Grow New Jersey: A modern day case study in job attraction and retention
Credits & Incentives talk with Deloitte
“Credits & Incentives talk with Deloitte,” is a monthly column by Kevin Potter of Deloitte Tax LLP, featured in the Journal of Multistate Taxation and Incentives, a Thomson Reuters publication. The June 2017 edition authored by Charles Ruby and Gina Giordano focuses on the Grow New Jersey Assistance program (Grow NJ), and how it demonstrates some of the ways a state may look to create and retain jobs in a competitive landscape.
While the federal government's focus on keeping jobs in the United States is a topic that continues to receive significant media coverage, state and local governments have been committed to job retention and growth for a long time. One of the earliest examples in US history of an effort aimed at incentivizing business development took place in New Jersey. In November 1791, Governor William Paterson signed an act into law that created a tax-free environment for manufacturers, while allowing their employees an exemption from military duty (except in the case of actual invasion).1 This resulted in increased manufacturing activity that was one of the factors that led to the establishment of the City of Paterson.2
Today, just as it was over 200 years ago, New Jersey is one of many states competing for the next generation of companies and qualified talent to propel both the national and the local economy forward. In fact, Paterson, the same city which was spurred by the creation of a tax-free zone in the 1791 act, is one of five New Jersey cities that receives the most preferential treatment under one of New Jersey's newest economic development initiatives, the Grow New Jersey Assistance program (Grow NJ). Grow NJ demonstrates some of the ways a state may look to create and retain jobs in a competitive landscape.
Grow NJ program—incentive transferability is a significant feature
The Grow NJ program offers discretionary tax credits to businesses across various industries that meet broad eligibility criteria. A key component of the program is the transferability of credits, details of which were outlined in the March/April edition of this column.3 Businesses are allowed to sell unused credits to other taxpayers, thus allowing start-up companies, for which cash flow is a premium and is often a source of job growth, and other companies with low or no tax liability the ability to more effectively capitalize on the Grow NJ program. Providing businesses the flexibility to sell unused credits for cash is not a new concept either for New Jersey or for other states, but the increased marketability of the credit is a feature that adds to its overall effectiveness.4
Although the program provides discretionary credits and requires a lengthy application and pre-approval process, the benefit calculation is formulaic (discussed further below), giving it the feel of a statutory credit. Companies can typically arrive at an accurate estimate of the value of the Grow NJ incentive associated with economic development well in advance of the application process, providing a valuable cost comparison for businesses weighing various out-of-state candidate sites.
For New Jersey's part, the return on investment can be calculated in advance, in order to determine if the credit package being awarded will yield at least an 110 percent net positive economic benefit to the state over a period of 20 years.5 There is also a system of checks and balances in place to ensure a company meets its employment and capital investment commitments. The rules allow for full or partial recapture in those instances where performance-based criteria have not been met.6
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1 Joseph J. Seneca, James W. Hughes and George R. Nagle, An Assessment of the New Jersey Business Employment Incentive Program, at p. 1 (July 27, 2004); http://www.state.nj.us/treasury/pdf/beip.pdf.
2 Id. at p. 1.
3 Kevin Potter, Marcus Panasewicz and Crystal Nicholas, Transferable state tax credits and incentives—an important element of tax planning, 27 JMT 40 (March/April 2017).
4 For example, New Jersey allows for the sale of net operating losses by certain eligible taxpayers. New Jersey Emerging Technology and Biotechnology Financial Assistance Act, N.J. Stat. Ann. § 34:1B-7.37 et seq.
5 N.J. Stat. Ann. § 34:1B-244(a)(3). (Adjusted to 100 percent and a longer duration in some areas).
6 Recapture provisions are detailed in the company specific incentive agreement.