NJ Angel Tax Credits Flowing Back to Investors

The New Jersey Angel Investor Tax Credit Program is providing benefits for New Jersey businesses and their investors…

Good news for investors in New Jersey businesses, regardless of where you live. The New Jersey Angel Investor Tax Credit Program is providing benefits for New Jersey businesses and their investors. Fourteen technology, life sciences, and clean energy businesses received a combined $12.3 million from 50 investments approved through the Program during the first half of 2020, according to the New Jersey Economic Development Authority (NJEDA).  I personally invested in an eligible tech company, and after some months received an authorized 10% credit on my investment.  In my personal experience, this Program proved to be efficient and uncomplicated for eligible companies and their investors, wherever the investors reside.  Hats off to the Governor!

“Re-establishing New Jersey’s historic leadership role in the innovation economy is one of Governor Murphy’s top priorities, and the Angel Investor Tax Credit Program’s augmented parameters help advance that goal by encouraging investment in emerging businesses,” NJEDA Chief Executive Officer Tim Sullivan said in a press statement. “We are excited to see more investors taking note of this attractive program and for the potential it brings for more precious capital to fuel the state’s innovation ecosystem.”

New Jersey’s Angel Investor Tax Credit Program

In these challenging economic times, angel investors can provide the capital needed to keep companies afloat and even reignite the economy. New Jersey seeks to attract angel investors to the state by providing a tax credit for a percentage of an angel investor’s investment in a qualifying emerging New Jersey technology or life science business.

The New Jersey Angel Investor Tax Credit Program specifically provides a refundable tax credit against New Jersey corporation business or gross income tax for qualified investments in an emerging technology or life sciences business with a physical presence in New Jersey that conducts research, manufacturing, or technology commercialization in the state. To be eligible for the program, businesses must have fewer than 225 employees, and at least three quarters of those employees must work in New Jersey. 

To qualify as an “emerging business” entities must have qualified research expenses paid or incurred for research conducted in the state; conduct pilot scale manufacturing in the state; or conduct technology commercialization in the state in the fields of advanced computing, advanced materials, biotechnology, carbon footprint reduction technology; electronic drive technology; information technology; life sciences; medical device technology; mobile communications technology; or renewable energy technology.

Meanwhile, qualified investments include non-refundable transfers of cash made directly to the New Jersey emerging technology business in connection with at least one of the following:

• Stock, interests in partnerships or joint ventures, licenses (exclusive or non-exclusive), rights to use technology, marketing rights, warrants, options, or any similar items, including but not limited to options or rights to acquire any of the listed; or
• A purchase, production, or research agreement.

To be considered non-refundable, these items must be held or not expire for at least two calendar years from the date of the transfer of cash, with an exception being made for initial public offerings (IPOs), mergers and acquisitions, damage awards for the business’s default of an agreement, or other return of initial cash outlay beyond the investor’s control.

Investors and Startups Benefiting from Recent Expansion

Last summer, Gov. Phil Murphy signed legislation into law that expanded the Angel Investor Tax Credit Program. Beginning January 1, 2020, investors have been able to receive a 20 percent tax credit (up from 10 percent) on eligible investments and an additional five percent bonus for investments made in a business located in a qualified opportunity zone, low-income community, or a business that is certified by the State as minority or women-owned.

According to the NJEDA, two first-time participants in the New Jersey Angel Tax Credit Program were the first to benefit from the newly-expanded program. Elucida Oncology was the first company to qualify for the expanded 20 percent tax credit under the enhanced program. The company, located in Monmouth Junction, focuses on clinical research, development and commercialization of technology to find, see, and treat an array of tumors.

Bark Biome, doing business as DIG labs, was the first company to receive two investments that were eligible for the additional five percent bonus for investing in a woman-owned business. Located in Lebanon, Hunterdon County, DIG labs is an individualized pet health-technology platform that also markets, manufactures and sells personalized canine supplements.

I invested in a Firm client last year, with its principal offices in New Jersey, engaged in technology commercialization in the fields of advanced computing and mobile communications technology.  I do not live or pay taxes in New Jersey because I work in the Firm’s New York office and live in Manhattan.  Although I received a credit of 10% of my investment, because I am a “foreign” investor and do not pay New Jersey taxes, the New Jersey Department of the Treasury will send me a check in full payment of that 10% of my investment.  I have to send in a few more forms to get that check than a New Jersey taxpayer investor would need to do, but I found it to be a simple process.  The Treasury staff provided cheerful and efficient direct personal help in processing my credit.    

Look for other states to follow the New Jersey incentive offer with their own versions.  Some other states already have less exciting, less efficient programs, but it is a sure bet that they will try to catch up in order to be competitive with New Jersey in the race to attract relatively small companies, their management and staff to their state.

New Jersey’s Angel Investor Tax Credit Program gets a highly positive vote of approval from this investor.  I recommend any eligible investor to apply.  But first, the New Jersey qualifying company must fill out and file a relatively uncomplicated extensive application itself with the Department.  Clearly worth the paperwork, with a 10% return to its investors from the State (15% if in an opportunity zone).  

If you have questions, please contact us

If you have any questions or if you would like to discuss these issues further,
please contact Dan Brecher or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.