An NJBIA-supported bill that would greatly increase tax credits for investments made in certain technology business ventures passed unanimously in an Assembly committee this week.
According to NJBIA Director of Economic Policy Research Kyle Sullender, the “New Jersey Angel Investor Tax Credit Act” could boost the state’s ability to attract much-needed capital for innovative businesses.
“I’m happy to say based on the research that we’ve done, this would take our Angel Investor Tax Credit program from being amongst many to really being a leader in the country as one of the most competitive programs you can find out there,” Sullender told the Science, Innovation and Technology Committee on Thursday.
One of many recommendations in NJBIA’s Indicators of Innovation report, including the latest version last August, was to amend the current Angel Investor Tax Credit to provide additional incentives for investing in smaller, high-growth companies in New Jersey.
“When we do this report, one of the areas where we see New Jersey continue to struggle in the most relative to our regional competition is access to capital and securing capital – both from venture capital and federal sources,” Sullender said.
Specifically, data in the report found that:
- Despite experiencing fast growth in venture capital deal flow during the pandemic, New Jersey ($4.8 billion) continues to trail states like New York ($149.4 billion) and Massachusetts ($120.2 billion) in Assets Under Management (AUM), which measures the value of all assets being managed in a state by Venture Capital (VC) funds.
- New Jersey is the only state to have experienced a decline in AUM (-2%) from 2010 to 2021 and still receives significantly less than regional states from two of the nation’s largest sources of early stage/high risk funding for startups and small businesses: the federal Small Business Innovation Research (SBIR) and the Small Business Technology Transfer (STTR) programs.
- New Jersey ranked fifth out of seven states in the region in this category and was the only state in the region to see its R&D investment decrease from 2010 to 2020 (-38.5%).
The New Jersey Angel Investor Tax Credit Program, which is open to both in-state and out-of-state investors, is designed to encourage and incentivize investment in emerging New Jersey technology businesses.
Through the program, an investor can receive a refundable tax credit equal to a percentage of their qualified investment made in a New Jersey early-stage company.
The company’s primary business must be an eligible technology, including advanced computing, advanced materials, biotechnology, carbon footprint reduction technology, electronic device technology, information technology, life sciences, medical device technology, mobile communications technology, or renewable energy technology.
Under current law, investors are allowed credits against the gross income tax and corporation business tax equal to 20% of a qualified investment in an emerging technology business, or in a qualified venture fund.
They can also qualify for an additional 5% credit provided that the investment is made in an emerging technology business located in an opportunity zone or a low-income community, is a minority business or a women’s business. Or, in the case of a qualified venture fund, if they invest 50% of their funds in diverse entrepreneurs.
But under bill A-5557 (Tully, D-38; Murphy, D-7), the tax credit would increase from 20% to 60%, or 25% to 65% for those who qualify for the additional 5% credit.
Under the bill, the size of credits available in New Jersey would go beyond regional competitors with similar programs like Massachusetts and Connecticut, as well as more generous programs like Maryland’s Biotechnology Investment Incentive Tax Credit, which offers credits of 33% to 50% of eligible investments in Maryland-based biotechnology companies.
Additionally, it would lower the maximum number of employees permitted to qualify for the tax credit from 225 employees to 150 employees.
“We’re very happy to see another positive step being taken to improve New Jersey’s innovation economy and to get us where we need to be to regain our stature as an innovation leader in this country,” Sullender said.