Proposed New Rules / Amendments

Emerge Program Rules
Proposed Changes: N.J.A.C. 19:31-22.9 and 22.15

The NJEDA is proposing amendments to the rules implementing the Emerge program pursuant to recently enacted statutory revisions in P.L. 2021, c. 160 (approved July 2, 2021). In accordance with the New Jersey Economic Recovery Act of 2020, P.L. 2020, c. 156, the NJEDA specially adopted and concurrently proposed the Emerge program rules on May 20, 2021, and adopted the concurrently proposed rules on December 15, 2021, as simultaneously noticed along with these proposed amendments. Under the New Jersey Economic Recovery Act of 2020, the Emerge Program Act, sections 68 through 81 of P.L. 2020, c. 156, was established to encourage economic development in the State’s priority sectors by providing per-job tax credits for up to seven years. To be eligible for the program, a project must meet various eligibility criteria at application and at project certification, including:  

● Be located in a qualified incentive area;  

● Meet minimum capital investment requirements, except for small businesses;  

● Yield a net positive benefit to the State of at least 400 percent of the requested tax credit (projects in certain more highly distressed areas of the State are subject to a lower net positive benefit threshold);  

● Demonstrate that the award of the tax credit is a “material factor” in the decision to create or retain at least the minimum number of full-time jobs in New Jersey;  

● Ensure that at least 80 percent of incented employees’ work time is spent in New Jersey;  

● Ensure that the qualified business facility can accommodate at least 50 percent of incented new jobs, and to receive tax credits for retained jobs, the qualified business facility must accommodate all the retained full-time jobs at the time of application; and  

● Commit to stay at the qualified business facility for 1.5 times the eligibility period.  

New Jersey Innovation Evergreen Act
Specially Adopted and Concurrently Proposed New Rules: N.J.A.C. 19:31-25

The New Jersey Economic Development Authority (“NJEDA” or “Authority”) is proposing rules to establish a tax credit sale process, innovation ecosystem engagement platform and investment program pursuant to the New Jersey Innovation Evergreen Act (Act), sections 20 through 34 of the New Jersey Economic Recovery Act of 2020, P.L. 2020, c. 156, as amended by P.L. 2021, c. 160 (N.J.S.A. 34:1B-288 through 34:1B-302).

The New Jersey Economic Recovery Act of 2020, P.L. 2020, c. 156, as amended by P.L. 2021, c. 160, creates a package of tax incentive, financing, and grant programs that will address the ongoing economic impacts of the COVID-19 pandemic and build a stronger, fairer New Jersey economy.

The New Jersey Innovation Evergreen Act is created to foster an ecosystem of innovation and investment in early-stage businesses as a component of economic development. The Act authorizes the Authority to sell up to $300 million of corporate tax credits through the auction of no more than $60 million of tax credits annually for the entirety of the seven-year program. In exchange for the tax credits, the New Jersey Innovation Evergreen Fund (“Evergreen Fund” or “Fund”) will receive capital from the tax credit purchasers along with strategic commitments to support early-stage businesses and the innovation ecosystem in the State. The Evergreen Fund will serve as a source of capital to co-invest with qualified professional venture capital investment firms in early-stage businesses based in New Jersey, helping to foster innovation in the State.

Any dividends and returns to the Evergreen Fund resulting from qualified investments will be reinvested from the Fund in perpetuity by design, or until the Fund capital is exhausted. Once the Fund has received total deposits from dividends and returns from qualified investments equaling $500 million, the Authority shall pay 50 percent of any return on investment that exceeds two times the amount invested for that qualified investment to the General Fund of the State. The Authority will utilize 75 basis points of the total funding amount in the Evergreen Fund to establish and administer additional programs that support the growth of innovation in the State.

To be eligible to purchase tax credits, a potential tax credit purchaser must meet criteria including, but not limited to:

  • Specify the requested amount of tax credits the potential tax credit purchaser proposes to purchase, which shall not be less than $500,000;
  • Specify the percentage amount the potential tax credit purchaser proposes to pay in exchange for the requested amount of tax credits, which shall not be less than 75 percent of the requested dollar amount of credits;
  • Specify and quantify the nature and cost of its strategic commitment, including but not limited to, mentorship hours, internship offerings, sales, and distribution pipeline access;
  • Commit to serve on the New Jersey Innovation Evergreen Advisory Board for one-year from the time of tax credit approval; and
  • Provide a refundable deposit for 10 percent of the tax credit purchase offer, not to exceed $500,000, at the time of application.

The Authority shall evaluate and score each completed bid application received before the application period has closed. If the amount of tax credits requested for purchase exceeds the total amount available for purchase, the Authority may pro rate the amount of tax credits allocated to each tax credit purchaser. In no event shall any tax credit purchaser receive less than $500,000 of tax credits. If the proration were to result in any tax credit bidder receiving less than $500,000, the Authority shall award tax credits only to the highest scored bidders that would result in a proration of at least $500,000 to each bidder. Failure by the tax credit purchaser to meet the commitments identified in its auction bid will make the bidder ineligible in future competitive auctions unless the bidder makes a monetary payment equal to the dollar value of the unmet strategic commitment. 

            In order to invest the Evergreen Fund monies, the Authority shall establish an application process through which a venture firm may apply for certification as a qualified venture firm. Approval will enable the qualified venture firm to apply for funding from the Fund to make qualified investments in early-stage New Jersey businesses. To be eligible to become a qualified venture firm, a venture firm must meet various eligibility criteria, including but not limited to:

  • Not less than $10 million in any combination of one or more of the following: net assets of the funds managed by the qualified venture firm, equity capitalization of the funds managed by the qualified venture firm, or written commitments of cash or cash equivalents on the date the determination that the certification is made;
  • At least two principals or persons employed to direct the qualified investment capital, each of which shall have at least five years of significant angel investment experience or professional money management experience in the venture capital or private equity sectors; and
  • Additional weighted evaluation criteria, which may be amended by the Authority, including: the management structure of the applicant, the applicant’s investment strategy, the location of the venture firm, and the applicant’s proposed structure and policy of investments in qualified businesses.

The agreement with the qualified venture firm will contain language that will require the qualified venture firm to, in summary:

  • Make qualified investments in an amount equal to or greater than that provided by the Fund in qualified businesses as the manager of uniquely created special purpose vehicles;
  • Cause an audit of the qualified venture firm’s books and accounts of the Evergreen special purpose vehicle holding qualified investments and other reporting requirements;
  • Consent to specific application and reporting information disclosures in the interest of transparency; and
  • Agree that the qualified venture firm will publicize its participation in the New Jersey Innovation Evergreen Fund.

If a qualified venture firm fails to continue to meet the requirements for certification as a qualified venture firm, the venture firm shall no longer be eligible to make qualified investments, but it will retain the management of the existing qualified investments for which the qualified venture firm was initially approved. Further, certain actions by the qualified venture firm, such as failure to submit the required annual reports for two consecutive years or making a material misrepresentation, may result in the disassociation of the qualified venture firm from the qualified investment and the forfeiture of any associated management fees, direct expenses, or carried interest.

Upon the approval by the Authority of applications from qualified venture firms for a qualified investment into a qualified business, the Authority shall transfer money from the Evergreen Fund for the qualified investment. The Authority shall evaluate the qualified venture firm’s proposed investment and shall approve a qualified investment into a qualified business that, at minimum, among other possible criteria:

  • Is registered to do business in New Jersey with the Director of the Division of Revenue and Enterprise Services in the Department of Treasury;
  • Has principal business operations in the State;
  • Is engaged in a targeted industry;
  • Employs fewer than 250 full-time employees; and
  • Meets the definition of a high-growth business.

Individual initial qualified investment amounts shall be considered on a ratio of no greater than one-to-one with the initial investment from the qualified venture firm active fund, but shall not be less than $100,000 or greater than $5,000,000, unless permitted under specified conditions. A qualified investment may be an amount of up to $6,250,000 if the qualified business is a New Jersey university spin-off, utilizes intellectual property developed at a New Jersey university that is core to its business model, or is certified by the State as a “minority business” or a “women’s business” pursuant to P.L. 1986, c. 195 (N.J.S.A. 52:27H-21.17 et seq.). The Authority shall have a goal for 25 percent of the Fund money allocated to qualified venture firms to be reserved for investment in qualified businesses located in qualified opportunity zones. The Authority shall have the right to make a follow-on investment from the Fund into the qualified business in the same ratio as the qualified venture firm’s follow-on investment relative to the qualified venture firm’s initial investment. The maximum follow-on investment from the Fund into a qualified business shall not exceed the lesser of: i. the cap on the qualified investment ($5,000,000 or $6,250,000) on an aggregate basis of follow-on investments in a twelve-month period; ii. 15 percent of invested plus uninvested capital of the Fund; and iii. 15 percent of the total invested with the qualified venture firm by all of its investors, including investments in any Evergreen special purpose vehicles (total assets under management).

A qualified venture firm shall report the following annually after certification, within 120 days of the qualified venture firm’s tax year:

  • All qualified investments made during the preceding calendar year;
  • The number and wages of full-time employees of each qualified business at the time the venture firm made the qualified investment and as of the end of the qualified venture firm’s tax year (or at the time of investment termination) and information relating to full-time employees located in New Jersey;
  • Financials, audited by a certified public accountant, who is licensed in accordance with the “Accountancy Act of 1997,” P.L. 1997, c. 259 (N.J.S.A. 45:2B-42 et seq.), or the laws of another state, of the qualified venture firm active fund and the Evergreen special purpose vehicle; and
  • Any other information the Authority requires to ascertain the impact of the program on the economy of the State.

During the qualified business compliance period, the qualified business must maintain a place of business in New Jersey and must maintain one of the following: its principal business operations in New Jersey (which is defined as two tests in relation to the employee’s residency), at least 50 percent of its full-time employees filling a position in New Jersey, or at least 50 percent of wages paid to employees filling a full-time position in New Jersey. If qualified business fails to do so for two consecutive years, the Authority may exercise its right of redemption and require the qualified business to redeem the Evergreen Fund investment for an amount equal to the greater of the qualified investment or the fair market value of the qualified investment at the time of the redemption demand. If the qualified venture firm or any other investor offers to purchase such qualified investment for the same amount as set forth above, the Authority may accept such purchase instead of redemption.

Historic Property Reinvestment Program
Proposed New Rules: N.J.A.C. 19:31-26

The New Jersey Economic Development Authority (“NJEDA” or “Authority”) is proposing rules to establish tax credits for part of the cost of rehabilitating historic properties in this State pursuant to the Historic Property Reinvestment Act (Act), sections 2 through 8 of the New Jersey Economic Recovery Act of 2020, P.L. 2020, c. 156 (N.J.S.A. 34:1B-270 through 34:1B-276).

        The New Jersey Economic Recovery Act of 2020, P.L. 2020, c. 156, as amended by P.L. 2021, c. 160, creates a package of tax incentive, financing, and grant programs that will address the ongoing economic impacts of the COVID-19 pandemic and build a stronger, fairer New Jersey economy.

            The Historic Property Reinvestment Program focuses on historic preservation as a component of community development. The program, which is capped at $300 million over six years, focuses on historic preservation as a component of community development and encourages long-term private investment into the State, while preserving properties that are of historic significance. The program can be used to leverage the federal Historic Tax Credit Program to incentivize rehabilitation of identified historic properties. To be eligible for such awards, a rehabilitation project must:

  • Demonstrate at the time of application that without the tax credit, the rehabilitation project is not economically feasible.
  • Prove that a project financing gap exists, and the tax credit award being considered for the project is equal to or less than the project financing gap.
  • Not have commenced any construction or rehabilitation activity at the site of the rehabilitation project prior to submitting an application and will not commence any construction or rehabilitation activity until the execution of the rehabilitation agreement (with certain limited exceptions).
  • Include business entity contributed equity of at least 20 percent of the total cost of rehabilitation, or if the project is located in a government-restricted municipality, the equity shall be at least 10 percent of the total cost of rehabilitation.
  • Meet minimum cost requirements such that the cost of rehabilitation for the selected rehabilitation period shall not be less than $5,000 or the adjusted basis of the structure, whichever is greater.
  • For a residential project, the structure must serve a residential rental purpose and also contain at least four dwelling units.
  • For a residential project or a redevelopment project consisting of newly constructed residential units, at least 20 percent of the residential units constructed shall be reserved for occupancy by low- and moderate-income households with affordability controls as required under the “Fair Housing Act.”
  • Include the rehabilitation of a qualified property, or a transformative property.

            The Historic Property Rehabilitation Program awards are calculated based on a percentage of the cost of rehabilitation (eligible costs), with the percentage dependent on both whether the project includes a qualified property or a transformative property and on location of the project. Most eligible projects can receive tax credits worth up to 40 percent of eligible costs with a maximum project cap of $4 million for qualified properties. Eligible projects located within a qualified incentive tract or in government-restricted municipalities can receive tax credits worth up to 45 percent of eligible project costs with a maximum project cap of $8 million for qualified properties. Transformative projects can receive tax credits worth up to 45 percent of eligible project costs with a maximum project cap of $50 million. Awards are scored on a competitive basis.

            Tax credits are only available for rehabilitation of “qualified” or “transformative” properties. “Qualified property” means a property located in the State of New Jersey that is an income producing property, and that is: 1. Individually listed, or located in a district listed on the National Register of Historic Places, the New Jersey Register of Historic Places, or designated by the Pinelands Commission; or 2. Individually identified or registered, or located in a district composed of properties or structures and such district is identified or registered, for protection as significant historic resources in accordance with criteria established by a municipality in which the property, structure or district is located if the criteria for identification or registration has been approved by the State Historic Preservation Officer as suitable for substantially achieving the purpose of preserving and rehabilitating buildings of historic significance within the jurisdiction of the municipality. If located within a district, the property must be certified by the Officer as contributing to the historic significance of the district.

            A “transformative property” means a property that:

  • Is an income producing property, not including residential, whose rehabilitation the Authority determines will generate a substantial increase in State revenues through the creation of increased business activity within the surrounding areas.
  • Is individually listed on the New Jersey Register of Historic Places.
  • Received a Determination of Eligibility from the Keeper of the National Register of Historic Places.
  • Is located within a one-half mile radius of the center point of a transit village, as designated by the NJDOT and within a city of the first class, OR located within a government-restricted municipality.

Aspire
Specially Adopted and Concurrently Proposed New Rules: N.J.A.C. 19:31-23
In accordance with P.L. 2020, c. 156, the New Jersey Economic Development Authority has adopted the following new rules to implement the provisions of the New Jersey Economic Recovery Act of 2020, establishing the New Jersey Aspire Program Act, sections 54 through 67 of P.L. 2020, c. 156, as amended by P.L. 2021, c. 160. The new rules became effective on November 15, 2021, upon acceptance for filing by the Office of Administrative Law. The specially adopted new rules shall be effective for a period not to exceed 180 days from the date of filing, that is, until May 14, 2022. Concurrently, the provisions of the new rules are being proposed for readoption in accordance with the normal rulemaking requirements of the Administrative Procedure Act, N.J.S.A. 52:14B-1 et seq. As the NJEDA has filed this notice of readoption before May 14, 2022, the expiration date is extended 180 days to November 10, 2022, pursuant to N.J.S.A. 52:14B-5.1.c. The concurrently proposed new rules will become effective and permanent upon acceptance for filing by the Office of Administrative Law (see N.J.A.C. 1:30-6.4(f)), if filed on or before November 10, 2022. The NJEDA has provided as 60-day comment period on this notice of concurrent proposal, therefore, this notice is excepted from the rulemaking calendar requirement, pursuant to N.J.A.C. 1:30-3.3(a)5.