Allows New Jersey S corporations to elect to transfer corporation business tax credits to shareholders to apply against the shareholders' gross income tax liability.
Impact
Under current law, C corporations pay a corporation business tax of 9%, while S corporations benefit from a lower rate of 1.33%, scheduled to be reduced to zero in future years. Despite this advantage, the cap on tax credits for S corporations has limited their incentive to invest in employee benefits, job creation, and community redevelopment, as the tax incentives do not offer sufficient benefits. By permitting the election to transfer these credits, A3403 could fundamentally shift the financial landscape for S corporations, promoting greater investment and expansion within New Jersey.
Summary
Assembly Bill A3403 aims to allow New Jersey S corporations the option to transfer their corporation business tax credits to shareholders. This transfer can be applied against individual shareholders' gross income tax liabilities, providing significant tax relief for those individuals. This legislation seeks to enhance the appeal of S corporations by enabling them to leverage existing tax credits more effectively, thus stimulating economic activities through tax incentives.
Contention
The bill’s introduction may raise concerns regarding the implications for state tax revenues. Critics might argue that allowing shareholders to utilize passed-through credits could lead to a significant reduction in state income tax transactions, potentially straining revenue at a time when many sectors require government funding. Furthermore, the specifics of how these credits will be administratively handled and verified by the Director of the Division of Taxation are likely to be scrutinized during debates, given the complexities around tax law and compliance.
Allows New Jersey S corporations to elect to transfer corporation business tax credits to shareholders to apply against the shareholders' gross income tax liability.
Allows New Jersey S corporations to elect to transfer corporation business tax credits to shareholders to apply against the shareholders' gross income tax liability.