New Jersey Program Allows Technology Businesses to Sell Tax Losses and Credits


New Jersey's Technology Business Tax Certificate Transfer Program allows new or expanding technology and biotechnology businesses to "sell" their unused net operating loss (NOL) carryovers and unused research and development tax credits to corporate taxpayers in the state for at least 80% of the value of the benefits up to a maximum lifetime benefit of $15 million per business. The "selling" technology business surrenders those benefits in exchange for a certificate which certifies their value. The certificate is then "sold" to the "buying" corporation, and the proceeds of the sale are used by the selling business for fixed assets, working capital and other expenses determined by the New Jersey Economic Development Authority (NJEDA) to be in conformance with the New Jersey Emerging Technology and Biotechnology Financial Assistance Act. The "selling" business must qualify as an emerging technology and/or biotechnology company, and the "buying" business must have its business or a portion of its business in New Jersey.

The selling business will report annually to NJEDA on its use of the proceeds of the sale of the tax benefits. The funds raised through this program may be used to pay growth and operations expenses, including use as working capital or to fund research.

The program makes $60 million available annually with $10 million set aside for business located within "Innovation Zones." Any funds unused in this set aside revert to the general program pool.

Procedure for Applicants

A "spending plan" must be submitted by the selling business. It must describe how the proceeds of the certificate sale will be used. The proceeds must be used to fund expenses incurred in connection with the operation of the emerging technology or biotechnology company in the State of New Jersey. The plan also must include a time frame during which the anticipated expenditures will be made.

When the full application is made available and is submitted, NJEDA will send a copy to the Division of Taxation. NJEDA and the Division of Taxation will evaluate the selling business to determine that it qualifies, and will also determine the estimated value of the tax benefits. The Division will then issue the Certificate to the selling business.

Eligibility Requirements

  • Eligible companies must have filed for or have a license to use protected, proprietary intellectual property such as a patent or registered copyright.
  • Eligible companies cannot have had positive net operating income in either of its last two full-year income statements.
  • Eligible companies cannot be the subsidiary of a parent company with positive net operating income or be part of a consolidated group of affiliates for income tax purposes with positive net operating income.
  • Eligible companies must have at least:
    • one full-time employee working in New Jersey if incorporated within the past three years;
    • five full-time employees if incorporated in the past three to five years; and
    • ten full-time employees if incorporated more than five years previously.

Conclusion

Those taxpayers who may be eligible for this unusual tax program should seek legal counsel to help evaluate how it may be used to provide the intended benefits.