Recent New Jersey Program Allows Technology Businesses to Sell Tax Losses and Credits
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New Jersey.s Technology Business Tax Certificate Transfer Program allows new or expanding technology and biotechnology businesses to "sell" their unused net operating loss (NOL) carryovers and unused research and development tax credits to corporate taxpayers in the state for at least 75% of the value of the benefits. The "selling" technology business surrenders those benefits in exchange for a certificate which certifies their value. The certificate is then "sold" to the "buying" corporation, and the proceeds of the sale are used by the selling business for fixed assets, working capital and other expenses determined by the New Jersey Economic Development Authority (NJEDA) to be in conformance with the New Jersey Emerging Technology and Biotechnology Financial Assistance Act. The "selling" business must qualify as an emerging technology and/or biotechnology company, and the "buying" business must have its business or a portion of its business in New Jersey.
Procedure for Applicants
The Division of Taxation is considering several methods of calculating the value of the net operating loss and research and
development tax credit carryforwards. During the Division.s deliberations, NJEDA has issued a partial selling business application
to be used in making eligibility determinations. Once the Division of Taxation formally defines the valuation method for the
tax benefits, a full application package will be made available.
The "spending plan" must be submitted by the selling business. It must describe how the proceeds of the certificate sale will be used. The proceeds must be used to fund expenses incurred in connection with the operation of the emerging technology or biotechnology company in the State of New Jersey. The plan also must include a time frame during which the anticipated expenditures will be made.
When the full application is made available and is submitted, NJEDA will send a copy to the Division of Taxation. NJEDA and the Division of Taxation will evaluate the selling business to determine that it qualifies, and will also determine the estimated value of the tax benefits. The Division will then issue the Certificate to the selling business.
The selling business will report annually to NJEDA on its use of the proceeds of the sale of the tax benefits.
Those taxpayers who may be eligible for this unusual tax program should seek legal counsel to help evaluate how it may be used to provide the intended benefits.
© 1999 Riker Danzig Scherer Hyland & Perretti LLP