NJ’s Evergreen Program Provides Valuable Corporate Tax Benefits
- Aug 29, 2022
To promote innovation, entrepreneurship and address the shortfalls in venture capital funding available within the state, New Jersey has instituted a new program to align established corporations, venture capital investment firms and early-stage businesses.
The Evergreen Program established the New Jersey Innovation Evergreen Fund (“NJIEF”), which will secure funding from the auctioning of state corporate tax credits and then partner with venture capital firms to invest those funds in eligible start-up companies.
Corporations registered in NJ, with a valid tax clearance certificate, can offset their corporate business tax liability by a maximum of 25% via corporate tax credits. The Evergreen Program will auction $30 million in tax credits for the 2022 auction year and a total of $300 million in tax credits over seven years. Auction bids will be evaluated based on a combination of the purchase offer and strategic commitment.
Purchase Offer – The purchase offer is comprised of two components: the amount offered per dollar of credit (with a minimum floor of 75% of face value), and the volume of request (with a minimum floor of $500,000). Applicants must submit a refundable deposit equal to 10% of the purchase price with their bid.
Strategic Commitment – The strategic commitment is submitted in tandem with the purchase offer, where the bidder offers strategic support in the areas of people (talent development), ecosystem (start-up events and programs), investment (access to customer channels and distribution networks), and marketing (promotion of the Evergreen Program and public relations support of innovation in New Jersey).
Scoring – The total bid score will be a combination of the purchase price score and strategic commitment score. The purchase price score represents two-thirds of the total bid score and is equal to the amount offered per dollar of credit (a minimum offer will have a purchase price score of 0.75). The strategic commitment score represents one-third of the total bid score and is based on the following ten criteria, each of which, with few exceptions, will be scored with one to three points based on the level of strategic commitment offered:
- External Partners, in addition to the bidder, number of government agencies, corporations, universities and trade groups that will be involved with the initiative.
- Educational Institutions. The number of NJ schools where the bidder offers students internships, apprenticeships, on the job training and so forth.
- Opportunity zones (i.e., two points for commitments geographically focused on two to three opportunity zones).
- Duration of commitment (i.e., two points for one- to two-year commitments).
- Frequency of commitment (i.e., two points for a commitment that occurs two to three times per year).
- Staff members whose number of hours of staff time are allocated by the bidder.
- A dollar investment into businesses, with no existing common ownership.
- Marketing budget where the application should include a marketing self-valuation with rationale as to the assigned value.
- Strategic commitment ratio.: The value of commitments divided by the purchase offer.
- An additional point for those that have never been previously approved for auction participation.
The auction opened August 1, 2022. Completed applications, with the refundable deposit, must be received by October 7, 2022. Access the New Jersey Economic Development Authority (“NJEDA”) Online Application Center here. Initial bids will be reviewed and scored in September. Following reviews, applicants can modify and submit a best and final offer.
Awards will be announced in November 2022, and agreements will be executed—and funds transferred—in December 2022. Awards will be allocated on availability based on value of the bid. Post approval, corporations must complete at least 80% of their strategic commitment and designate an individual to sit on the New Jersey Innovation Evergreen Advisory Board. A taxpayer who fails to fund 80% of their strategic commitment must pay the difference between the cost of the commitment and the amount completed.
Tax credits must be used in the period in which the tax credits were approved, and any unused tax credits may be carried forward for use in the next seven privilege periods. Tax credits may be sold to another corporation in an amount not less than $100,000 and for consideration of no less than 85% of the transferred credit amount.
Venture Capital Firms
To access the funds, a venture capital firm must first get certified as a Qualified Venture Firm by the NJEDA. Requirements for certification include $10 million in assets; a minimum of two principals, with at least five years money management experience in venture capital/private equity; and additional emphasis will be put on applicant’s diversity, equity and inclusion policies. Those that meet the NJEDA criteria can access to up to $5 million of capital to invest, with certain businesses qualifying for up to $6.25 million of capital.
To receive an investment, a start-up must have principal operations in New Jersey, and intend to remain in New Jersey after receiving the investment; employ fewer than 250 persons; and be in a targeted industry.
See frequently asked questions on the NJEDA website here.
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Vincent M. Occhino
Vincent Occhino is a Manager in the State and Local Tax Group. His specific areas of service encompass nexus studies, income/franchise tax refund reviews, multi-state tax planning, and cost of performance studies.
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