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New Jersey Must Comply with Incentive Contract

Tax Development Dec 14, 2023

New Jersey Must Comply with Incentive Contract

The New Jersey Superior Court, Appellate Division affirmed a lower court decision1 that determined the New Jersey Economic Development Authority (NJEDA) could not rescind a tax incentive agreement and withhold associated tax credits.

In 2014, NJEDA agreed to award $260 million in tax credits under the New Jersey Grow Program over a 10-year period to induce Holtec International (“Holtec”) to build a new technology campus in Camden. The facility was built, and credits were certified by NJEDA. In June 2019, the Office of the State Comptroller issued a report alleging Holtec had misrepresented facts in its application. NJEDA was criticized in the report for a lack of diligence in overseeing the tax credit program. Subsequently, NJEDA refused to certify the tax credits for the 2018 tax year, resulting in this legal challenge.

In the New Jersey Superior Court, Law Division, Judge Lougy concluded that NJEDA could not void the tax incentive agreement, finding that certain provisions in the application were ambiguous and should be construed against NJEDA, which drafted the application. In addition, the judge concluded that Holtec did not make any material misrepresentations in its application for tax credits.

NJEDA appealed the decision to the Appellate Division, where the court considered previous complaints about the ambiguity of some items in the application form. NJEDA had been alerted to these ambiguities previously. For example, in December 2012, another Grow Program applicant, Siemens Healthcare Diagnostics, Inc., informed NJEDA through an addendum to its application that “some of the items 1-10 are not worded as a question.” Other applicants had also expressed confusion or frustration with the application form with respect to the background items. NJEDA acknowledged such deficiencies to some of these applicants.

The criticisms of the application form prompted changes to the application process, including issuing a new application form modifying the “Additional Information” section and explicitly defining “legal proceeding.” NJEDA acknowledged other applicants that engaged in corporate misconduct are still receiving tax credits without penalty.

Considering the above factors presented, the court ruled2 to affirm the lower court decision, agreeing that the application form was ambiguous in its questions and declined to agree with NJEDA that rescinding the tax credits was an appropriate remedy. The court determined that Holtec had relied on the tax credits to build the facility and fulfilled the requirements of the tax incentive agreement.

This case is important in that it emphasizes that both the development agency as well as the taxpayer are held to the terms of any contract entered into for incentives. In our experience, so many taxpayers lose their benefits by failing to comply with the terms of a contract. Please make sure to reach out to our Ryan professionals to assist in negotiating, understanding, and complying with the terms of your incentive contracts to make sure you get the benefits you bargained for. Contact our expert listed below today.

1 Holtec International v. New Jersey Economic Development Authority, Superior Court of New Jersey, Law Division, Mercer County, Docket No. L-0696-20.

2 Holtec International v. New Jersey Economic Development Authority, Superior Court of New Jersey, Appellate Division, Docket No. A-1477-21.


Sharon Roberts

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