Corrections or additions?
This article by Barbara Fox was prepared for the September 25, 2002 edition of U.S. 1 Newspaper. All rights reserved.
Buy/Sell Tax Credits
A record number — 165 — of high tech businesses
will earn a collective $40 million through New Jersey’s unusual Technology
Business Tax Certificate Transfer Program, as announced last week
by the New Jersey Economic Development Authority. In this program,
high tech businesses that are losing money can sell their unused tax
credits to profitable businesses for from 75 to 90 cents on the dollar.
The buyers save on their taxes and also get to pat themselves on the
back for encouraging technology in New Jersey.
A money-losing company that wants to qualify for tax transfercredits 2004 fiscal year must apply on or before June 30, 2003. Sucha company must have a new or expanding technology or a biotechnologybusiness with not more than 225 employees and at least 75 percentof its workforce in new Jersey. They can sell their research and developmentcredits or their Net Operating Losses (NOLs) to pay for the purchaseof equipment, facility expansions, or to pay salaries. These sellerscan apply multiple times for up to a cap of $10 million.It’s as if a minimum wage earner who pays no income tax could sellher deductions to someone in a high tax bracket. Technology companiescan take research and development tax credits to offset the nine percentcorporate tax, but young companies are so poor they aren’t payingthat tax. They sell the credit for at least 75 cents on the dollar.A money-making company that wants to buy this year’s tax transfercredits should move very quickly. Half of the buyers are generallyretailers and half are in the financial industry, but theoreticallyany company in any industry could be a buyer. The buyer does not needto be headquartered in New Jersey, though it will have a large taxliability here. The buyer pays at least 75 percent of the value ofthe credit but gets to take 100 percent off its state tax.This tax credit program has spawned a niche business for putting thebuyers and sellers together. Bruce Deichl founded the Tax TransferCorporation of New Jersey in Bernardsville (908-630-9575; fax, 908-630-0653,www.taxtransfer.com). A graduate of Notre Dame, Class of 1969,Deichl had worked at Marine Midland Bank, at Thompson McKinnon (amid-tier brokerage), and for the last half dozen years he took smallcompanies through reverse mergers.”When I was doing research for one company, I came across theinitial proposal for the tax certificate transfer program, saw itwas a win/win, and formulated my company the same day,” Deichlsays.The first year, he represented 31 of the 61 participating companies.Last year (the third year) he represented 82 of the 118 sellers. “Thisyear already, we have over 80 clients, and it’s climbing daily,”he says. “This is all we do — the buy/sell agreements, handlingthe escrow, executing the contracts, getting the certificates, andhandling the closings in each selling company’s office. We have neverfailed to sell a credit in a timely manner.””Last year we had about 14 buyers, and we did $25 million of the$40 million in credits. At this point we have a number of new buyers.This is the time for buyers to apply, because we are close to sellingwhat we have,” says Deichl.The Division of Taxation rules on the value of the tax loss or taxcredit benefit. The Commission on Science and Technology reviews theapplication for technology qualifications. Eligibility decisions aremade by the NJEDA. When a company’s application is approved, it getsa certificate showing the value of the tax benefit being exchanged,and this certificate is transferred to the buying company.For information about the Technology Business Tax Certificate TransferProgram or other financing alternatives from the NJEDA, call 609-292-0187(www.njeda.com). A list of the companies approved for this year’sprogram was not available at press time but can soon be obtained bycalling 609-341-2065. Last year’s sellers included Aesgen Inc. onResearch Way, Gynetics Inc. on Route 1 in Lawrenceville; HymedixInc., the hydrogel/drug delivery company in Dayton; and Morphochem/SmallMolecule Therapeutics at Princeton Corporate Plaza. Past buyers forthese credits have been the Bank of New York, PSE&G, Tiffany and Company,the New York Times Company, BNY Capital Markets Inc., Comcast Cablevisionof New Jersey, and Merrill Lynch Professional Clearing Corp.”This program serves as a model to other states on how to creativelysupport high tech companies that require financial assistance to growtheir business,” says Caren S. Franzini, executive directorof the EDA.”Even with the budget problems,” says Deichl, “the governmentwas smart enough to continue an exceptional program that, in the shortterm and the long term, will help the state.”The original goal for Governor Whitman,” says Deichl, “wasto expand our substantial biotech industry and on the tech side tobecome Silicon Valley East.”A number of companies, such as Integra Life Sciences on EnterpriseDrive and Liposome on Research Way, have turned the corner to profitability.Sometimes the turnaround came with an acquisition. “As soon asLiposome turned the corner for instance, they immediately got boughtout by Elan,” he says, “bringing international recognitionto the state.”— Barbara FoxPrevious StoryCorrections or additions?This page is published by PrincetonInfo.com— the web site for U.S. 1 Newspaper in Princeton, New Jersey.
