NJ BEIP Grant Policy Change
A change of policy has been announced by the New Jersey Division of Taxation with regard to the New Jersey Economic Development Authority grant made under the Business Employment Incentive Program (known as a "BEIP" Grant).
Previously (see, NJ State Tax News, Spring, 2003), if a BEIP grant were made to a C corporation, the grant was deemed a contribution to capital. If the grant were received by a pass-through entity, the grant was apportioned among the owners and considered to be taxable under the Gross Income Tax as a "prize and award".
The new policy provides that a BEIP grant made to a C corporation is deemed taxable income. Moreover, the grant is considered a New Jersey source receipt for apportionment purposes. If the grant were to be received by a pass-through entity, the grant would be apportioned as taxable income among the owners.
BEIP is a powerful incentive for encouraging businesses to locate and expand in New Jersey. Approved businesses receive annual cash grants based on the number of new jobs they have created in the State of New Jersey.
In order to qualify for a BEIP grant, businesses must create at least 25 new jobs within a 2-year period; emerging high technology and biotech companies' eligibility threshold is 10 new jobs. A business must also demonstrate that the BEIP grant is a "material" factor in moving the job expansion or relocation forward in New Jersey, and that it is economically viable. The standard BEIP incentive is limited at 50% of the employees' state income taxes withheld on the newly created jobs; however, companies that meet certain Smart Growth objectives can have their grant boosted to 80%. Qualifying businesses may be eligible for up to 10 years worth of grants, though they must maintain the project and the jobs in New Jersey for at least 1.5 times the number of years the grant is in effect. Greater consideration is given to positions that average 1.5 times the minimum wage during the grant agreement.
Note that the policy change was made effective as an "interpretation" and without the amendment of a law or regulation.