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NJ Kicks Off Business Tax Credit Program

By James Nani · May 14, 2021, 7:02 PM EDT

New Jersey's economic development board opened its new business tax credit program to encourage small and large businesses to invest private capital into the state and create jobs.

The board of the New Jersey Economic Development Authority on Wednesday approved the creation of the Emerge program, which state leaders passed several months ago as part of the Economic Recovery Act of 2020 . The board also approved short-term rules for Emerge to allow the agency to start accepting program applications, the agency said.

Democratic Gov. Phil Murphy, in a release, said the tax incentive program is even more important as the state begins its economic recovery from the coronavirus pandemic. 

"The Emerge program is a well-crafted, targeted tax incentive program that will drive job creation and equitable economic growth throughout New Jersey," Murphy said.

The program allows tax credits for new jobs created or the retention of existing employees for up to seven years, the release said. It will offer tax credits starting between $500 to $4,000 per job, per year, depending on the location and other aspects of the potential project, a summary said. There's also tax credit bonuses of up to $8,000 per job if projects meet various benchmarks such as location and type of industry, according to the summary.

New Jersey's $14 billion tax incentive overhaul enacted in January created and expanded a slate of new tax break programs, including two new programs, Aspire and Emerge, to replace the state's expired Economic Redevelopment and Growth Grant Program and the Grow New Jersey Assistance Program. The expired programs had drawn scrutiny for shortcomings in oversight.

To be eligible for the Emerge program, businesses would have to create a minimum of 35 full-time jobs, or 25 jobs for certain targeted industries, according to a summary of the program. Small businesses, as defined under the program, would not have to create a minimum number of jobs but show 25% job growth by the end of a designated period, the summary said.

Targeted industries for the program include professional services, finance and insurance, advanced manufacturing, transportation or logistics, information and high technology, life sciences and clean energy, according to the summary.

Eligible businesses would have to be located in certain areas of New Jersey and meet capital investment requirements.

Employees under the program would be required to spend at least 80% of their work time in New Jersey, a summary said, with 80% of tax withholdings of new and retained full-time jobs subject to the state's gross income tax. 

Ted Zangari, a real estate attorney with Sills Cummis & Gross PC, told Law360 on Friday that under the Grow New Jersey program, an employee was required to work at a qualified business facility 80% of the time to be eligible for an award. The rules for Emerge require the employee to spend 80% of the work week, 35 hours, anywhere in New Jersey.

"I'm pleased that NJEDA has recognized the likely post-pandemic increase in work-from-home or work offsite activity," Zangari said. "The additional flexibility will be welcomed by corporate site selectors."

New Jersey's previous $11 billion corporate tax incentive programs expired after drawing scrutiny, criticism, litigation and political battles. The programs came under fire for handing out hefty incentives despite oversight shortfalls. Widespread scrutiny of the New Jersey Economic Development Authority followed an audit revealing the agency was failing to properly track job creation benchmarks and other requirements of the agency's tax incentive programs.

Businesses in the new program also would need to show tax credit awards were a "material factor" in their decision to create or retain required jobs. The criteria were a significant talking point during hearings of a high-profile task force launched by Murphy to investigate the state's expired tax incentive programs. The task force heard the programs were riddled with unclear internal compliance standards, consultants' dishonest tax break claims and lax oversight.

The former programs were suspended in August 2019, when Murphy conditionally vetoed a bill that would have renewed the incentives because he said the return on investment was unacceptable and the ability for well-connected interests to exploit the programs was "shameful." 

Michael Egenton, executive vice president of government relations for the New Jersey Chamber of Commerce, told Law360 on Friday that the group was happy the program is moving forward, but there are still some gray areas based on interpretation of statutes that may need to be addressed by the state Legislature. 

"We're going to see if we can also get some changes legislatively to make a good program even better," Egenton said.

--Additional reporting by Paul Williams, Maria Koklanaris and Abraham Gross. Editing by Neil Cohen.

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