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

Summary

A Senate Commerce Committee statement to the Senate on Senate Bill No. 2707, State of New Jersey, dated December 19, 2022, reporting the bill favorably. The bill changes the research tax credit under the corporation business tax, raising the qualified research expenses credit from 10 percent to 15 percent for taxpayers primarily engaged in targeted industries and the basic research payments credit from 10 percent to 15 percent for all taxpayers. The New Jersey Economic Development Authority would identify targeted industries, with an initial list including manufacturing, aviation, clean energy, life sciences, and film and digital media. The credit would become refundable for privilege periods beginning on or after enactment, where current law allows only a carry 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
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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