The N.J. Legislature has passed legislation that provides yet another variable for companies to consider before deciding whether to convert unpaid Business Employment Incentive Program (“BEIP”) grants into credits.

Under its Business Employment Incentive Program (“BEIP”), New Jersey approved $1.6 billion of job-creation grants to nearly 500 businesses. But the program was phased out in 2013 and the New Jersey legislature stopped funding existing grants. As a result, more than $650 million of BEIP grants remain unpaid. Instead of simply paying what it promised, New Jersey adopted legislation earlier this year designed to force companies to accept tax credits in lieu of their unpaid BEIP grants. To participate, companies must make an irrevocable “election” by July 11 (see our prior coverage).

Faced with budget problems, the New Jersey legislature has again targeted BEIP as a stop-gap measure. Under the original conversion legislation, an unpaid grant would be converted to five years’ worth of tax credits. The conversion schedule was front-loaded so that the majority of credits would accrue in the earliest years. But under new legislation that was passed by the legislature and signed by the governor June 30 (A-4002), most of the credits will accrue in the later years. This delay is projected to cost companies $133 million in FY 2017.

Should Your Company Elect By July 11? Unused BEIP credits are refundable. So for some companies, converting their unpaid BEIP grants to credits will just result in a timing difference. For other companies, the conversion will have a permanent economic effect. BEIP credits take priority over other credits. So beyond just the federal income tax effect, companies could see their lower-priority credits get supplanted by BEIP credits and expire unused.

The new legislation represents another variable for companies to consider in deciding whether to make an election to convert their grants to credits by the July 11 deadline. Certain taxpayers will have little to gain from the conversion process. So it’s likely that some companies will instead seek to monetize their unpaid grants through self-help or litigation.

If you have questions about N.J.’s BEIP legislation or about the conversion process generally, please contact one of the authors of this Alert or the Reed Smith attorney with whom you usually work.

Client Alert 2016-170