305: Manufacturing Equipment and Employment Investment Tax Credit (2024)
New Jersey · NJ Division of Taxation · Used for tax years 2024
New Jersey Form 305 calculates the Manufacturing Equipment and Employment Investment Tax Credit for Corporation Business Tax. It reports qualified equipment investments, employment increases tied to prior-year investments, the allowable credit, and any credit carried forward.
Who files this form
Form 305 is for Corporation Business Tax taxpayers earning or claiming the Manufacturing Equipment and Employment Investment Tax Credit for qualified equipment investments in New Jersey and related increases in employment.
Include the appropriate credit form for the year the credit was earned, even if you are not claiming the credit on that year's return. A completed Form 305 must accompany Form CBT-100, CBT-100S, or CBT-100U to validate a claim.
For a combined return, the member that earned the credit must complete Form 305.
What you'll need
Have the following records and return information available:
- Equipment records showing each item's identity, actual or reasonably determined cost, useful depreciation life, month and tax year placed in service, credit taken, and disposal date or date it stopped qualifying.
- Prior Forms 305 if you are calculating employment credits for earlier investments. Parts II and III use equipment costs from those forms.
- Average numbers of qualifying New Jersey employees and employee equivalents for the applicable base and measurement years.
- The amount of any credit carried forward from the prior year.
- Your CBT-100, CBT-100S, or CBT-100U tax liability information and details of other credits already applied.
- For combined-return members not sharing the credit, the group and member allocation factors from Schedule J, line 9.
The equipment records must be maintained. The text does not say to attach those records to Form 305.
How to file
Include completed Form 305 with your CBT-100, CBT-100S, or CBT-100U return.
- Complete Part I for qualified equipment placed in service in New Jersey during the current year. Complete Parts II and/or III when applicable for earlier investments and increased employment.
- Complete Part IV to total the available credit, including any prior-year carryforward.
- CBT-100 and CBT-100S filers complete Part V and report the allowable credit from line 28 on Schedule A-3, Part I.
- CBT-100U filers skip Part V and complete Part VI, Section A. Check the combined-return filer box. Members sharing the credit report line 37 in the member's column of Schedule A-3, Part I.
- Members not sharing the credit must also mark the non-sharing oval and complete Part VI, Section B. Report line 46 in the member's column of Schedule A-3, Part I.
The supplied text does not provide a mailing address or e-file directions.
Common mistakes
- Leaving out the form when no credit is claimed. Include the appropriate credit form in the year the credit is earned, even if you are not claiming it that year.
- Using the same investment in more than one part. Do not complete more than one of Parts I, II, and III for the same investment on the same form.
- Completing Part V for a combined return. Combined-return filers must use Part VI instead. Members not sharing the credit still must complete Section A, as well as Section B.
- Omitting other credits already used. List credits already applied on line 26, 35, or 44, as applicable, so the allowable credit is calculated correctly.
- Including excluded costs. Equipment cost must not include trade-in value or insurance proceeds received for lost equipment being replaced.
- Overlooking carryforward restrictions. Unused credit cannot be carried forward to a tax year in which the taxpayer was a target corporation in a corporate acquisition or was a party to a merger or consolidation.
Questions people ask
How much is the manufacturing equipment credit?
The credit is generally 2% of the investment credit base, up to $1,000,000 for the tax year. The rate is 4% for taxpayers with an average of 50 or fewer full-time employees and full-time employee equivalents and entire net income used to measure the tax of less than $5,000,000. The same $1,000,000 maximum applies.
What equipment can qualify?
Qualifying equipment includes machinery, apparatus, or equipment used directly and primarily in manufacturing, processing, assembling, or refining tangible personal property. It must have a useful life of at least four years and be placed in service in New Jersey. Certain purchased electricity-generation and thermal-energy equipment also qualifies. Equipment transferred from outside New Jersey can qualify if it otherwise meets the requirements.
How does the employment investment credit work?
It applies to each of the two tax years after the equipment investment year. For each year, it is limited to the lesser of 3% of the investment credit base or $1,000 multiplied by the increase in the average number of qualified employees. The base year is the year immediately before the investment, and the measurement year is the year immediately after it.
Can the credit eliminate all of my tax?
No. The allowable credit cannot exceed 50% of the tax liability otherwise due and cannot reduce tax below the applicable statutory minimum. Other credits already applied also affect the calculation.
Can I carry unused credit forward?
Credit unused because of the applicable limitations may be carried forward to the seven tax years following the credit's tax year. However, it cannot be carried forward to a year in which the taxpayer was a target corporation in a corporate acquisition or was a party to a merger or consolidation.