This month the New Jersey Economic Development Authority (the Authority) provided businesses with guidance, in the form of Frequently Asked Questions, on how to elect to have their unpaid Business Employment Incentive Program (the Program or BEIP) grants converted into tax credits pursuant to N.J. Rev. Stat. § 34:1B-129.
Under the Program, New Jersey awarded qualifying businesses cash grants for hiring new employees in the state for a term of up to 10 years. Since the Program’s inception in 1996, the Authority has executed 499 BEIP agreements valued at nearly $1.6 billion. However, since 2013, the New Jersey legislature has not funded the Program, and thus many businesses have not received grant payments owed by the state.
In January, Governor Christie signed P.L. 2015, c. 194 into law, permitting the voluntary conversion of outstanding BEIP grants into tax credits. The option to convert a BEIP grant to a tax credit is New Jersey’s attempt to provide relief to those businesses that have been awarded grants but have not received grant payments. The law, unfortunately, was short on details.
Businesses that wish to take advantage of the grant conversion must elect to convert the grant into a tax credit by July 11, 2016. Once the election is made, it is irrevocable.
Because a business cannot predict with any certainty whether the New Jersey legislature will fund the Program in future years, a business has to decide whether to opt to convert its grant. If a business does not elect to convert its grant, it risks losing all of its unpaid BEIP grants. On the other hand, if a business makes the election and the Program is funded in future years, the business will have no choice but to receive tax credits even though a cash payment might be more valuable to the business.
If a business elects to convert its grant commitments to tax credits, the credits will be issued over a period of years as set forth in the statute. This delayed payment means that the business will suffer an additional loss of money owed by New Jersey on account of the time value of money. The statute provides that the BEIP tax credit must be used in the designated years and may not be carried forward. The credit is a priority credit and should be applied before all other credits. Accordingly, it is important to consider whether the other credits claimed by a business are refundable when deciding whether to make the election and calculating the potential benefit of conversion.
In anticipation of the July 11, 2016, deadline for businesses to opt to convert their grant into a tax credit, the Authority has provided guidance on how to make the election. This guidance, as mentioned above, is informal and not a regulation. The guidance provides that to make the election, a business must submit an executed Amendment to Agreement. The form Amendments to Agreement for different tax types are available on the Authority’s website. Once a business opts to convert its grant into a tax credit, New Jersey will issue an annual certificate for the tax credit, which the business will attach to its return for that year to substantiate the BEIP tax credit. If a business has no tax liability in a particular year (before taking other tax credits into account), New Jersey will issue a cash refund in the amount of the certificate.
Pursuant to the Authority’s guidance, a business that is not filing corporate business tax in New Jersey must elect by the same deadline of July 11, 2016, whether to receive a tax credit transfer certificate. Such a business may apply for a tax credit transfer certificate and sell the credit for at least 75 percent of face value before considering present value adjustments. The purchaser of the credit may not sell to a third party.