New Jersey Commerce, Economic Growth and Tourism Commission Commission Assistance Programs – Sales and Use Tax Exemption Proposed Amendments: N.J.A.C. 12A:2A-2.2, 2.11, 2.12 Authorized By: Virginia S. Bauer, Chief Executive Officer and Secretary, New Jersey
Commerce, Economic Growth and Tourism Commission Authority: P.L. 2004, c. 65, §§ 19 through 23. Calendar Reference: See Summary below for explanation of exception to calendar requirement Proposal Number: PRN 2007-247.
Submit written comments by October 5, 2007 to: Lauren Moore Office of Business Advocate New Jersey Commerce, Economic Growth and Tourism Commission PO Box 820 Trenton, New Jersey 08625-0820
The agency proposal follows: Summary The New Jersey Commerce, Economic Growth and Tourism Commission
(“Commission”) is proposing amendments to one out of the four subchapters of rules implementing the Business Retention and Relocation Assistance Act, P.L. 2004, c. 65 §§ 19 through 23 (the “Act”). The subchapter affected consists of the rules establishing a sales and use tax exemption program (“Sales Tax Exemption Program”).
Under the Sales Tax Exemption Program, administered by the Commission, a qualifying business will be exempt from sales and use tax for eligible property located or placed at a business location for a construction and/or renovation project including the retention of a minimum 250 or 500 relocated full-time jobs, depending on the nature of the business. The
sales tax exemption certificate, which applies only to property purchased for installation at that approved project, will allow the business to purchase machinery, equipment, furniture and furnishing, fixtures and building materials other than tools and supplies to place at the project location without the imposition of sales and use tax until that new facility is functional, as further specified in the program rules and the project approval agreements. As the Secretary has provided a 60-day comment period in this notice of proposal, this notice is excepted from the rulemaking calendar requirement, pursuant to N.J.A.C. 1:30-3.3(a)5. The following summarizes the content of each section of the proposed amendments:
Chapter 2A. Commission Assistance Programs
Subchapter 2. Sales and Use Tax Exemption Program
N.J.A.C. 12A:2A-2.2 Definitions The proposed amendments revise four definitions and add a new definition. “Commitment duration” is revised to provide flexibility to companies needing several months up to a year to relocate jobs so as not to disrupt business operations. The revision decouples the completion date for use of the sales tax exemption from the commencement of the commitment duration. “Project” is revised to address the relationship between the number of retained full-time jobs and
the scope of the project, and accommodates a 20 per cent growth factor, consistent with another tax incentive program, the BEIP program, as the eligible scope of the project. “Sales tax exemption” is revised to incorporate the eligible scope in the pro rata administration of the exemption, determined by dividing the number the retained full-time jobs increased by 20 per cent into a denominator that includes all of the jobs of any employer at the project site. A new definition, “sales tax recapture amount,” is added to address a non-default level of reduction or anticipated reduction of the number of relocated retained full-time jobs, and entails a repayment proportional to the time and amount of reduction, without penalty, derived in part from the BRRAG tax credit recapture assessment. The definition also provides that if the reduction or anticipated reduction in the aggregate exceeds 20 percent of the number of retained full-time jobs, penalties may be imposed. This definition was created to address the business reality that during a five year period companies need to vary the composition of their workforce, are willing to repay for reductions in the number of committed full-time jobs, but do not think that such variances, if above the eligibility threshold, should warrant the status and consequences of default. Finally, the definition of “sales tax repayment amount” is revised to make explicit the statutory authority for imposing penalties and to make a grammatical correction.
N.J.A.C. 12A:2A-2.11 Events of recapture and default The proposed amendment adds an event of recapture, revises one of the events of default to distinguish the two, and adds an event of default. The event of recapture is triggered by a business either falling below the 95 percent and 90 percent retained full-time jobs levels during the five year commitment duration or notifying the Commission that prior to the commitment duration, it will not relocate 100 percent of the retained full-time jobs set forth in the project
approval agreement, but will relocate the minimum required for project eligibility. This type of event is currently one of the events of default. That event of default is proposed to be revised so that the trigger is a reduction in the number of retained full-time jobs below the threshold, either 250 or 500, as applicable to the type of business, for program eligibility. A new event of default is also created to address the failure to timely repay the sales tax recapture amount. Two further changes to the subsection on events of default include a grammatical change, and the reordering of a general statement from the end to the beginning of the subsection to assist readability.
N.J.A.C. 12A:2A-2.12 Remedies The amendment proposes to add to the remedies section a remedy for an event of recapture, in addition to the remedies for an event of default. A reference to the new recapture remedy is also added to the provision discussing the calculation of statutory interest.
Social Impact Creating and retaining employment opportunities for the residents of New Jersey is essential for sustaining a high quality of life and a robust economy. The proposed amendments to the rules for the Sales tax exemption program are intended to support the purpose of the Act in providing greater flexibility to companies seeking to balance the need to preserve jobs with the need to change the composition of their workforce to reflect dynamic business realities.
Economic Impact The sales tax exemption program is specifically targeted at those companies that are committed to moving numbers of New Jersey based employees to a new location and are
actively considering moving those jobs out of state. At such moments, New Jersey is especially vulnerable to other states and countries attempting to lure these New Jersey-based jobs to out of State locations. By encouraging these employers to make significant investments in new or renovated facilities to house their retained employees, the sales tax exemption program positively promotes economic development, job retention and capital investment in New Jersey. The proposed amendments refine the economic development tool of the sales tax exemption program by enabling businesses committed to retaining jobs in New Jersey greater flexibility in the composition of their workforce at the project site over the five-year commitment period and an incentive to increase the jobs at the project site, while continuing the eligibility requirements that encourage the stability and security to New Jersey’s existing job base.
Federal Standards Statement A Federal standards analysis is not required because the proposed amendments are not subject to any Federal requirements or standards.
Jobs Impact The Commission believes that the proposed amendments will assist in retaining existing private sector jobs and stimulating the creation of new private sector jobs, particularly by allowing a 20 percent growth factor above the number of retained full-time jobs to be included within the eligible scope of a construction or renovation project. Companies that apply for the program benefits under the rules for these programs will continue to be required to comply with the job retention provisions.
Agriculture Industry Impact The proposed amendments will have no impact on the agriculture industry of the State of New Jersey.
Regulatory Flexibility Statement The proposed amendments do not impose reporting, recordkeeping, or other compliance requirements on small business, because the Sales Tax Exemption Program requires relocation of a minimum of 250 full-time employees. Therefore, a regulatory flexibility analysis is not required.
Smart Growth Impact The proposed amendments do not alter program requirements that are intended to achieve smart growth and implement the State Development and Redevelopment Plan because they have application requirements evidencing consistency with the State Plan and program eligibility favoring or restricted to urban areas or urban enterprise zones.
Full text of the proposal follows (additions indicated in boldface thus; deletions indicated in brackets [thus]:
CHAPTER 2A COMMISSION ASSISTANCE PROGRAMS
SUBCHAPTER 2. SALES AND USE TAX EXEMPTION PROGRAM
N.J.A.C. 12A:2A-2.2 Definitions ...
“Commitment duration” means five years from the later of the relocation of all of the retained full-time jobs included in the project, which shall not be more than one year from the issuance of a temporary certificate of occupancy, or the completion date specified in the project approval agreement entered into pursuant to section 19 through 22 of P.L. 2004, c. 65 (N.J.S.A. 34:1B-185 through 188). ...
“Project” means the construction, renovation or expansion of facilities at the approved site as described in the project description in the application and the agreement that will become the business’s new business location and that will be related to retained full-time jobs. The
eligible scope of the project shall accommodate no more than 20 percent above the number of retained full-time jobs.
...
“Sales tax exemption” means the sales and use tax exemption approved under an agreement pursuant to the Act, and for purposes of this program, the sales tax exemption shall be administered pro rata to reflect the eligible scope of the project, based on the number of retained full-time jobs increased no more than 20 percent (eligible scope) relative to the sum
of the number of [total] all of the jobs of any employer located at an approved project site during the commitment duration period.
“Sales tax recapture amount” means either: 1. If the event of recapture occurs during the commitment duration, provided the reduction of retained full-time jobs in the aggregate from execution of the project approval agreement until the event of recapture does not exceed 20 percent of the number of the retained full-time jobs: the sum of (a) a portion of the amount of the sales and use taxes which would have been payable on all eligible property purchased for the project if the property were not purchased with the sales tax certificate based upon the proportionate value of such amount that corresponds to the reduction of retained full-time jobs and the period of noncompliance and (b) interest on the amount referred to in (a) at the rate equal to the statutory rate for sales tax deficiencies and (c) all costs incurred by the Secretary and the Division of Taxation in connection with the pursuit of the sales tax recapture amount (including, but not limited to, counsel fees, court costs and other costs of collection). To the extent the reduction of retained full-time jobs in the aggregate exceeds 20 percent of the number of retained full-time jobs, penalties pursuant to the State Uniform Tax Procedure Law, N.J.S.A. 54:49-1 et seq. may also be imposed ; or
2. If the event of recapture occurs prior to the commitment duration, provided the reduction of retained full-time jobs in the aggregate from execution of the project approval agreement until the event of recapture does not exceed 20 percent of the
number of retained full-time jobs: the sum of (a) a portion of the amount of the sales and use taxes which would have been payable on all eligible property purchased for the project if the property were not purchased with the sales tax certificate based upon the proportionate value of such amount that corresponds to the reduction of retained full-time jobs and the failure to comply for any portion of the commitment duration and (b) interest on the amount referred to in (a) at the rate equal to the statutory rate for sales tax deficiencies and (c) all costs incurred by the Secretary and the Division of Taxation in connection with the pursuit of the sales tax recapture amount (including, but not limited to, counsel fees, court costs and other costs of collection). To the extent the reduction of retained full-time jobs in the aggregate exceeds 20 percent of the number of retained full-time jobs, penalties pursuant to the State Uniform Tax Procedure Law, N.J.S.A. 54:49-1 et seq. may also be imposed.
“Sales tax repayment amount” means the sum of:
1. The amount of sales and use taxes which would have been payable on all eligible property purchased for the project if the property was not purchased with the sales tax certificate; provided that if repayment is the result of a default of the agreement during the commitment duration, this amount shall be reduced by an amount allocable to the proportionate amount of the sales and use tax that corresponds to the period of time in
which the business was in compliance measured from the completion date until the date of default;
2. Interest on the repayment amount referred to in paragraph 1 above at the rate equal to the statutory rate for sales tax deficiencies plus any [statutory] penalties pursuant to the State Uniform Tax Procedure Law, N.J.S.A. 54:49-1 et seq.; and
3. All costs incurred by the Secretary and the Division of Taxation in connection with the pursuit of the sales tax repayment amount (including, but not limited to, counsel fees, court costs and other costs of collection).
12A: 2A-2.11 Events of recapture and default
(a) The occurrence of any one of the following events (whether such event shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulations of any administrative or governmental body) shall constitute an event of recapture under the project approval agreement:
1. The business reduces or relocates the retained full-time jobs such that the number of retained full-time jobs falls below the number required pursuant to N.J.A.C. 12A: 2A-2.5(a)3iv (greater than five percent during the first two years of the commitment duration; greater than 10 percent during the
remainder of the commitment duration) but has relocated at least the threshold number of project eligibility, 250 or 500, as applicable to the type of business); or
2. The business notifies the Commission, prior to the commitment duration, that it will not relocate 100 percent of the retained full-time jobs set forth in the project approval agreement, but will relocate at least the threshold number for project eligibility, 250 or 500, as applicable to the type of business.
[(a)] (b) The occurrence of any one or more of the following events (whether such events shall be voluntary or involuntary or come about or be effected by operation of law or pursuant to or in compliance with any judgment, decree or order of any court or any order, rule or regulations of any administrative or governmental body) shall constitute an “event of default” under the project approval agreement[:] Violations of the “events of default” provision of the project approval agreement shall be cause for immediate termination of the sales tax certificate as provided by law and repayment of the State sales tax.
1.-3. (No change.)
4. The business reduces or relocates the retained full-time jobs [above the percentages certified pursuant to N.J.A.C. 12A:2A-2.5(a)3iv (greater than five percent during the first two years of the commitment duration; greater than 10 percent during the remainder of the
commitment duration)]below the threshold number for project eligibility, either 250 or 500, as applicable to the type of business; [or]
5. The business fails to pay the sales tax recapture amount in a timely manner; or
[5.] 6. The business fails to serve or perform in any other material respect any other term, covenant or condition of the business under the project approval agreement and this subchapter and such failure shall have continued for 30 days after the earlier of delivery to the business of written notice thereof from the Secretary or the business’s actual or constructive knowledge of such failure; provided, however, that if such failure is capable of cure, but cannot be cured by the payment of money or by diligent efforts within such 30-day period, but diligent efforts are properly commenced within the cure period and the business is diligently pursuing, and shall continue to pursue diligently, remedy of failure, the cure period shall be extended for an additional period of time, not to exceed an additional 45 days and in no case to extend beyond the expiration of the project approval agreement. [Violations of the “events of default” provision of the project approval agreement shall be cause for immediate termination of the sales tax certificate as provided by law and repayment of the State sales tax.]
12A:2A-2.12 Remedies
(a) Upon the occurrence of an event of recapture as described in N.J.A.C. 12A:2A-2.11 and the project approval agreement, the Secretary may demand the payment of the
sales tax recapture amount, and in his or her sole discretion, may request that the Director of the Division of Taxation recover the sales tax recapture amount.
[(a)] (b) Upon the occurrence of any event of default as described in N.J.A.C. 12A:2A-2.11 and the project approval agreement, the Secretary may, so long as such event of default is continuing, do one or more of the following as the Secretary in his or her sole discretion shall determine, without limiting any other right or remedy the Secretary or the Division of Taxation may have on account of such event of default:
1.-2. (No change.)
[(b)] (c) In the event of default or recapture, statutory interest shall be calculated from the date of default or recapture through the date of payment for all purchases made by the business or project participant pursuant to the exemption certificate issued under the Act.
[(c)] (d) The rights and remedies of the Secretary under this subchapter and the project approval agreement shall be cumulative and shall not exclude any other rights and remedies of the Secretary or the Division of Taxation allowed by law with respect to any event of default under this subchapter or the project approval agreement.