New Jersey-2024-S1035-Introduced

An Act concerning corporation business tax credits for research expenses and amending P.L.1993, c.175.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. Section 1 of P.L.1993, c.175 (C.54:10A-5.24) is amended to read as follows:

1. a. A taxpayer shall be allowed a credit, subject to the provisions of subsection b. of this section, against the tax imposed pursuant to section 5 of P.L.1945, c.162 (C.54:10A-5), in an amount equal to:

(1) [10%] 10 percent of the excess of the qualified research expenses for the privilege period over the base amount, or 15 percent of the excess of the qualified research expenses for the privilege period over the base amount if the taxpayer is primarily engaged in business in one or more targeted industries; and

(2) [10%] 15 percent of the basic research payments for the privilege period determined in accordance with section 41 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.41.

(3) Provided however, that the terms "qualified research expenses," "base amount," "qualified organization base amount period," "basic research" and any other terms determined by the Director of the Division of Taxation to affect the calculation of the credit shall include only expenditures for research conducted in this State. For privilege periods beginning on and after January 1, 2018, amounts paid or incurred by the taxpayer in carrying on any trade or business of the taxpayer during the privilege period, including as contributions, to an energy research consortium for energy research shall also qualify as a basic research payment for purposes of this subsection.

b. No credit shall be allowed under section 42 of P.L.1987, c.102 (C.54:10A-5.3), or under the "Manufacturing Equipment and Employment Investment Tax Credit Act," P.L.1993, c.171 (C.54:10A-5.16 et al.), or under P.L.1993, c.170 (C.54:10A-5.4 et seq.), for property or expenditures for which a credit is allowed, or which are includable in the calculation of a credit allowed, under this section.

The order of priority of the application of the credit allowed pursuant to this section and any other credits allowed by law shall be as prescribed by the director. Credits allowable pursuant to this section shall be applied in the order of the privilege periods for which the credits were allowed.

For privilege periods beginning before January 1, 2012, but before the effective date of P.L. , c. (pending before the Legislature as this bill), the amount of the credits applied under this section against the tax imposed pursuant to section 5 of P.L.1945, c.162, for the privilege period shall not exceed [50%] 50 percent of the tax liability otherwise due and shall not reduce the tax liability to an amount less than the statutory minimum provided in subsection (e) of section 5 of P.L.1945, c.162.

For privilege periods beginning on or after January 1, 2012, but before the effective date of P.L. , c. (pending before the Legislature as this bill), the amount of the credits applied under this section against the tax imposed pursuant to section 5 of P.L.1945, c.162, for the privilege period shall not reduce the tax liability to an amount less than the statutory minimum provided in subsection (e) of section 5 of P.L.1945, c.162.

For privilege periods beginning on or after January 1, 2018, but before the effective date of P.L. , c. (pending before the Legislature as this bill), the credit taken under this section shall not be refundable.

[The] For privilege periods beginning on or after the effective date of P.L. , c. (pending before the Legislature as this bill), the amount of credit otherwise allowable under this section which cannot be applied for the privilege period [due to the limitations of this subsection] against tax liability otherwise due for that privilege period may, at the election of the taxpayer, be carried over, if necessary, to the seven privilege periods following a credit's privilege period, or be claimed as and treated as an overpayment for the purposes of R.S.54:49-15, except that section 7 of P.L.1992, c.175 (C.54:49-15.1) shall not apply.

c. No provision terminating section 41 of the federal Internal Revenue Code, 26 U.S.C. s.41, shall apply.

d. For privilege periods beginning on and after January 1, 2020, the portion of qualified research expenses and qualified payments of a taxpayer that is a qualified small business within the meaning of section 41(h)(3) of the federal Internal Revenue Code (26 U.S.C. s.41) that were disallowed for the section 41(h) tax credit because the taxpayer made an election pursuant to sections 41(h) and 3111(f) of the federal Internal Revenue Code (26 U.S.C. s.41 and s.3111) to take the 3111(f) credit in lieu of the 41(h) credit, shall be allowed for the purposes of calculating the New Jersey credit provided for by this section.

e. As used in this section, "targeted industry" means any industry identified from time to time by the New Jersey Economic Development Authority, which industries shall initially include, but not be limited to, 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.

(cf: P.L.2020, c.118, s.10)

2. This act shall take effect immediately and shall apply to privilege periods beginning on or after the date of enactment.

STATEMENT

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.