Legislators to weigh tax incentives for AI

Thursday was the first time the full Legislature has met since the summer. (Dana DiFilippo | New Jersey Monitor)

Legislators in both chambers will weigh whether to approve a new tax incentive program that would set aside $500 million to draw artificial intelligence development to New Jersey.

Under the bill , businesses that collect more than half their revenue from AI development or devote more than half of their staff to that purpose would be eligible for tax incentives worth up to $250 million.

“There’s tremendous potential in AI for our state to tap into — for job creation, for catalyzing innovation, and drawing upon the institutions of higher education in our state — I think we’re going to see strong” return on investment, said bill sponsor Sen. Raj Mukherji (D-Hudson).

Mukherji called AI a transformative technology that could create massive shifts in society, like computers and cars.

Eligible projects must include at least $100 million of capital investment and must create at least 100 new jobs to be eligible. The state Economic Development Authority would administer the new program, called Next New Jersey.

Awards under the program would equal 0.1% of the business’s total capital investment in the project for each new job that investment creates, to a cap of 25% or $250 million, whichever is lower.

Use of AI tools for regular businesses operations does not contribute to a firm’s eligibility for tax credits under the program. The program could pay up to $500 million in tax credits in its first year, and it would draw that money from the already approved $11.5 billion Aspire program, a separate tax incentive program meant to provide gap financing to certain projects.

The money’s source is causing concern among some, who worried the new program would draw money away from tax incentives meant to spur development in underserved communities.

“I’m a little bit concerned about some of the distributional outcomes of allowing these credits to go to potentially some of the world’s biggest companies for products that are already heavily invested,” said Peter Chen, a senior policy analyst at progressive think tank New Jersey Policy Perspective.

Businesses cannot simultaneously receive awards under the new program and the Emerge Program, a separate tax incentive program meant to draw businesses and development to disadvantaged areas of the state.

Mukherji said the amount set aside for AI firms is a placeholder, with final terms to be set by the Economic Development Authority.

“I think that Aspire and Emerge will stand on their own in achieving the aims of those credits, but there’s a lot allocated there that I don’t think was going to be used, but if we need to go back and adjust Aspire and Emerge, we can always do that,” he said.

Chen questioned whether the legislation, which received little attention amid a flurry of legislative activity Wednesday , includes oversight sufficient to ensure the state sees benefits from AI firms that exceed its investment.

“This is a $500 million tax credit program for a relatively untested technology. I think we should be pretty concerned that there aren’t enough guardrails in this legislation to allow the state to be assured that we’re going to get the economic benefits that these should produce,” he said.

The bill would require businesses that receive tax incentives under Next New Jersey to meet job creation and salary benchmarks negotiated with the Economic Development Authority.

Businesses that fail to meet those obligations would see their tax credits reduced for that year or, if their number of new employees is less than 80% of the agreed-upon level, lose them entirely until they can hold up their end of the bargain.

Tax incentive recipients who fail to timely submit certain documents to the EDA would also lose their tax incentives, though in both cases, businesses can regain benefits for following years by coming into compliance with the employment and paperwork requirements.

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