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January 29, 2019 | Posted in:

New Jersey Incentives for Manufacturers

The manufacturing industry in New Jersey is growing. According to the National Association of Manufacturers, the manufacturing industry in the State had a total output of $49.30 billion in 2017 compared to $45.93 billion in 2014. The State encourages manufacturing in many different ways, including tax credit incentives. One such incentive out there is the Manufacturing Equipment and Employment Tax Credit, which is a credit against corporate business tax. There are two components of the tax credit: (1) acquisition of equipment and (2) hiring of employees. In simple terms, the amount of the credit is based on how much qualified equipment and qualified workers are used by the business.

In order for equipment to qualify for this tax credit, it must be either purchased or leased for use primarily in the production of tangible personal property. In other words, it has to be used to make, process, assemble, or refine product. Qualified equipment also includes property transferred from an out of state facility to a facility within New Jersey. So, if you already own the equipment and are just moving it to a New Jersey location, it would qualify too. In order for employees to qualify for the credit, an employee must be considered as a full time worker residing in the State. A full time worker is defined as one working at least 140 hours per month at minimum wage. If you have part time workers, you may be able to include them but an additional calculation is required.

Once you understand what does and doesn’t qualify for the credit, you can calculate the amount of the credit. Essentially, the tax credit is computed as either 2% or 4% of qualifying equipment investments plus $1,000 for any additional qualifying employees hired during the previous two years, subject to certain limitations. The credit is calculated on Form 305 and can be used by both C corporations and S corporations.

Here’s a brief example of how beneficial this tax credit could be for a business:

ABC Company, a C corporation, invested $500,000 in qualifying equipment during the year. Also, the company hired 20 qualified employees during the same year. By running through the calculations, the maximum amount of the tax credit allowed is $30,000. Remember, this is a tax credit not a tax deduction. Credits offset taxes dollar for dollar. ABC Company would offset $30,000 of tax without incurring any additional expenses.

There are limitations on the tax credit, however. The credit can only offset up to 50% of your total tax. Using the example above, as long as ABC company has at least $60,000 of New Jersey corporate tax, it would be able to use the entire amount of the credit. Any unused credit carries forward for up to seven years.

Here are a few bullet points to remember about the tax credit:

  • Two components of the credit – equipment and employees
  • Qualified equipment must be used in NJ for manufacturing, processing, assembling, or refining
  • Employees must be NJ residents and working as either full time or a full time equivalent
  • Tax credit can only offset up to 50% of tax liability

For a growing manufacturing company, this credit could help spur growth through tax savings. To learn more about how Alloy Silverstein can help you with this credit and other tax incentives, contact us here.

Author:

Associate Partner
 
Ren III provides tax, accounting, and advisory services to a broad range of clients, with a specialty for manufacturers, title insurance companies, and professional service providers.
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JB Financial Associates is now Alloy Silverstein.
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