New Jersey's Technology Business Tax Certificate Transfer Program Allows Technology and Biotechnology Companies to Turn NOLs into Capital
The EDA is currently accepting applications for the Technology Business Tax Certificate Transfer Program. This innovative program allows unprofitable New Jersey-based technology or biotechnology companies to raise cash by selling New Jersey net operating losses (NOLs) and research and development tax credits to other unaffiliated New Jersey businesses for at least 75% of their value. The raised funds can be used for growth and operations, either as working capital or to fund research.
"The Technology Business Tax Certificate Transfer Program is an important component of Governor Corzine's Economic Growth Strategy to promote innovation and is a key element of the state's Edison Innovation Fund initiative to promote the growth of young technology and biotechnology businesses in New Jersey," said Caren S. Franzini, chief executive officer of the EDA, which administers the program in conjunction with the New Jersey Commission on Science and Technology (CST) and the state's Division of Taxation. "This effective financing tool helps these companies continue their research, raise capital and strengthen and build their business."
The program enables promising technology and biotechnology businesses to acquire much-needed capital. Up to $60 million is available annually, of which $10 million is set aside for additional funding under the program to approved projects in the Innovation Zones. More than 90 companies benefited from the program in 2007. Additionally, last year's allocations, which will be distributed this fiscal year, averaged about $650,000 per company---bringing total funding under the tax certificate program to $445 million since 1999.
More than 300 different companies have received benefits under the program since its inception. Among the businesses approved to participate as sellers in the program last year were Barrier Therapeutics of Princeton, Inventa Technologies of Mount Laurel, Orthocon, Inc. of North Brunswick and Deltronic Crystal Industries, Inc. of Dover.
One company reaping the benefits of the Technology Business Tax Certificate Transfer Program is TyRx Pharma, Inc. of Monmouth Junction. TyRx is an innovative company dedicated to the development and commercialization of medical devices and pharmaceutical products. The company specializes in utilizing tyrosine-based resorbable polymer systems. TyRx is responsible for PIVIT(tm) CRM, a mesh based pouch product intended to hold a pacemaker or ICD. The pouch creates a stable environment surrounding the device and leads during and after placement. The mesh contains antibacterial agents to help provide protection from microbial colonization of the generator or defibrillator during and immediately after surgical implant.
To be eligible for the program, technology and biotechnology companies in New Jersey whose primary business involves the provision of a scientific process, product or service must have fewer than 225 employees in the U.S. with at least 75% of the company's U.S. workforce in New Jersey. In addition, the participating business cannot have had positive net income on either of its last two full year income statements, and must not demonstrate a ratio in excess of 110% of operating revenues divided by operating expenses in any of the two previous full years of operations. Businesses must have financial statements for the three most recent full years of operation compiled, reviewed or audited by an independent CPA firm.
Additionally, a business cannot have a profitable parent company or be part of a profitable consolidated group of affiliates for federal income tax purposes. The proposed financial assistance must result in growth in permanent, full-time employment in New Jersey. An applicant may not have sufficient resources to operate in the short term, and financial assistance must result in the prospect of significant positive change in the business' net income. The business must also own, have filed for, or have a license to use protected, proprietary intellectual property, and the principal product must be sufficiently innovative to provide a competitive advantage. Finally, the business must be scientifically and technologically viable.
Applications are reviewed by the Division of Taxation to verify the value of the net operating loss or research and development tax credit benefit. CST also reviews the applications for technology qualifications, and the EDA makes the final determination on eligibility. When an application is approved, a certificate is issued that identifies the value of the tax benefit being exchanged and transfers it from the selling to the buying company.
Applications for the Technology Business Tax Certificate Transfer Program are due by June 30th and available at http://www.njeda.com.