Editor’s Note: The event chronicled in the article below is not taking place on April 16, 2009. It took place on April 16, 2008. Please disregard any information referring to the current date.
Long before the federal bailouts a New Jersey bailout was operating, if only on a small scale, as tax credits for high tech businesses. Take an unprofitable high tech company that is in the red and therefore not paying taxes. This red-ink company, by definition, has a cash flow problem. It needs cash now more than it needs to reduce its taxes in the future.
Then take a profitable black-ink company that is paying through the nose for high taxes. Let the black-ink company ease its tax burden by buying the tax credits of the red-inkers. A middleman brokers the deal, so that Mr. Black Ink ends up paying from 10 to 25 percent less than he would otherwise owe. The state government puts up some cash to make this happen.
It’s called the Technology Business Tax Certificate Transfer Program, and dozens of Princeton-area companies have been taking advantage of it for years.
But not everyone knows about it, so the state Economic Development Authority has a free workshop set for Wednesday, April 16, at 2 p.m. in the EDA offices at 36 West State Street, Trenton. Register at seminars.njeda.com or call 609-777-4880.
The state sets aside about $60 million for the tax credit program, called Net Operating Losses. In order for an unprofitable life science or technology company to sell tax credits on net operating losses for at least 75 percent of their value, the company must be expanding. It must have fewer than 225 employees, and have at least 75 percent of its workforce in New Jersey. The company also must have some technology and some intellectual property. It can use the cash for growth, operations, or research.
Other requirements: The company cannot be part of a conglomerate nor have a profitable parent (think college financial aid forms versus merit-based scholarships). But it must have merit. To qualify, it will own a scientific process, product, or service that is technically viable and “sufficiently innovative to provide a competitive advantage,” according to the rules.
The workshop will also include information about the research and development tax credits. Any good accountant will have informed the R&D entrepreneur about these, but the general idea is that researchers can leverage their expense sheets to qualify for two kinds of 10 percent tax credit allowances. Applications are due at the end of June.
The $60 million allocated for tax credits is about 10 percent of what EDA spends to support business growth and job creation. The EDA has also established the Edison Innovation fund, which leverages private capital with EDA funds of nearly $130 million to help support growing technology and life sciences businesses.