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Angels in the architecture

Despite the battle over tax incentives, the state manages to expand a program aimed at early tech investors

To say New Jersey lacks economic incentives is not entirely accurate.

Granted, the state’s biggest programs – the Grow New Jersey corporate tax breaks and the Economic Redevelopment and Growth gap financing grants for residential projects – have expired without replacements.

Both have awarded billions of dollars in grants and tax breaks in order to lure business into the state. Gov. Phil Murphy, a critic of the incentives, declined to sign a seven-month extension of the programs, as a task force he put together has suggested that the programs were really just government hand-outs for politically connected individuals. The governor is now locked in a political dispute with supporters of the program, including top legislative Democrats.

But on June 30, Murphy approved the expansion of a program aimed at enticing investors to back startup technology businesses that could set up shop in New Jersey.

Lawmakers created the program – Angel Investor Tax Credits – in 2013 by establishing a refundable credit worth up to 10 percent of an investment.

Under the expansion, the incentive is doubled to 20 percent, and can go up to 25 percent for investments into low-income communities, federal “opportunity zones,” or businesses owned by women or people of color.

The program was also expanded to $25 million, but tax breaks are still capped at $500,000 per investment per year.

Investments must go toward businesses with a physical presence in New Jersey, which specialize in emerging technology that “conducts research, manufacturing, or technology commercialization,” and have no more than 225 employees, at least 75 percent of whom must work in New Jersey.

The 20 percent tax break is guaranteed money: the investor will get it back even if their investment falls through.

“So as an example, the one company I invested $670,000 and received a tax credit of $67,000, so that was a nice incentive,” said Nascent Enterprises Founding Partner Tony Dimun, which made investments under the Angel program. “Would I have invested $670,000 or less without the credit? Who knows?”

The expanded program is effective immediately and applies to any investments made after Jan. 1, 2020. The nonpartisan Office of Legislative Services estimated in its June 24 fiscal note on the bill that businesses would likely use roughly $15 million in the expanded program, given that under the previous cap, the state awarded $10 million of credits.

Angel scorecard

The Economic Development Authority – which also runs Grow NJ, ERG and the state’s other incentive programs – oversees the Angel Investor Tax Credit program and will continue that oversight.

Tim Sullivan, CEO of the New Jersey Economic Development Authority. – DANIEL J. MUNOZ

According to the OLS, the EDA awarded $9.1 million under the program in 2016, $11.2 million in 2017 and $10.7 million in 2018.

Between the creation of the program in 2013 and May 31, 2019 the EDA approved 1,186 applications for 85 New Jersey-based businesses totaling at least $534 million, according to a July 10 statement.

“Innovation is what allows today’s emerging New Jersey-based companies to become tomorrow’s major New Jersey-based companies. It drives sustainable economic growth at a time when re-establishing New Jersey’s position as a national innovation leader is critical to building a stronger, fairer economy,” EDA Chief Executive Officer Tim Sullivan said in a statement.

“This is why the Governor’s comprehensive economic plan identified the expansion of the Angel Investor Tax Credit as an impactful way to support early-stage companies, and ensure New Jersey is home to innovative companies for years to come,” Sullivan added.

Indeed, Murphy’s economic master plan, which he unveiled in October, calls for creating a “State of Innovation” which targets certain industries such as life sciences, technology, clean energy and advanced manufacturing.

Assemblyman Andrew Zwicker. –

“New Jersey is striving to have an innovation economy,” said Assemblyman Andrew Zwicker, D-16th District, in a July 1 statement. “A key component of that economy is financial backing, especially for new businesses looking to be a part of that economy.” Zwicker sponsored the expansion bill in the Assembly.

“There are so many businesses that have the potential to be successful and to thrive,” added co-sponsor Assemblywoman Nancy Pinkin, D-18th District, in the same July 1 statement. “They just lack sufficient financial backing. This law is designed to help them in their efforts.”

Hart

The program would mean one less thing that venture capitalists considering investments in New Jersey would have to worry about, said Andrew Musick, vice president for government affairs at the New Jersey Business and Industry Association.

“New Jersey continues to lead the way in medical innovation – discovering and delivering new therapies and cures that are changing the lives of patients around the world,” said Debbie Hart, president and CEO of trade group BioNJ. “Programs and incentives such as the Angel Investor Tax Credit are core to ensuring that the State remains a global biopharmaceutical hub.”

Tailored incentives

The state has other incentive programs at its disposal, the majority of which are tailored to specific industries or projects.

Under NJ Ignite, for example, the EDA covers parts of the rent payments at collaborative workspaces or incubators for periods of two, four or six months for life science or technology startup companies.

New Jersey is striving to have an innovation economy. A key component of that economy is financial backing, especially for new businesses looking to be a part of that economy.
– Assemblyman Andrew Zwicker, D-16th District

The New Jersey film tax incentive program is aimed at attracting movie, television and digital media production. Murphy signed the program into law last year and it covers up to 30 percent of expenses for film production between 2019 and 2023, or 35 percent if the filming is in South Jersey.

Digital companies can apply for tax breaks up to 20 percent, or 25 percent if they set up shop in South Jersey. Film tax credits are capped at $75 million a year while digital media tax breaks are capped at $10 million a year.

Under the Brownfields and Contaminated Site Remediation Program, the EDA covers up to 75 percent of the costs of cleaning up contaminated and abandoned or underutilized properties, for the purpose of putting them back on the real estate market.

Another scheme, the Sales and Use Tax exemption program, is aimed at spurring redevelopment and revitalization by exempting businesses from sales tax for purchases associated with face-lifting the property—such as machinery, equipment and supplies.

Businesses must employ at least 1,000 people, 500 of whom would have to be working at the renovated facility.

The Technology Business Tax Certificate Transfer Program, or Net Operating Loss Program, which provided $1 billion of funding since its inception 20 years ago. NOL allows eligible companies to sell state net operating losses and unused R&D tax credits to unrelated profitable companies for cash, which can in turn be used to fund research or as working capital.

Daniel J. Munoz
Daniel Munoz covers politics and state government for NJBIZ. You can contact him at dmunoz@njbiz.com.

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