New Jersey modifies provisions applicable to certain tax credit transfers
Multistate Tax alert | February 6, 2018
This tax alert summarizes these law changes, which are effective January 16, 2018.
- Exclusion of gain from sale of tax credit
- Extension of time to use tax credit
- Exemption for sale or assignment of the tax credit to affiliates
January 16, 2018, Governor Christie signed Senate Bill 3305 (S3305),1 modifying New Jersey’s tax credit transfer provisions under the Grow New Jersey Assistance Act and the Public Infrastructure Tax Credit Program as follows:
- Gain or income derived from the sale or assignment of certain tax credit transfer certificates is excluded from New Jersey income.
- The period for transferees to use the credit is extended from three years to twenty years.
- The sale or assignment of a tax credit transfer certificate to an affiliate is exempted from the 75 percent measure of consideration.
The changes provided by S3305 relate only to tax credit transfer certificates received pursuant to the Grow New Jersey Assistance Act and the Public Infrastructure Tax Credit Program.
Exclusion of gain from sale of tax credit
S3305 adds provisions excluding the gain or income derived from the sale or assignment of a tax credit transfer certificate from entire net income and gross income, thus exempting such gain from New Jersey taxation for C corporations, S corporations, and partnerships.2
Extension of time to use tax credit
Prior to S3305, taxpayers to whom credits had been transferred were required to use the transferred tax credit amount only in the period for which it was transferred or in any of the next three successive tax periods.3 Pursuant to S3305, the transferred tax credit amount can be used in the period for which it was issued or in any of the next twenty successive tax periods, making the period for utilization identical to the period permitted for the original tax credit certificate holder.4
Exemption for sale or assignment of the tax credit to affiliates
Prior to S3305, the sale or assignment of any amount of a tax credit transfer certificate could not be for less than 75 percent of the transferred credit amount.5 S3305 exempts the sale or assignment of tax credit transfer certificates to affiliates from this requirement.6 The bill effectively permits transfer to any affiliate for an amount less than 75 percent of the transferred credit amount regardless of whether that affiliate was party to the original incentive agreement.7
The enactment of S3305 provides taxpayers with additional flexibility in monetizing benefits provided under certain of New Jersey’s economic development incentive programs. Eligible taxpayers participating in either the Grow New Jersey Assistance Act or the Public Infrastructure Tax Credit Program should consult with their tax advisers if they are considering transferring or receiving such tax credits.
If you have questions regarding S3305 or other New Jersey tax matters, please contact any of the following Deloitte Tax professionals:
Charles Ruby, managing director, Deloitte Tax LLP, Parsippany, +1 973 602 6247
Norman Lobins, managing director, Deloitte Tax LLP, Parsippany, +1 973 602 5373
Gina Giordano, manager, Deloitte Tax LLP, Jersey City, +1 201 630 5084
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1 Laws 2017, S3305, P.L., c.313. A copy of the adopted law is accessible here.
2 S3305, Page 19, Lines 3-6; Page 22, Lines 28-32; Page 25, Lines 1-4, 16-20.
3 NJ Stat. Ann. § 34:1B-247(c) and § 34:1B-251(d)(2).
4 S3305, Page 3, Lines 22-23.
5 NJ Stat. Ann. § 34:1B-248 and § 34:1B-251(d)(2).
6 S3305, Page 6, Lines 29-33; Page 8, Lines 38-41.
7 S3305, Page 6, Lines 29-33; Page 8, Lines 38-41.