Increases qualified research expenses tax credit for corporation business taxpayers engaged in targeted industries; increases basic research payment tax credit; allows research tax credit to be refundable.

S3560

SENATE, No. 3560

STATE OF NEW JERSEY

222nd LEGISLATURE

�

INTRODUCED FEBRUARY 19, 2026

Sponsored by:

Senator� LINDA R. GREENSTEIN

District 14 (Mercer and Middlesex)

SYNOPSIS

���� Increases qualified research expenses tax credit for
corporation business taxpayers engaged in targeted industries; increases basic
research payment tax credit; allows research tax credit to be refundable.

CURRENT VERSION OF TEXT

���� As introduced.

��

An Act
concerning corporation business tax credits for
research expenses and amending P.L.1993, c.175.

����
Be It
Enacted
by the Senate and General Assembly of
the State of New Jersey:

���� 1.��� Section 1 of P.L.1993,
c.175 (C.54:10A-5.24) is amended to read as follows:

���� 1.��� a.� A taxpayer shall be
allowed a credit, subject to the provisions of subsection b. of this section,
against the tax imposed pursuant to section 5 of P.L.1945, c.162 (C.54:10A-5),
in an amount equal to
:

���� (1)��
[
10%
]

10 percent

of the excess of the qualified research expenses for the privilege period over
the base amount
, or 15 percent of the excess of the qualified research
expenses for the privilege period over the base amount if the taxpayer is
primarily engaged in business in one or more targeted industries
; and

���� (2)��
[
10%
]

15 percent

of the basic research payments for the privilege period determined in
accordance with section 41 of the federal Internal Revenue Code of 1986, 26
U.S.C. s.41.

����
(3)
�� Provided however,
that the terms �qualified research expenses,� �base amount,� �qualified
organization base amount period,� �basic research� and any other terms
determined by the Director of the Division of Taxation to affect the
calculation of the credit shall include only expenditures for research
conducted in this State. �For privilege periods beginning on and after January
1, 2018, amounts paid or incurred by the taxpayer in carrying on any trade or
business of the taxpayer during the privilege period, including as
contributions, to an energy research consortium for energy research shall also
qualify as a basic research payment for purposes of this subsection.

���� b.��� No credit shall be
allowed under section 42 of P.L.1987, c.102 (C.54:10A-5.3), or under the �Manufacturing
Equipment and Employment Investment Tax Credit Act,� P.L.1993, c.171
(C.54:10A-5.16 et al.), or under P.L.1993, c.170 (C.54:10A-5.4 et seq.), for
property or expenditures for which a credit is allowed, or which are includable
in the calculation of a credit allowed, under this section.

���� The order of priority of the
application of the credit allowed pursuant to this section and any other
credits allowed by law shall be as prescribed by the director.� Credits
allowable pursuant to this section shall be applied in the order of the
privilege periods for which the credits were allowed.

���� For privilege periods
beginning before January 1, 2012,
but before the effective date of P.L.��� ,
c.��� (pending before the Legislature as this bill),
the amount of the
credits applied under this section against the tax imposed pursuant to section
5 of P.L.1945, c.162, for the privilege period shall not exceed
[
50%
]

50 percent

of the tax liability otherwise due and shall not reduce the tax liability to an
amount less than the statutory minimum provided in subsection (e) of section 5
of P.L.1945, c.162.

���� For privilege periods
beginning on or after January 1, 2012,
but before the effective date of
P.L.��� , c.��� (pending before the Legislature as this bill),
the amount
of the credits applied under this section against the tax imposed pursuant to
section 5 of P.L.1945, c.162, for the privilege period shall not reduce the tax
liability to an amount less than the statutory minimum provided in subsection
(e) of section 5 of P.L.1945, c.162.

���� For privilege periods
beginning on or after January 1, 2018,
but before the effective date of
P.L.��� , c.��� (pending before the Legislature as this bill),
the credit
taken under this section shall not be refundable.�

����
[
The
]

For privilege periods
beginning on or after the effective date of P.L.��� , c.��� (pending before the
Legislature as this bill), the
amount of credit otherwise allowable under
this section which cannot be applied for the privilege period
[
due to the
limitations of this subsection
]

against tax liability otherwise due for that privilege period
may
, at
the election of the taxpayer,
be carried over, if necessary, to the seven
privilege periods following a credit's privilege period
, or be claimed as
and treated as an overpayment for the purposes of R.S.54:49-15, except that
section 7 of P.L.1992, c.175 (C.54:49-15.1) shall not apply
.

���� c.���� No provision
terminating section 41 of the federal Internal Revenue Code, 26 U.S.C. s.41,
shall apply.

���� d.��� For privilege periods
beginning on and after January 1, 2020, the portion of qualified research
expenses and qualified payments of a taxpayer that is a qualified small
business within the meaning of section 41(h)(3) of the federal Internal Revenue
Code (26 U.S.C. s.41) that were disallowed for the section 41(h) tax credit
because the taxpayer made an election pursuant to sections 41(h) and 3111(f) of
the federal Internal Revenue Code (26 U.S.C. s.41 and s.3111) to take the
3111(f) credit in lieu of the 41(h) credit, shall be allowed for the purposes
of calculating the New Jersey credit provided for by this section.

����
e.���� As used in this
section, �targeted industry� means any industry identified from time to time by
the New Jersey Economic Development Authority, which industries shall initially
include, but not be limited to, advanced transportation and logistics,
manufacturing, aviation, autonomous vehicle and zero-emission vehicle research
or development, clean energy, life sciences, hemp processing, information and
high technology, finance and insurance, professional services, film and digital
media, non-retail food and beverage businesses including food innovation, and
other innovative industries that disrupt current technologies or business
models.

(cf: P.L.2020, c.118, s.10)

���� 2.��� This act shall take
effect immediately and shall apply to privilege periods beginning on or after
the date of enactment.

STATEMENT

���� This bill makes several
changes to the research tax credit provided under the corporation business tax,
including increasing the qualified research expenses credit for taxpayers
engaged in targeted industries, increasing the basic research payments tax credit
for all taxpayers, and allowing the total credit to be refundable.

���� Under current law, a
corporation business taxpayer may receive a research tax credit in an amount
equal to (1) 10 percent of the excess of qualified research expenses for the
privilege period over the base amount; and (2) 10 percent of the basic research
payments for the privilege period. �

���� This bill increases the
qualified research expenses tax credit from 10 percent to 15 percent for
taxpayers who are primarily engaged in business in one or more targeted
industries.� For the purpose of calculating the qualified research expenses tax
credit, the base amount is determined based on a fixed percentage of the
taxpayer�s average annual gross receipts.� Qualified research expenses are also
defined to include the sum of in-house research expenses and contract research
expenses that are paid or incurred during the privilege period.

���� Under the bill, the New Jersey
Economic Development Authority would be responsible for periodically
identifying a list of targeted industries.� However, the bill requires the
initial list of targeted industries to include advanced transportation and
logistics, manufacturing, aviation, autonomous vehicle and zero-emission
vehicle research or development, clean energy, life sciences, hemp processing,
information and high technology, finance and insurance, professional services,
film and digital media, non-retail food and beverage businesses including food
innovation, and other innovative industries that disrupt current technologies
or business models.

���� Additionally, the bill
increases the basic research payments tax credit from 10 percent to 15 percent
for all taxpayers.� State regulations define basic research payments to include
cash payments provided by a corporation to qualified organizations (e.g.,
institutions of higher education, certain scientific research organizations,
and certain scientific tax-exempt organization) for the performance of basic
research.� Under state regulations, the credit is calculated based on the
provisions of section 41 of the federal Internal Revenue Code of 1986 (26
U.S.C. s.41), as in effect on June 30, 1992.��

���� The bill also allows the
research tax credit to be refundable for privilege periods beginning on or
after the date of enactment.� Under current law, the research tax credit cannot
be refunded, and taxpayers are permitted to carry forward the unused portion of
the credit for seven privilege periods.� Under the bill, a taxpayer may instead
elect to receive the unused portion of the credit as a tax refund or carry
forward the unused credit.� When a tax credit is refundable, the State is
required to provide the taxpayer with a cash payment in the amount of the
unused credit, which represents an overpayment of tax.