LEGISLATIVE FISCAL ESTIMATE
[First Reprint]
SENATE, No. 3189
STATE OF NEW JERSEY
221st LEGISLATURE
DATED: JANUARY 27, 2025
SUMMARY
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Synopsis: |
Increases amount of tax credits for investments made in certain technology business ventures under the “New Jersey Angel Investor Tax Credit Act.” |
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Type of Impact: |
Annual State revenue loss. Increase in local revenues. |
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Agencies Affected: |
Department of the Treasury. New Jersey Economic Development Authority. |
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Office of Legislative Services Estimate |
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Fiscal Impact |
FY 2027 & Thereafter |
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State Revenue Loss |
Maximum of $15.2 million to $15.7 million |
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Local Revenue Increase |
Indeterminate |
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· The Office of Legislative Services (OLS) estimates that the State may incur a maximum annual revenue loss of $15.2 million to $15.7 million as a result of this bill. Under current law, the Angel Investor Tax Credit Program has an annual cap of $35 million. The bill increases the value of tax credits that may be awarded for qualified investments through the program; it does not increase the limit on total annual awards.
· Information published in the New Jersey Economic Development Authority’s annual reports shows that the authority awarded $113.7 million in Angel Investor Tax Credits during the 10-year period from calendar year 2014 through calendar year 2023, incentivizing $996.4 million in qualified investments during that time.
· To the extent that additional investments in emerging technology business ventures resulting from the bill spur greater economic activity, the State and local governments could benefit from increased tax revenues. However, the magnitude of these revenues cannot be determined.
BILL DESCRIPTION
The bill increases the amount of the tax credit provided under the New Jersey Angel Investor Tax Credit Act for a qualified investment made in a New Jersey emerging technology business venture.
Under current law, a taxpayer is allowed a credit against the gross income tax and the corporation business tax in an amount equal to 20 percent of a qualified investment made by the taxpayer in a New Jersey emerging technology business or a qualified venture fund. A taxpayer may be allowed a tax credit of 25 percent of the qualified investment if the emerging technology business is: (1) located in an opportunity zone or low-income community, as defined by federal law; or (2) is certified by the State as a minority business or women’s business, and in the case of a qualified venture fund, commits by contract to invest 50 percent of its funds in diverse entrepreneurs. The tax credit is capped at $500,000 for each qualified investment and the total amount of tax credits that may be approved through the program each year by the authority is capped at $35 million.
The bill increases the amount of the tax credit that may be provided to a taxpayer from 20 percent to 35 percent of the taxpayer’s qualified investment in a New Jersey emerging technology business or qualified venture fund. The bill also increases, from 25 percent to 40 percent, the tax credit allowed for a taxpayer that makes a qualified investment in an emerging technology business that is: (1) located in an opportunity zone or low-income community, as defined by federal law; or (2) is certified by the State as a minority business or women’s business, and in the case of a qualified venture fund, commits by contract to invest 50 percent of its funds in diverse entrepreneurs. The bill also revises the definitions of “New Jersey based business” and “New Jersey emerging technology business” to lower, from 224 to 149, the maximum number of employees that a business may employ in order for a taxpayer to qualify for the tax credit.
The bill takes effect immediately and applies to taxable years and privilege periods beginning on or after January 1 next following enactment.
FISCAL ANALYSIS
EXECUTIVE BRANCH
None received.
OFFICE OF LEGISLATIVE SERVICES
The OLS estimates that the State may incur a maximum annual revenue loss of $15.2 million to $15.7 million as a result of the bill beginning in FY 2027. There will be no revenue loss prior to FY 2027 because the bill applies to tax years and privilege periods beginning on the January 1 next following the date of enactment. If the bill is enacted in calendar year 2025, angel investor tax credits will be awarded at the higher amounts under the bill beginning in calendar year 2026. Calendar year 2026 tax returns for both corporation business taxpayers and gross income taxpayers will be due beginning in calendar year 2027, or FY 2027.
According to information published in the authority’s annual reports, the total amount of qualified investments in calendar years 2017 through 2023 averaged about $110.9 million. The average amount of tax credits awarded annually was about $13.3 million. If all qualified investments were eligible for a 35 percent tax credit instead of a 20 percent tax credit, subject to the annual limit of $35 million, then the total amount of tax credits awarded would be about $28.4 million. If all qualified investments were eligible for a 40 percent tax credit instead of a 25 percent tax credit, subject to the annual limit of $35 million, then the total amount of tax credits awarded would be about $28.9 million. The potential State revenue loss is calculated by subtracting the average amount of tax credits awarded from calendar years 2017 through 2023, which is $13.3 million, from the estimated value of tax credit awards at the increased amounts under the bill.
The OLS notes that the actual State revenue loss is likely to be lower than the estimated range. This is so because the bill reduces, from 224 to 149, the maximum number of employees that a business may employ in order for a taxpayer to qualify for the tax credit. Thus, some qualified investments that would be eligible for a tax credit under current law would not be eligible for a tax credit under the bill. Data available through the authority indicates that the program has yet to utilize the full amount of tax credits available in any year. The enhanced credit may incentivize more activity under the program, which could in turn utilize the remaining available cap space.
To the extent that additional investments in emerging technology business ventures resulting from the bill spur greater economic activity, the State and local governments could benefit from increased tax revenues. However, the magnitude of these additional revenues cannot be determined.
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Section: |
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Analyst: |
Staff Fiscal and Budget Analyst |
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Approved: |
Thomas Koenig Legislative Budget and Finance Officer |
This legislative fiscal estimate has been produced by the Office of Legislative Services due to the failure of the Executive Branch to respond to our request for a fiscal note.
This fiscal estimate has been prepared pursuant to P.L.1980, c.67 (C.52:13B-6 et seq.).