Fresh Jersey has a up-to-date plan to become America’s AI innovation hub. The state’s governor signed legislation Thursday that will offer up to $500 million in tax breaks for artificial intelligence companies to set up shop in the state.
“We want New Jerseyans to be at the forefront of the AI revolution — and in the process, build a more prosperous world,” Fresh Jersey Gov. Phil Murphy, a Democrat, said in a statement. “And in doing so, we will establish New Jersey as a home for generative AI research and development.”
AI companies and AI-enabled data centers operating at scale in Fresh Jersey may be eligible for tax credits that allocate unspent funds from two other state job creation and real estate development tax credit programs introduced in response to the Covid-19 pandemic.
Critics of the plan fear it could be a win for profitable AI companies but a loss for the state. Data centers typically require few workers, and tax incentives — including those offered to tech companies — could turn out to be more expensive than what they return. IN analysis on the bill, the Fresh Jersey Office of Legislative Services, an agency in the state Legislature that provides nonpartisan advocacy, notes that it is “unable to determine whether the bill will have a net positive or negative financial impact” on the state.
The tax breaks are in line with Murphy’s “AI Moonshot” vision for Fresh Jersey, announced earlier this year. Murphy has he said intended the state’s actions to “establish New Jersey as a home for breakthrough AI-powered solutions.”
Recently, CoreWeave, a Fresh Jersey-based AI cloud solutions provider, $1.1 billion raised and is valued at $19 billion. And the state could multiply its market by tapping into growing demand for data centers in the Fresh York area: vacancies in leased locations fell from 9.7 percent to 6.5 percent from the beginning of 2023 through the second half of the year, according to report from commercial real estate firm CBRE. The report also noted that AI has pre-leased space in East Windsor, a Fresh Jersey city between Fresh York and Philadelphia.
And AI companies are driving increase in venture capital financing. These highly profitable companies need data centers to operate, and they’ll put them somewhere—and they won’t need incentives to do so. “This is a growing, very healthy industry that doesn’t need any public support to operate,” says Kasia Tarczyńska, senior research analyst at Good Jobs First, a U.S. national policy resource center that promotes corporate and government responsibility in economic development.
Data centers and AI companies often qualify for general business tax incentives in the U.S. But these data center tax breaks “are not particularly strategic,” says Tim Sullivan, CEO of the Fresh Jersey Economic Development Authority.
Fresh Jersey’s plan differs from other states, he says, because companies taking advantage of the tax break will have to reserve some of their computing power at discounted rates or provide AI support to smaller companies or universities. And while Fresh Jersey real estate isn’t inexpensive (it has highest corporate tax rate (in the US), proximity to huge populations is very valuable for data centers. Opening locations closer to businesses helps reduce latency.