New Jersey’s Manufacturing Equipment and Employment Investment Tax Credit

New Jersey presents a lucrative opportunity to manufacturers, offering tax credits to those who invest in equipment and workforce development. For tax years beginning on or after January 1, 1994, the Manufacturing Equipment and Employment Investment Tax Credit is available to manufacturing corporations who invest in certain manufacturing equipment and increase employment for New Jersey residents and is available for taxpayers who file forms CBT-100, CBT-100S, or CBT-100U.

To qualify, manufacturers must purchase qualified equipment and place it in service in New Jersey and/or invest in employment by increasing jobs for New Jersey residents. This credit spans over three years using the following schedule:

• Year 1: Tax year that the equipment investment was made
  
• Year 2 and 3: Two following years after increasing jobs to NJ residents made in year 1

The year 1 credit is equal to 2% of the cost of the qualified manufacturing equipment (investment credit base) with a maximum credit of $1,000,000. This credit increases to 4% if the manufacturer has 50 or fewer employees and a net income of $5,000,000 or less in the tax year that the equipment was purchased. The maximum credit limit of $1,000,000 still applies.

Qualified equipment includes machinery or equipment that is used primarily for the production of tangible personal property. The equipment must have a minimum useful life of four years and be placed in service in the state of New Jersey. Nonqualifying equipment includes transportation equipment such as automobiles, airplanes, property that is leased or rented to another person, equipment purchased from a related party, equipment acquired via the purchase of another entity that already had the equipment in service in New Jersey or equipment for which the New Jobs Investment Tax Credit or Research and Development Tax Credit has been claimed.

The year 2 and year 3 credit is equal to $1,000 multiplied by the increase in average qualified employees when compared to the base year, which is the year preceding the investment year, not to exceed 3% of the investment credit base.

The credit is limited to 50% of the total tax liability and cannot reduce the tax liability below the required minimum tax. To claim this credit, Form 305 must be filed with the NJ CBT tax return.

The New Jersey Manufacturing Equipment and Employment Investment Tax Credit provides a valuable incentive for manufacturing corporations to invest in equipment and expand their workforce, which, in turn, also contributes to the state’s economic growth. Additional information about this credit can be found on the NJ Division of Taxation website or by contacting a member of HBK Manufacturing Solutions at 330-758-8613 or manufacturing@hbkcpa.com.