that shall include but shall not be limited to Smartphones, electronic books and tablets, mp3 players, motor vehicle electronics, home entertainment systems, and other wireless appliances, without having connected to any physical or fixed link.
- “Renewable energy technology” means a technology involving the generation of electricity from solar energy; wind energy; wave or tidal action; geothermal energy; the combustion of gas from the anaerobic digestion of food waste and sewage sludge at a biomass generating facility; the combustion of methane gas captured from a landfill; and a fuel cell powered by methanol, ethanol, landfill gas, digestor gas, biomass gas, or other renewable fuel but not powered by a fossil fuel.
Additionally, the emerging technology company must:
- have qualified research expenses paid or incurred for research conducted in New Jersey,
- conduct pilot scale manufacturing in the state; or
- conduct technology commercialization in the state in the fields of advanced computing, advanced materials, biotechnology, electronic device technology, information technology, life sciences, medical device technology, mobile communications technology, or renewable energy technology.
Investments that qualify for the tax credit must be a non-refundable cash investment to a New Jersey emerging technology business (meeting the above requirements) where the investor is NOT a related person (meaning 80% or more control, direct or indirect). The investment must be made in connection with either 1) a transaction in exchange for stock, partnership interests/joint ventures, licenses, rights to use technology, marketing rights, warrants, options or any type of similar items; or 2) a purchase, production or research agreement.
Please contact your Marcum State and Local Tax professional if you have questions or need additional information about this beneficial tax credit.