Senator JAMES BEACH
District 6 (Burlington and Camden)
Senator NILSA CRUZ-PEREZ
District 5 (Camden and Gloucester)
Senators Norcross and A.R.Bucco
Provides gross income tax exclusion for capital gains from sale of certain employer securities.
CURRENT VERSION OF TEXT
An Act providing a gross income tax exclusion for capital gains from the sale of certain employer securities, supplementing chapter 6 of Title 54A of the New Jersey Statutes.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. a. Gross income shall not include net gains or income from the sale or exchange of employer securities of a qualified business with fewer than 500 employees that is not publicly traded on any stock exchange to an employee stock ownership plan, a New Jersey S corporation owned by an employee stock ownership plan, or an eligible worker-owned cooperative, benefiting employees of the qualified business in this State if upon completion of the transaction the employee stock ownership plan, New Jersey S corporation owned by an employee stock ownership plan, or eligible worker-owned cooperative owns at least 30 percent of all outstanding employer securities issued by the qualified business.
b. As used in this section:
“Eligible worker-owned cooperative” means an “eligible worker-owned cooperative” as defined by paragraph (2) of subsection (c) of section 1042 of the federal Internal Revenue Code (26 U.S.C. s.1042).
“Employee stock ownership plan” means an “employee stock ownership plan” as defined by paragraph (7) of subsection (e) of section 4975 of the federal Internal Revenue Code (26 U.S.C. s.4975).
“Employer securities” means “employer securities” as defined by subsection (l) of section 409 of the federal Internal Revenue Code (26 U.S.C. s.409).
“Qualified business” means a private entity, whose headquarters or base of operations is in this State, including but not limited to a corporation, an S corporation, limited liability company, partnership, limited liability partnership, a sole proprietorship, and all private entities related by common ownership or control.
2. This act shall take effect immediately and apply to taxable years beginning on or after January 1 next following the date of enactment.
This bill provides a gross income tax exclusion for capital gains arising from qualified sales of employer securities to employee stock ownership plans. The purpose of this bill is to incentivize small businesses to establish employee stock ownership plans to allow employees to share in ownership and success.
To qualify for the bill’s exclusion, the employer must be a New Jersey based business that is non-publicly traded and has less than 500 employees. The employer’s sale of securities must be to an employee stock ownership plan, a New Jersey S corporation owned by an employee stock ownership plan, or an eligible worker-owned cooperative. And upon completion of the sale, the plan must own at least thirty percent of all the employer’s outstanding securities.
This bill is designed to encourage small businesses to sell ownership interests to the very same employees that enabled the business to succeed. This bill not only incentivizes small business worker productivity and accumulation of capital, but protects local communities from the economic disruption caused by the sale of ownership interests to parties unattached to the surrounding economy.