SENATE, No. 871

 

STATE OF NEW JERSEY

 

INTRODUCED FEBRUARY 26, 1996

 

 

By Senator CARDINALE

 

 

An Act concerning the taxation of certain New Jersey source gains, supplementing P.L.1945, c.162 (C.54:10A-1 et seq.), and Title 54A of the New Jersey Statutes.

 

    Be It Enacted by the Senate and General Assembly of the State of New Jersey:

 

    1. a. In the determination of entire net income pursuant to subsection (k) of section 4 of P.L.1945, c.162 (C.54:10A-4), a taxpayer that is a qualified small business at the time of the sale or exchange may exclude 50% of the gain for the fiscal or calendar accounting period on the sale or exchange of New Jersey assets held for more than three years but not more than five years and 100% of the gain for the fiscal or calendar accounting period on the sale or exchange of New Jersey assets held for more than five years; provided however, that in that calculation the taxpayer may include 100% of the loss for the fiscal or calendar accounting period on New Jersey assets held for more than three years but not more than five years and 100% of the loss for the fiscal or calendar accounting period on New Jersey assets held for more than five years. For the purposes of this section the holding period of an asset shall be the period for which the asset was held by the taxpayer.

    b. For the purposes of this section:

    "New Jersey asset" means an asset which is real property or tangible property, other than that of a kind properly includable in the inventory of the taxpayer or held primarily for sale to customers in the ordinary course of the taxpayer's business, located in this State at the time of sale and an equity security in a corporation that was a qualified small business at the time of the taxpayer's acquisition of the asset and having its principal place from which the business was directed or managed in this State at the time of the taxpayer's acquisition of the asset.

    "Qualified small business" means a corporation with respect to which the aggregate amount of money, other property, other property and services received by the corporation for stock, as a contribution to capital, and as paid in surplus, plus the accumulated earnings and profits to the corporation, does not exceed $25,000,000.

    2. a. In a calculation of the net gains less net losses derived from the sale, exchange or other disposition of property under a category of gross income defined pursuant to N.J.S.54A:5-1, a taxpayer may exclude 50% of the gain for the taxable year on New Jersey assets held for more than three years but not more than five years and 100% of the gain for the taxable year on New Jersey assets held for more than five years and otherwise includable in that category; provided however, that in that calculation the taxpayer may include 100% of the loss for the taxable year on New Jersey assets held for more than three years but not more than five years and 100% of the loss for the taxable year on New Jersey assets held for more than five years. For the purposes of this section the holding period of an asset shall be the period for which the asset was held by the taxpayer, or, if acquired from a decedent, the period for which the asset was held by the decedent and then subsequently by the taxpayer.

    b. For the purposes of this section:

    "New Jersey asset" means an asset which is real property or tangible property, other than that of a kind properly includable in the inventory of the taxpayer or held primarily for sale to customers in the ordinary course of the taxpayer's business, located in this State at the time of sale and an equity security in a corporation that was a qualified small business at the time of the taxpayer's acquisition of the asset and having its principal place from which the business was directed or managed in this State at the time of the taxpayer's acquisition of the asset or, if acquired from a decedent, at the time of the decedents's acquisition of the asset.

    "Qualified small business" means a corporation with respect to which the aggregate amount of money, other property, other property and services received by the corporation for stock, as a contribution to capital, and as paid in surplus, plus the accumulated earnings and profits to the corporation, does not exceed $25,000,000.

 

    3. This act shall take effect immediately and apply to sales or other exchanges of assets occurring on and after its enactment.

 

 

STATEMENT

 

    This bill excludes certain gains from the sale or exchange of New Jersey assets held for extended investment periods. This special treatment of investments in New Jersey will stimulate the economy of the State, both by providing an incentive for future investment and by removing tax barriers to the efficient use of property.

    New Jersey assets means real property located in New Jersey at the time of its sale, tangible property located in New Jersey at the time of its sale, and equity securities in a qualified small business headquartered in New Jersey at the time of the taxpayer's acquisition of the security. A qualified small business is a business that has $25,000,000 or less capitalization.

    Corporation business taxpayers that are themselves qualified small businesses at the time that an asset is sold may exclude 50% of the gain on New Jersey assets held for more than three years and 100% of the gain on New Jersey assets held for more than five years from their entire net income subject to apportionment and taxation. Individual taxpayers may also exclude from their gross income subject to the New Jersey gross income tax 50% of the gain on New Jersey assets held for more than three years and 100% of the gain on New Jersey assets held for more than five years.

    The prospect of favorable tax treatment, allowing taxpayers to exclude the gain on New Jersey assets from taxable income, will provide an incentive for long-term investment in New Jersey. The bill also allows the exclusion of the gains on New Jersey assets already owned by taxpayers. Under current tax policy, gains are not taxed until they are "realized" at the time of the sale of the asset. That policy encourages taxpayers to retain assets they might otherwise sell, so as to delay taxation. This bill grants a tax exclusion for long term New Jersey asset gains, removing the tax incentive for holding on to an asset and allowing assets to be sold for the purely economic reasons of putting them to their best use.

    The stimulation to economic transactions provided by this bill will lead to an immediate break in the stagnation of the New Jersey economy. The continued long term investment that this bill will encourage will provide the foundation for business, and business employment, for New Jersey's future.

 

 

 

Provides certain exclusions for New Jersey asset gains under the corporation business tax and the gross income tax.