Senate Commerce Committee Statement to Senate, No. 2707 (State of New Jersey, December 19, 2022)

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Senate Commerce Committee Statement to Senate, No. 2707, State of New Jersey, dated December 19, 2022, reporting Senate Bill No. 2707 favorably. The bill makes several changes to the research tax credit under the corporation business tax. It increases the qualified research expenses tax credit from 10 percent to 15 percent for taxpayers primarily engaged in business in one or more targeted industries, and increases the basic research payments tax credit from 10 percent to 15 percent for all taxpayers. It also allows the credit to be refundable for privilege periods beginning on or after the date of enactment; under current law, the unused portion can be carried forward for seven privilege periods.

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     SENATE COMMERCE COMMITTEE

                    STATEMENT TO

                  SENATE, No. 2707

 STATE OF NEW JERSEY
                  DATED: DECEMBER 19, 2022

   The Senate Commerce Committee reports favorably Senate Bill
No. 2707.
   This bill makes several changes to the research tax credit
provided under the corporation business tax, including increasing
the qualified research expenses credit for taxpayers engaged in
targeted industries, increasing the basic research payments tax
credit for all taxpayers, and allowing the total credit to be
refundable.
   Under current law, a corporation business taxpayer may receive a
research tax credit in an amount equal to (1) 10 percent of the
excess of qualified research expenses for the privilege period over
the base amount; and (2) 10 percent of the basic research payments
for the privilege period.
   This bill increases the qualified research expenses tax credit
from 10 percent to 15 percent for taxpayers who are primarily
engaged in business in one or more targeted industries. For the
purpose of calculating the qualified research expenses tax credit, the
base amount is determined based on a fixed percentage of the
taxpayer’s average annual gross receipts. Qualified research
expenses are also defined to include the sum of in-house research
expenses and contract research expenses that are paid or incurred
during the privilege period.
   Under the bill, the New Jersey Economic Development Authority
would be responsible for periodically identifying a list of targeted
industries. However, the bill requires the initial list of targeted
industries to 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.
   Additionally, the bill increases the basic research payments tax
credit from 10 percent to 15 percent for all taxpayers. State
regulations define basic research payments to include cash
payments provided by a corporation to qualified organizations (e.g.,
institutions of higher education, certain scientific research
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organizations, and certain scientific tax-exempt organization) for
the performance of basic research. Under state regulations, the
credit is calculated based on the provisions of section 41 of the
federal Internal Revenue Code of 1986 (26 U.S.C. s.41), as in effect
on June 30, 1992.
   The bill also allows the research tax credit to be refundable for
privilege periods beginning on or after the date of enactment.
Under current law, the research tax credit cannot be refunded, and
taxpayers are permitted to carry forward the unused portion of the
credit for seven privilege periods. Under the bill, a taxpayer may
instead elect to receive the unused portion of the credit as a tax
refund, or carry forward the unused credit. When a tax credit is
refundable, the State is required to provide the taxpayer with a cash
payment in the amount of the unused credit, which represents an
overpayment of tax.


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