New Jersey is aiming to position itself as the leading hub for artificial intelligence advancement in the United States. A new law signed by the state’s governor allocates up to $500 million in tax incentives for AI firms looking to establish operations within the state.
In a statement, Governor Phil Murphy, a Democrat, emphasized the state’s goal of taking a pioneering role in the AI revolution and fostering greater economic prosperity. He said, “Our objective is for New Jersey residents to be at the forefront of the AI transformation and contribute to a more flourishing society. In doing so, we will make New Jersey a key center for research and development in innovative AI technologies.”
To be eligible for these tax incentives, AI companies and data centers supporting large-scale AI operations in New Jersey must meet specific criteria. These incentives are repurposed from unused funds from two other state tax credit programs established to stimulate job creation and real estate development in reaction to the challenges posed by the Covid-19 pandemic.
Some critics express concerns that the plan may benefit profitable AI firms at the expense of the state. Typically, data centers require minimal manpower, and tax breaks, particularly those aimed at technology companies, may prove to be more costly than their actual economic returns. An analysis of the bill conducted by New Jersey’s Office of Legislative Services, a nonpartisan support arm of the state legislature, acknowledges that it is uncertain whether the bill will have a positive or negative fiscal impact on the state.
The tax incentives are a part of Governor Murphy’s vision for an “AI Moonshot” for New Jersey, which he announced earlier this year. Murphy has previously stated his intention for the state to become the central hub for AI-driven innovations.
One of New Jersey’s own successful startups, CoreWeave, a cloud provider for AI services, recently secured $1.1 billion in funding and is currently valued at $19 billion. Capitalizing on the increasing demand for data center services in the New York region could significantly boost New Jersey’s market presence. A recent report from commercial real estate firm CBRE indicates a decrease in vacancy rates for leased data center facilities in the region.
The surge in venture capital funding for AI-related businesses, as evident from recent data, showcases the industry’s robust growth. These profitable companies, which heavily rely on data centers, will naturally gravitate towards locations conductive to their operations, without the need for additional incentives. Kasia Tarczynska, a senior research analyst at Good Jobs First, an organization advocating for economic development accountability, emphasized, “This is a thriving and self-sustaining industry that does not require external assistance to thrive.”
While data centers and AI companies in the US are generally eligible for standard business tax benefits, Tim Sullivan, CEO of the New Jersey Economic Development Authority, asserts that the state’s approach is distinct. Companies benefiting from the tax credits are expected to allocate a portion of their computing capabilities at reduced rates or offer AI support services to smaller enterprises or academic institutions. Despite New Jersey’s high corporate tax rates, its strategic location, closer to densely populated areas, provides a significant advantage for data center operations, facilitating reduced latency.