By David Engel
On July 25, 2024, Governor Phil Murphy signed legislation that will provide tax credits to eligible artificial intelligence (AI) businesses. The credit program is referred to as the Next New Jersey Program. (L. 2024, S3432 (c. 49), effective 07/25/2024.)
Amount of credit.
The amount of the tax credit allowed for a particular project is equal to the lesser of: (1) 0.1 % multiplied by the eligible business’s total capital investment multiplied by the number of new full-time jobs; (2) 25% of the eligible business’s total capital investment; or (3) $250 million.
Businesses eligible for the credit.
The New Jersey Economic Development Agency (NJEDA) will provide tax credits to eligible businesses, following approval of an application by the NJEDA, to eligible AI businesses. Eligible AI businesses include a business or division that is primarily engaged in the AI industry or large-scale AI data center industry. A business would be considered primarily engaged in such an industry if at least 50% of the business’s employees are engaged in AI-related activities, or at least 50% of the business’s revenue is generated from AI-related activities. However, the use of AI applications in the furtherance of a business’s own operations will not be considered in determining whether a business or division is primarily engaged in AI or large-scale AI data centers. “Artificial intelligence” or “AI” means the development of software and hardware, and the end-use application of technologies that are able to perform tasks normally requiring human intelligence, including, but not limited to, visual perception, speech recognition, decision-making, translation between languages, and generative artificial intelligence, which generates new content in response to user inputs of data.
The minimum capital investment at the qualified business facility that is required to be eligible for a project agreement is $100 million. The minimum number of new full-time jobs in New Jersey required to be eligible for a project agreement is 100.
A business eligible for the credit may be a corporation that is subject to the corporation business tax; insurance premium taxes, retaliatory taxes; or is a partnership, S corporation, limited liability company or non-profit corporation.
Project defined.
The term “project” means a capital investment at a qualified business facility and an employment commitment specified in the eligible business’s project agreement. The term “qualified business facility” to mean any building, complex of buildings, or structural components of buildings and all machinery and equipment located therein, used in connection with the operation of an eligible business.
Applications.
An eligible business must pay the NJEDA the full amount of the direct costs of an analysis concerning the eligible business’s application for a tax credit, which a third party retained by the NJEDA performs, if the NJEDA deems such retention to be necessary.
Credits may be transferred.
Taxpayers that cannot fully utilize their tax credits are permitted to transfer their credits to other taxpayers for consideration. The consideration cannot be less than 85% of the face value of the credit. The purchaser of the credit is not permitted to make any subsequent transfers of the credit.
Forfeiture of tax credits.
The NJEDA may recapture all or part of a tax credit if an eligible business does not remain in compliance with the requirements of a project agreement for the duration of the commitment period.
Budget for credits.
The law provides for up to $500 million in tax credits, originally allocated for the New Jersey Aspire Program and the Emerge Program, be made available to eligible AI businesses under the Next New Jersey Program.
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