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New Jersey Enacts Tax Incentive Law to Spur Economic Development

Real Estate Alert

Authors: Thomas M. Letizia and Cynthia Anne DeLisi

1/13/2012

On January 6, 2012, New Jersey Gov. Chris Christie signed into law S-3033, the Grow New Jersey Assistance Act. It takes effect immediately. The legislation’s intent is to encourage economic growth and job creation and to retain jobs that are in danger of being relocated out of the state by offering tax credit incentives to qualified businesses through a new program called the Grow New Jersey Assistance Program administered by the New Jersey Economic Development Authority (EDA). The objective of the program is to provide areas of New Jersey not presently eligible for credits under the Urban Transit Hub Tax Credit (UTHTC) program with similar tax incentives in order to promote expansion of existing businesses and to attract new business facilities that will generate employment. The Act authorizes the EDA to issue up to $200 million in Grow New Jersey tax credits that will come out of the $1.5 billion tax credit cap previously allocated under the 2008 Urban Transit Hub Tax Credit Act. This was done in order to avoid having the state incur additional debt to fund the program. S-3033 also expands the eligibility requirements for the Urban Transit Hub Tax Credit program in the nine UTHTC cites. Below is a summary of the major aspects of the new law.

Grow New Jersey Assistance Program

Under the Grow New Jersey Assistance Program, a business can receive an annual tax credit for (i) making, acquiring or leasing a minimum $20 million capital investment in a business facility in a qualified incentive area; and (ii) at that business facility retaining at least 100 full-time positions with health benefits in New Jersey or creating at least 100 new full-time positions with health benefits in an industry that EDA identifies as desirable to maintain or attract. Tax credits will be awarded upon demonstration that (i) the project yields a positive fiscal net benefit to the state, (ii) the issuance of the tax credit is a material factor in the business’s decision to create or retain eligible full-time employees, (iii) the project does not involve a point-of-final purchase retail facility, and (iv) the business applies for the credit prior to July 1, 2014. Regardless of these restrictions, the EDA is given authority to exempt at its discretion from the “material factor” requirement businesses satisfying all other eligibility criteria if the business is required to respond to requests for proposals and to fulfill a contract with the federal government and if the application for a tax credit is submitted by March 31, 2012.

To qualify for a tax credit the business must locate in a qualified incentive area. A “qualified incentive area” is defined in the law as (a) an area designated for development, redevelopment or economic growth in the Highlands, Meadowlands or Pinelands; (b) Fort Monmouth; (c) areas designated Planning Area 1 (Metropolitan), Planning Area 2 (Suburban) or any urban, regional or town-designated center under the State Development and Redevelopment Plan; or (d) any property consisting of a vacant commercial building with more than 400,000 square feet of office, laboratory or industrial space available for occupancy for more than a one-year period or that is negatively impacted by the approval of a qualified business facility under the Urban Transit Hub Tax Credit Act. This latter category of an eligible incentive area was created to assist those areas affected by businesses electing to move from their more suburban locations to one of the UTHTC cities to take advantage of credits under the UTHTC program. This happened with Goya and Panasonic, with these companies relocating their operations (and 1,200 jobs) out of Secaucus to Jersey City (in the case of Goya) and Newark (in the case of Panasonic).

The Grow New Jersey credit equals ten annual installments of $5,000 for each full-time position created or retained so long as the number of new full-time employees for which a business receives a tax credit does not exceed the number of retained full-time jobs for which a business obtains a credit, unless the business qualifies by creating at least 100 new full-time positions in an industry identified by the EDA as desirable for the state to attract.

The annual tax credit amount may be increased to $8,000 if (i) the business operates in a desirable industry designated by EDA; (ii) the business is in proximity to a qualified investment area adjacent to or within walking distance or short-distance-shuttle service of a public transit facility; (iii) the full-time jobs created involve salaries in excess of New Jersey’s average full-time salary, or (iv) the qualified incentive area would be negatively affected by the approval of a qualified business facility under the Urban Transit Hub Tax Credit Act.

A total tax credit award cannot exceed the value of a project’s certified capital investment. The investment may include expenses incurred for site preparation and construction, repair, renovation, improvement, equipping, or furnishing of a building structure or improvement to property and installing equipment and machinery for the operation of the business at the property. A business that acquires or leases a qualified business facility shall be deemed to have acquired the capital investment made or acquired by the seller or landlord, as the case may be, subject to certain limitations. If a business does not have sufficient tax liability against which to offset the tax credit, the business may carry any unused balance forward for 20 years or sell it to another taxpayer. The tax credit may be reduced or revoked if the business fails to meet its New Jersey full-time employment target as set forth in its tax credit agreement with EDA.

Eligible businesses will enter into an agreement with the EDA detailing the proposed business project, the term of the tax credits, reporting procedures, and a requirement that the business remain in New Jersey for at least one and one-half times the number of years of the term of the tax credit. The state may recapture the credit in the event of an early departure. All investment and job creation requirements must be met by July 28, 2017.

EDA is also required to adopt regulations containing standards by which qualified business facilities shall be constructed or renovated based on the green building manual prepared by the Commissioner of the Department of Community Affairs pertaining to use of renewable energy and non-renewable resources.

Expansion of Eligibility for Urban Transit Hub Tax Credit

S-3033 also amends the Urban Transit Hub Tax Credit Act to expand the definition of “urban transit hub” to include projects commencing construction after the effective date of the bill that are located within a 1/2 mile walking distance of Newark Liberty International Airport (except for property within the area owned or controlled by the Port Authority of New York and New Jersey) and within a one-mile radius of a rail or light rail station that is subject to a Choice Neighborhoods Transformation Plan (currently the only Choice Neighborhood is in Jersey City). In addition, the law makes Urban Transit Tax Hub credits available to acute care medical facilities and closed hospitals located within a one-mile radius of a rail or light rail station, i.e., a NJ Transit, PATH or PATCO station.

In order to qualify for a credit of up to 100 percent of the investment under the UTHTC program, a capital investment in real property must equal a minimum of $50 million and create at least 250 full-time jobs. The bill clarifies that a business claiming a credit must first receive EDA certification, rather than approval, and that the business meet the capital improvements and employment requirements of the UTHTC program prior to claiming the credits.

By expanding the availability of business tax credit incentives to more areas of the state, there is cautious optimism the Grow New Jersey Assistance Act will lead to an economic resurgence within the state. Questions concerning the new law may be directed to the authors.

Thomas M. Letizia and Cynthia De Lisi Smith

The material in this publication was created as of the date set forth above and is based on laws, court decisions, administrative rulings and congressional materials that existed at that time, and should not be construed as legal advice or legal opinions on specific facts. The information in this publication is not intended to create, and the transmission and receipt of it does not constitute, a lawyer-client relationship.