FISCAL NOTE TO

ASSEMBLY, No. 1827

STATE OF NEW JERSEY

DATED: OCTOBER 29, 1996

      Assembly Bill No. 1827 of 1996 provides fixed corporation business tax rates for S corporations: 2 percent for corporations with annual income in excess of $100,000 and 0.5 percent for corporations with annual income of $100,000 or less.

      Currently, New Jersey allows corporations that have elected the federal S corporation treatment to elect special New Jersey taxation, including a reduced corporation business tax rate. The corporation business tax rate for S corporation income is currently determined as the difference between the corporation business tax rate (currently 9 percent for corporations with annual income in excess of $100,000 and 7.5 percent for corporations with annual income of $100,000 or less) and the highest marginal rate under the New Jersey gross income tax (currently 6.37 percent), so the S corporation tax rate for the 1996 tax year will be 2.63 percent for corporations with annual income in excess of $100,000 and 1.13 percent for corporations with annual income of $100,000 or less.

      The New Jersey Division of Taxation has estimated, based on tax information available to it, that the potential fiscal effect of the bill is a loss in corporation business tax revenue of $5 million for FY1997 and a loss of $13 million for FY1998. The Office of Legislative Services concurs with the division estimate.

This fiscal note has been prepared pursuant to P.L.1980, c.67.