New Jersey Agency Required to Honor its Deal and Allow $26 Million in Tax Credits

The BR State + Local Tax Spotlight

By Craig B. Fields

The Superior Court of New Jersey, Appellate Division, required the New Jersey Economic Development Authority (“EDA”) to “turn square corners” and certify $26 million in tax credits pursuant to its contract with a company despite some issues with the company’s application for the credits. Holtec International v. New Jersey Economic Development Authority, Docket No. A‑1477-21 (Nov. 30, 2023).

Facts: In 2014, the EDA awarded Holtec International $260 million in tax credits over a ten-year period to induce the company to build a new technology campus in Camden. Holtec built the facility, and the EDA initially certified the tax credits on which Holtec had relied in building the facility.

In 2019, the Office of the State Comptroller issued a report asserting that Holtec misrepresented facts in its application and criticized the EDA for its lack of diligence in enforcing the tax incentive program. The EDA then refused to certify $26 million in tax credits for the 2018 tax year, asserting that Holtec had not disclosed on its application a ten-day debarment by the Tennessee Valley Authority and had misrepresented an incentive proposal from South Carolina to locate there.

Decision: The Court found that Holtec’s failure to disclose the debarment was not grounds to void the contract. First, prior to Holtec’s application, the EDA was on notice by several other applicants of problems with the contract application form. Moreover, it was shown that applications were granted to companies with histories of far more serious transgressions. One EDA employee acknowledged during a public hearing “that based on the twenty-five memoranda he drafted, nothing ‘short of death’ would ‘constitute [] an outlier for the purpose of EDA disqualifications for tax incentives.’” Finally, the Tennessee debarment was publicly reported and available on the Internet. Given the application form deficiencies and the manner in which the EDA oversaw the application process, Holtec’s omission on its initial application did not constitute a material misrepresentation that would warrant rescinding the award of the tax credits.

The Court then held that the information provided about South Carolina offering Holtec free land to locate there was not grounds to void the contract. Holtec had explicitly referred to land costs as assumptions and the EDA did not request any additional documentation regarding the land costs. Indeed, EDA’s own employees testified that they did not press applicants for written offers from other states as the EDA did not want to encourage applicants to engage in further dialogue with other states.

The Court concluded that recission of the contract was not an appropriate remedy as Holtec had relied on the tax credits in deciding to make a very significant investment in New Jersey: “rescinding tax credits to a company that dutifully fulfilled its agreement to make substantial investments in Camden—an economically disadvantaged city—would hardly be equitable considering all relevant circumstances.”

This update is one in a series of updates written for the December 2023 edition of The BR State + Local Tax Spotlight.

© 2023 Blank Rome LLP. All rights reserved. Please contact Blank Rome for permission to reprint. Notice: The purpose of this update is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This update should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.