Pending New Jersey Bill Would Pave Way for Enhanced R&D Tax Credits

Late last month, the New Jersey Senate Commerce Committee voted unanimously to advance Bill S2707, which aims to fuel innovation by increasing the state’s Research and Development (R&D) tax credit effective rate from 10% to 15% and by allowing the tax credits to be refundable. Refundable credits allow smaller companies without any income tax liability to receive an immediate benefit. The measure will now move to a full Senate vote. This bill is designed to make the New Jersey R&D tax credit more competitive with prominent innovation states such as Massachusetts and California.

New Jersey’s R&D tax credit is available to corporations for utilization against their corporation business tax liability. However, the pass-through of the R&D tax credits to individual shareholders of an S corporation is not permitted. The New Jersey R&D tax credit is calculated in a manner similar to the federal R&D tax credit, except that qualifying expenses must be incurred within the State of New Jersey.

Under the pending legislation, the New Jersey Economic Development Authority (NJEDA) would be responsible for periodically identifying a list of targeted industries, which currently includes advanced transportation and logistics, manufacturing, aviation, autonomous 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 such as food innovation. While this is a broad range of industries and sectors, it is unclear if some companies currently claiming the R&D credit may lose eligibility as a result of the targeted industries approach.

For more information on the pending legislation, you can access the bill via the following link: https://www.njleg.state.nj.us/bill-search/2022/S2707/bill-text?f=S3000&n=2707_I1

To discuss this bill and other matters of importance related to the R&D tax credit, contact Yair Holtzman, Tax Partner and Leader of Anchin’s R&D Tax Credits Practice Group, or your Anchin Relationship Partner.