An angel investor who invests in a “qualifying” New Jersey emerging technology business in tax year 2012 and beyond is now eligible to receive a tax credit of up to 10% of the total amount invested. This law is designed to stimulate investment in emerging New Jersey technology companies by allowing the investor to use the 10% tax credit as a direct offset against an investor’s New Jersey business or gross income tax. While Governor Christie signed this act, known as the New Jersey Angel Investor Tax Credit Act, into law on January 31st of this year, the underlying rules do not come out until today, August 5, 2013, in the New Jersey Register.

The act defines both “qualified investment” and “New Jersey emerging technology business” and I will not bore you with every detail here. However, in brief; in order for an investment to be a “qualified investment,” the investment must be a non-refundable transfer of cash to a “New Jersey emerging technology business” in exchange for rights to participate in the upside of the business or to use or market the technology.

To be considered a “New Jersey emerging technology business,” the act specifies the physical connection the company must have to New Jersey as well as the technological areas the business must be involved with. For example, the New Jersey business must have fewer than 225 employees, of whom at least 75 percent work in New Jersey. The company must also transact business, own property, or maintain an office in New Jersey. Finally, the company is required to operate in one of the following industries: advanced computing, advanced materials, biotechnology, electronic device technology, information technology, life sciences, medical device technology, mobile communications technology or renewable energy technology.

For investments made on or before July 1, 2013, an investor must submit a completed application before July 1, 2014. For all other investments, an investor must submit a completed application within one year of the date of the qualified investment. There are application fees not to exceed $1000 and approval fees that will be offset against the tax credit.

Whether this act actually spurs investments in the emerging technology industries remains to be seen. In the funding universe, angel investors are among the first ones in and take the biggest risk. Hopefully this tax credit will offset some of the risk and encourages investors to place seed money with the types of science and technology businesses New Jersey wants to grow. However, New Jersey’s commitment is questionable with such a low tax credit percentage (10%) combined with the legislature’s decision to have an “approval fee” as an offset to the allowed the tax credit. If you want to discuss any aspect of this or any other business transaction, please feel free to contact one of the attorneys at Danziger Shapiro.

This entry is presented for informational purposes only and is not intended to constitute legal advice.

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