NJ Angel Investor Tax Credit ProgramSeptember 7, 2016
The New Jersey Economic Development Authority (NJEDA) is offering all investors who invest in a qualifying NJ emerging technology business a tax credit through the Angel Investor Tax Credit program.
NJEDAThis program was enacted in January of 2013 to help attract investments, and spur job creation / economic growth in New Jersey’s current and next generation of high-skilled, high- paying emerging technology sector.
The program offers a 10% refundable tax credit to investors in eligible NJ emerging technology companies. These companies have a broad definition which is detailed below.
The refundable tax credit can be up to 10% of the qualified investment, up to a maximum credit of $500,000 for each qualified investment. Note this credit is for each qualified investment, so investors can enjoy multiple credits.
Because this is a refundable tax credit – Investors do not need to be NJ residents nor have any NJ tax liabilities in order to take advantage of this program. However, the investor is required to file NJ taxes in order to gain the credit.
While the name of the program says “Angel Investors” this credit is available to all investors, including corporations, venture capital funds, and even company founders (provided they own less than 80% of the company).
Note that the NJEDA in consultation with the Director of the Division of Taxation will approve taxpayer applications for the credit. There is a $25 million cap annually on all credits that the NJEDA will approve.
NJ TECHNOLOGY COMPANY ELIGIBILITY CRITERIA
NJ EntrepreneursNJ emerging technology businesses that employ fewer than 225 employees, at least 75% of whom must work full-time in New Jersey.
Does business, employs or owns capital or property, or maintains an office in NJ.
Conducts at one of the following activities in New Jersey:
Incurs qualified research expense in the state.
Conducts pilot scale manufacturing in the state.
Is involved in one or more of the following eligible technologies in NJ: Advanced Computing, Advanced Materials, Biotechnology, Electronic Devices, Information Technology, Life Sciences, Medical Devices, Mobile, Communications and Renewable Energy Technology.
Has an eligible technology as its primary business-focus.
Qualified investments include non-refundable transfers of cash made directly to the NJ emerging technology business in connection with at least one of the following items:
Stock, interests in partnerships or joint ventures, licenses, rights to use technology, marketing rights, warrants, options or any similar items.
Purchase, production or research agreement.
To be considered non-refundable, these items must be held or not expire for at least two calendar years from the date of transfer of cash, with an exception being made for initial public offerings (IPOs), mergers and acquisitions, damage awards for the business’ default of an agreement, or other return of initial cash outlays beyond the investor’s control.
HOW THE CREDITS WORK
Credits may be treated as an over-payment and refunded (but no interest on the over-payment will be paid.), For corporate taxpayers, the tax credits may be carried over up to 15 tax years following the tax year for which the credit was allowed. Individuals cannot carry-forward the tax credits.
Credits may not be carried forward in a tax year in which the taxpayer was a target for corporate acquisition or in which the taxpayer was party to a merger or consolidation unless the taxpayer can demonstrate to the New Jersey Division of Taxation the identity of the acquiring corporation.
Credits may be claimed on the taxpayer’s New Jersey tax return in the tax year applicable to the effective date of approval.
Application fee (non-refundable):
$500 for investment amounts of $50,000 or less
$1,000 for investment amounts over $50,000
Approval fee for qualified investments over $50,000
5% of the amount of the tax credit or $2,500, whichever is greater. The application fee is credited toward the approval fee.
Applications for this tax credit are filed online. There are two portions that need to be completed, one by the investor and one by the NJ technology company. The investor is required to pay the application fee and submit the application.
THE FINE PRINT
NJ 1040 NROut of state / non- NJ resident investors should consult with their tax advisors about potential NJ tax liabilities. Note that investors who are C corporations, S corporations, multi-member LLCs, and irrevocable trusts will be required to file a NJ business registration and obtain a NJ tax clearance certificate in order to take advantage of the tax credit.
A final twist is that the NJ – 1040 Tax Return form does not provide a line to take the Angel Investor Tax Credit. In order to obtain this credit you must first file your NJ tax return, then send in your NJ-1040 return along with the original State of New Jersey Angel Tax Credit Program Certificate.
There are also fees associated with this program: $500 for investments of $50K or less, and $1,000 for investments of more than $50K. There is also an approval fee for qualified investments over $50K which 5% of the amount of the tax credit or $2,500, whichever is greater. Good news: the application fee is credited towards the approval fee.
This material has been prepared for general informational and educational purposes only and is not intended, and should not be relied upon, as accounting, tax or other professional advice. Please refer to your advisors for specific advice.