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Inward Investment Guides

Biotech Incentives Help Create Winning Locations

Thomas J. Stringer, Esq., Principal, Site Selection & Business Incentives, Ryan & Company (Biotech Location Guide 2007)
(page 2 of 3)
Selling Losses and Credits
New Jersey has long been the home of big pharma in the United States and has a global reputation for its pharmaceutical industry work force as well as easy access to the capital markets of New York. New Jersey is also often the site of many initial foreign direct investments in various industries into the United States.

New Jersey makes cash grants available through the Business Employment Incentive Program to expanding or relocating businesses that create new jobs in the state. Companies must create at least 10 new jobs if they are high-tech/biotechnology companies and 25 new jobs if they are in other nontechnology business categories. The maximum award is 80 percent of new state personal income taxes generated as a result of new employees hired.

An innovative incentive gaining steam in New Jersey - and attracting attention elsewhere - is the Technology Business Tax Certificate Transfer Program. This benefit allows unprofitable biotechnology companies to raise cash by selling New Jersey tax losses and R&D credits to other New Jersey businesses for at least 75 percent of their value. The program is open to expanding companies with less than 225 employees that have at least 75 percent of their work force in New Jersey. Money raised may be used for most business expenses.

Increasingly, other states are looking at this program and developing similar models. Unlike the usual array of tax credits offered as incentives by most states, saleable credits will be of interest to biotech companies regardless of how small or unprofitable they may be. The reasons for this are simple; at some point a company will be able to actually obtain value for them. They may generate cash proceeds during the start-up phase or eventually be used to reduce tax liability during the tax compliance process when the company eventually turns profitable. Simply put, these credits are not hollow incentives like so many income tax credits that have no relevance for growing biotech companies with little or no tax liability.

Other Financing Options
Pennsylvania also offers salable tax credits to businesses with research and development expenditures. Companies can receive tax credits up to 10 percent of their R&D activities, not to exceed $15 million. Companies without a tax liability may sell these tax credits for cash or carry them over for up to 15 years. More traditional Pennsylvania incentives that are increasing in popularity are advanced job training reimbursement programs for existing or newly hired employees and the Opportunity Grant Program, which offers discretionary funding for significant projects in targeted industries.

The Texas Enterprise Fund is by far the most powerful tool in the state's arsenal for attracting and retaining key projects. The fund allows the state to respond quickly and aggressively to opportunities and has been dubbed a "deal closer" due to its flexibility and depth in creative financing opportunities. The fund can be used for a variety of economic development projects, including infrastructure development, community development, and job-training programs. Funds are primarily used to attract new business to the state or assist with the substantial expansion of an existing business as part of a competitive recruitment situation.

Free Land and Leases
In recent years Florida has become one of the most aggressive states in courting biotechnology. Long known for its tourism, aerospace, and services industries, Florida has made several dramatic strategic bets to attract high-caliber and high-impact biotech companies and research institutes. The belief is that these catalysts will, in turn, create multiple spin-off effects for the local and regional economies - thus generating a significant and generational return on the incentives investment.

In several cases key projects were awarded incentives in the hundreds of millions of dollars, including discretionary cash grants from both the state and local counties. Additionally, local counties have moved toward acquiring land and building facilities free-of-charge for these projects. In some cases, local municipalities have even gone so far as to coordinate the use of leased office space for startup ventures. These benefits are in addition to the many traditional Florida incentive programs such as Enterprise Zones and job-creation grants.


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