"Base year" means the tax year immediately preceding the year in which a qualified investment was placed in service.
"Cost of qualified equipment" means, and is determined according to, the following criteria:
"Credit allowable" means the credit available after applying limitations listed under (b)2i and ii below.
"Credit available" means the credit earned plus any unused carryover from prior years.
"Credit earned" means the manufacturing equipment portion of the credit plus the employment investment portion of the credit in a given tax year.
"Employee equivalents" means the aggregate hours of qualified part-time employees who worked for the taxpayer for at least 20 hours per week for at least six months. This amount is used to determine the total number of full-time employees and equivalents necessary when calculating the employment investment portion of the credit. The employees must be New Jersey residents domiciled in this State who are working at locations in New Jersey.
"Measurement year" means the tax year immediately following the year in which a qualified investment was placed in service.
"Placed in service," with respect to qualified equipment, means and occurs in the earlier of the following tax years:
"Qualified equipment" means machinery, apparatus, or equipment acquired by purchase for use or consumption by the taxpayer directly and primarily in the production of tangible personal property by manufacturing, processing, assembling, or refining, as defined pursuant to N.J.S.A. 54:32B-8.13a, having a useful life of four or more years, and placed in service in this State. Qualified equipment does not include tangible personal property which the taxpayer contracts or agrees to lease or rent to another person or licenses another person to use. Lease renewals, subleases, or assignments shall not be considered as qualified equipment. See N.J.A.C. 18:24-4.2.
"Useful life" used to distinguish three-year property from all other property, is determined in accordance with I.R.C. § 168.
THREE-YEAR PROPERTY | ALL OTHER PROPERTY |
Number of months qualified use | Number of months qualified use |
36 | 60 |
Example: | Year 1 | Year 2 | Year 3 | Year 4 |
Cost of qualified equipment placed in service | None | $ 3,000,000 | $ 5,000,000 | $ 1,000,000 |
Average employees and/or employee equivalents | 125 | 140 | 150 | 160 |
Year 2: XYZ Corporation places qualified manufacturing equipment in service in New Jersey during Year 2. The cost of the manufacturing equipment, excluding shipping and installation, is $ 3,000,000. The taxpayer receives a recycling equipment tax credit of $ 10,000 and its corporate tax liability is $ 400,000. The manufacturing equipment portion of the credit is $ 60,000 ($ 3,000,000 cost x two percent, not to exceed $ 1,000,000), and the employment investment portion is unavailable until the two years following placement of equipment in service. Therefore, the credit is the lesser of $ 60,000 or $ 190,000 (50 percent of the tax liability less the recycling equipment credit). In this case the allowable credit for XYZ Corporation is $ 60,000, the lesser of the two amounts.
Year 3: XYZ Corporation places additional qualified equipment in service during 1995, which was acquired through a lease agreement. The lease agreement required $ 5,000,000 to be paid over the term of the lease. The taxpayer is not eligible for any other tax credits, and its corporation business tax liability is $ 220,000. The manufacturing equipment portion of the credit is $ 100,000 ($ 5,000,000 total lease cost x two percent, not to exceed $ 1,000,000). The employment investment portion is $ 25,000 (150 measurement year average - 125 base year average = average increase of 25 x $ 1,000, not to exceed three percent of the cost of qualified equipment placed in service in New Jersey in Year 2). Therefore, the credit is the lesser of $ 125,000 ($ 100,000 + $ 25,000) or $ 110,000 (50 percent of the tax liability). In this case the allowable credit for XYZ Corporation is $ 110,000, the lesser of the two amounts. The difference between the total of the two credit portions ($ 125,000) and the credit allowable ($ 110,000), or $ 15,000 may be carried over for a maximum of seven years.
Year 4: Qualified equipment is placed in service during Year 4 at a cost of $ 1,000,000. The taxpayer is not eligible for any other tax credits, and its corporation business tax liability is $ 350,000. The manufacturing equipment portion of the credit is $ 20,000 ($ 1,000,000 total lease cost x two percent, not to exceed $ 1,000,000). The employment investment portion is $ 45,000, based on calculations for the Year 2 and Year 3 investments (150 measurement year average - 125 base year average = average increase of 25 x $ 1,000 or $ 25,000 for the Year 2 investment AND 160 measurement year average - 140 base year average = average increase of 20 x $ 1,000 or $ 20,000 for the Year 3 investment). Therefore, the credit is the lesser of $ 80,000 ($ 20,000 + $ 45,000 + $ 15,000 carryover from Year 3) or $ 175,000 (50 percent of the tax liability). In this case the allowable credit for XYZ Corporation is $ 80,000, the lesser of the two amounts.
N.J. Admin. Code § 18:7-3.21