Senator BARBARA BUONO
District 18 (Middlesex)
Senator LINDA R. GREENSTEIN
District 14 (Mercer and Middlesex)
Senator STEVEN V. OROHO
District 24 (Sussex, Hunterdon and Morris)
Assemblyman LOUIS D. GREENWALD
District 6 (Camden)
Assemblyman PETER J. BARNES, III
District 18 (Middlesex)
Assemblyman GORDON M. JOHNSON
District 37 (Bergen)
Assemblywoman NELLIE POU
District 35 (Bergen and Passaic)
Senator Sarlo, Assemblymen Conners and Conaway
Establishes alternative business calculation under gross income tax to permit consolidation and carryforward of certain business-related losses.
CURRENT VERSION OF TEXT
An Act establishing the alternative business calculation under the gross income tax to permit the consolidation and carryforward of certain business-related losses, supplementing Title 54A of the New Jersey Statutes.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. a. Notwithstanding the provisions of N.J.S.54A:5-1, for the purposes of the alternative business calculation pursuant to this section a taxpayer who sustains a net loss in one or more of the net categories of gross income determined pursuant to subsections b., d., k., and p. of N.J.S.54A:5-1 shall net that loss against any other gains or losses sustained in those categories of gross income and any loss carryforward allowed pursuant to subsection b. of this section to determine alternative business income or loss.
b. Notwithstanding the provisions of N.J.S.54A:5-2, a taxpayer who sustains an alternative business loss pursuant to the provisions of subsection a. of this section may carry that loss forward, if necessary and in accordance with the terms and conditions prescribed by the director, for application pursuant to the provisions of subsection a. of this section during each of the 20 taxable years following the alternative business loss’ taxable year.
c. (1) A taxpayer shall calculate regular business income as the total of the subsection b., d., k., and p. categories of gross income determined pursuant to N.J.S.54A:5-1 in accordance with N.J.S.54A:5-2.
(2) A taxpayer shall subtract alternative business income from regular business income determined pursuant to paragraph (1) of this subsection to determine the business increment.
(3) For purposes of calculating a taxpayer’s liability pursuant to the “New Jersey Gross Income Tax Act,” N.J.S.54A:1-1 et seq., a taxpayer shall adjust the taxpayer’s taxable income pursuant to the following schedule:
For taxable years beginning in 2012, the taxpayer shall subtract from taxable income 10% of the business increment;
For taxable years beginning in 2013, the taxpayer shall subtract from taxable income 20% of the business increment;
For taxable years beginning in 2014, the taxpayer shall subtract from taxable income 30% of the business increment;
For taxable years beginning in 2015, the taxpayer shall subtract from taxable income 40% of the business increment.
For taxable years beginning in 2016 and thereafter, the taxpayer shall subtract from taxable income 50% of the business increment.
2. This act shall take effect immediately and apply to taxable years beginning on or after January 1, 2012.
This bill establishes an alternative business calculation under the gross income tax as a mechanism that permits taxpayers who generate income from different types of business entities to offset gains from one type of business with losses from another, and permits taxpayers to carry forward business-related losses for a period of up to 20 taxable years.
The bill specifically permits taxpayers to net gains and losses derived from one or more of the following business-related categories of gross income: net profits from business; net gains or net income derived from or in the form of rents, royalties, patents, and copyrights; distributive share of partnership income; and net pro rata share of S corporation income. The bill specifies that a taxpayer who sustains a loss from a sole proprietorship may apply that loss against income derived from a partnership, subchapter S corporation, or rents and royalties, but is prohibited from applying those losses from those categories to income that is not related to the taxpayer’s conduct of the taxpayer’s own business, including salaries and wages, the disposition of property, and interest and dividends.
The bill provides that net losses from the business-related categories of income may be carried forward and applied against income in future taxable years. The bill limits the application of net losses which are carried forward to gains and losses from the same business-related categories of income from which the net loss is derived, and allows the losses to be carried forward for a period of up to 20 taxable years following the year the net loss occurs.
The bill phases in the tax savings over five years beginning with tax year 2012. Once fully implemented, the maximum savings will be equal to 50 percent of the savings that would accrue from unlimited netting between these income categories and the net loss carryforward.