| 1 | 1 | | ASSEMBLY, No. 4629 STATE OF NEW JERSEY 221st LEGISLATURE INTRODUCED JUNE 25, 2024 |
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| 3 | 3 | | ASSEMBLY, No. 4629 |
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| 5 | 5 | | STATE OF NEW JERSEY |
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| 7 | 7 | | 221st LEGISLATURE |
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| 11 | 11 | | INTRODUCED JUNE 25, 2024 |
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| 15 | 15 | | Sponsored by: Assemblyman MICHAEL INGANAMORT District 24 (Morris, Sussex and Warren) Assemblyman ALEX SAUICKIE District 12 (Burlington, Middlesex, Monmouth and Ocean) Co-Sponsored by: Assemblymen Scharfenberger and Kanitra SYNOPSIS Allows exclusion of certain small business income from taxation under gross income tax and corporation business tax. CURRENT VERSION OF TEXT As introduced. |
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| 19 | 19 | | Sponsored by: |
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| 21 | 21 | | Assemblyman MICHAEL INGANAMORT |
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| 23 | 23 | | District 24 (Morris, Sussex and Warren) |
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| 25 | 25 | | Assemblyman ALEX SAUICKIE |
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| 27 | 27 | | District 12 (Burlington, Middlesex, Monmouth and Ocean) |
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| 31 | 31 | | Co-Sponsored by: |
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| 33 | 33 | | Assemblymen Scharfenberger and Kanitra |
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| 43 | 43 | | SYNOPSIS |
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| 45 | 45 | | Allows exclusion of certain small business income from taxation under gross income tax and corporation business tax. |
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| 49 | 49 | | CURRENT VERSION OF TEXT |
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| 51 | 51 | | As introduced. |
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| 55 | 55 | | An Act allowing the exclusion of certain small business income from taxation under the gross income tax and corporation business tax, revising various parts of the statutory law, and supplementing Title 54A of the New Jersey Statutes. Be It Enacted by the Senate and General Assembly of the State of New Jersey: 1. Section 4 of P.L.1945, c.162 (C.54:10A-4) is amended to read as follows 4. For the purposes of this act, unless the context requires a different meaning: (a) "Commissioner" or "director" shall mean the Director of the Division of Taxation of the State Department of the Treasury. (b) "Allocation factor" shall mean the proportionate part of a taxpayer's net worth or entire net income used to determine a measure of its tax under this act. (c) "Corporation" shall mean any corporation, joint-stock company or association and any business conducted by a trustee or trustees wherein interest or ownership is evidenced by a certificate of interest or ownership or similar written instrument, any other entity classified as a corporation for federal income tax purposes, and any state or federally chartered building and loan association or savings and loan association. (d) "Net worth" shall mean the aggregate of the values disclosed by the books of the corporation for (1) issued and outstanding capital stock, (2) paid-in or capital surplus, (3) earned surplus and undivided profits, and (4) surplus reserves which can reasonably be expected to accrue to holders or owners of equitable shares, not including reasonable valuation reserves, such as reserves for depreciation or obsolescence or depletion. Notwithstanding the foregoing, net worth shall not include any deduction for the amount of the excess depreciation described in paragraph (2) (F) of subsection (k) of this section. The foregoing aggregate of values shall be reduced by 50% of the amount disclosed by the books of the corporation for investment in the capital stock of one or more subsidiaries, which investment is defined as ownership (1) of at least 80% of the total combined voting power of all classes of stock of the subsidiary entitled to vote and (2) of at least 80% of the total number of shares of all other classes of stock except nonvoting stock which is limited and preferred as to dividends. In the case of investment in an entity organized under the laws of a foreign country, the foregoing requisite degree of ownership shall effect a like reduction of such investment from the net worth of the taxpayer, if the foreign entity is considered a corporation for any purpose under the United States federal income tax laws, such as (but not by way of sole examples) for the purpose of supplying deemed paid foreign tax credits or for the purpose of status as a controlled foreign corporation. In calculating the net worth of a taxpayer entitled to reduction for investment in subsidiaries, the amount of liabilities of the taxpayer shall be reduced by such proportion of the liabilities as corresponds to the ratio which the excluded portion of the subsidiary values bears to the total assets of the taxpayer. In the case of banking corporations which have international banking facilities as defined in subsection (n), the foregoing aggregate of values shall also be reduced by retained earnings of the international banking facility. Retained earnings means the earnings accumulated over the life of such facility and shall not include the distributive share of dividends paid and federal income taxes paid or payable during the tax year. If in the opinion of the director, the corporation's books do not disclose fair valuations the director may make a reasonable determination of the net worth which, in his opinion, would reflect the fair value of the assets, exclusive of subsidiary investments as defined aforesaid, carried on the books of the corporation, in accordance with sound accounting principles, and such determination shall be used as net worth for the purpose of this act. (e) (Deleted by amendment, P.L.1998, c.114.) (f) "Investment company" shall mean any corporation whose business during the period covered by its report consisted, to the extent of at least 90 percent thereof of holding, investing and reinvesting in stocks, bonds, notes, mortgages, debentures, patents, patent rights and other securities for its own account, but this shall not include any corporation which: (1) is a merchant or a dealer of stocks, bonds and other securities, regularly engaged in buying the same and selling the same to customers; or (2) had less than 90 percent of its average gross assets in New Jersey, at cost, invested in stocks, bonds, debentures, mortgages, notes, patents, patent rights or other securities or consisting of cash on deposit during the period covered by its report; or (3) is a banking corporation, a savings institution, or a financial business corporation as defined in the Corporation Business Tax Act. (g) "Regulated investment company" shall mean any corporation which for a period covered by its report, is registered and regulated under the Investment Company Act of 1940 (54 Stat. 789), as amended. (h) "Taxpayer" shall mean any corporation, any combined group filing a mandatory or elective New Jersey combined return, and any partnership required, or consenting, to report or to pay taxes, interest or penalties under this act. "Taxpayer" shall not include a partnership that is listed on a United States national stock exchange. (i) "Fiscal year" shall mean an accounting period ending on any day other than the last day of December on the basis of which the taxpayer is required to report for federal income tax purposes. (j) Except as herein provided, "privilege period" shall mean the calendar or fiscal accounting period for which a tax is payable under this act. (k) "Entire net income" shall mean total net income from all sources, whether within or without the United States, and shall include the gain derived from the employment of capital or labor, or from both combined, as well as profit gained through a sale or conversion of capital assets. For the purpose of this act, the amount of a taxpayer's entire net income shall be deemed prima facie to be equal in amount to the taxable income, before net operating loss deduction and special deductions, which the taxpayer is required to report, or, if the taxpayer is classified as a partnership for federal tax purposes, would otherwise be required to report, to the United States Treasury Department for the purpose of computing its federal income tax, provided however, that in the determination of such entire net income, (1) Entire net income shall exclude for the periods set forth in paragraph (2)(F)(i) of this subsection, any amount, except with respect to qualified mass commuting vehicles as described in section 168(f)(8)(D)(v) of the Internal Revenue Code as in effect immediately prior to January 1, 1984, which is included in a taxpayer's federal taxable income solely as a result of an election made pursuant to the provisions of paragraph (8) of that section. (2) Entire net income shall be determined without the exclusion, deduction or credit of: (A) The amount of any exemption or credit allowed in any law of the United States imposing any tax on or measured by the income of corporations. (B) Any part of any income from dividends or interest on any kind of stock, securities or indebtedness, except as provided in paragraph (5) of subsection (k) of this section. (C) Taxes paid or accrued to the United States, a possession or territory of the United States, a state, a political subdivision thereof, or the District of Columbia, or to any foreign country, state, province, territory or subdivision thereof, on or measured by profits or income, or business presence or business activity, or the tax imposed by this act, or any tax paid or accrued with respect to subsidiary dividends excluded from entire net income as provided in paragraph (5) of subsection (k) of this section. (D) (Deleted by amendment, P.L.1985, c.143.) (E) (Deleted by amendment, P.L.1995, c.418.) (F) (i) The amount by which depreciation reported to the United States Treasury Department for property placed in service on and after January 1, 1981, but prior to taxpayer fiscal or calendar accounting years beginning on and after the effective date of P.L.1993, c.172, for purposes of computing federal taxable income in accordance with section 168 of the Internal Revenue Code in effect after December 31, 1980, exceeds the amount of depreciation determined in accordance with the Internal Revenue Code provisions in effect prior to January 1, 1981, but only with respect to a taxpayer's accounting period ending after December 31, 1981; provided, however, that where a taxpayer's accounting period begins in 1981 and ends in 1982, no modification shall be required with respect to this paragraph (F) for the report filed for such period with respect to property placed in service during that part of the accounting period which occurs in 1981. The provisions of this subparagraph shall not apply to assets placed in service prior to January 1, 1998 of a gas, gas and electric, and electric public utility that was subject to the provisions of P.L.1940, c.5 (C.54:30A-49 et seq.) prior to 1998. (ii) For the periods set forth in subparagraph (F)(i) of paragraph (2) of this subsection, any amount, except with respect to qualified mass commuting vehicles as described in section 168(f)(8)(D)(v) of the Internal Revenue Code as in effect immediately prior to January 1, 1984, which the taxpayer claimed as a deduction in computing federal income tax pursuant to a qualified lease agreement under paragraph (8) of that section. The director shall promulgate rules and regulations necessary to carry out the provisions of this section, which rules shall provide, among others, the manner in which the remaining life of property shall be reported. (G) (i) The amount of any civil, civil administrative, or criminal penalty or fine, including a penalty or fine under an administrative consent order, assessed and collected for a violation of a State or federal environmental law, an administrative consent order, or an environmental ordinance or resolution of a local governmental entity, and any interest earned on the penalty or fine, and any economic benefits having accrued to the violator as a result of a violation, which benefits are assessed and recovered in a civil, civil administrative, or criminal action, or pursuant to an administrative consent order. The provisions of this paragraph shall not apply to a penalty or fine assessed or collected for a violation of a State or federal environmental law, or local environmental ordinance or resolution, if the penalty or fine was for a violation that resulted from fire, riot, sabotage, flood, storm event, natural cause, or other act of God beyond the reasonable control of the violator, or caused by an act or omission of a person who was outside the reasonable control of the violator. (ii) The amount of treble damages paid to the Department of Environmental Protection pursuant to subsection a. of section 7 of P.L.1976, c.141 (C.58:10-23.11f), for costs incurred by the department in removing, or arranging for the removal of, an unauthorized discharge upon failure of the discharger to comply with a directive from the department to remove, or arrange for the removal of, the discharge. (H) The amount of any sales and use tax paid by a utility vendor pursuant to section 71 of P.L.1997, c.162. (I) With respect to privilege periods ending before July 31, 2023, interest paid, accrued or incurred for the privilege period to a related member, as defined in section 5 of P.L.2002, c.40 (C.54:10A-4.4), except that a deduction shall be permitted to the extent that the taxpayer establishes by clear and convincing evidence, as determined by the director, that: (i) a principal purpose of the transaction giving rise to the payment of the interest was not to avoid taxes otherwise due under Title 54 of the Revised Statutes or Title 54A of the New Jersey Statutes, (ii) the interest is paid pursuant to arm's length contracts at an arm's length rate of interest, and (iii)(aa) the related member was subject to a tax on its net income or receipts in this State or another state or possession of the United States or in a foreign nation, (bb) a measure of the tax includes the interest received from the related member, and (cc) the rate of tax applied to the interest received by the related member is equal to or greater than a rate three percentage points less than the rate of tax applied to taxable interest by this State pursuant to section 5 of P.L.1945, c.162 (C.54:10A-5). With respect to privilege periods ending before July 31, 2023, a deduction shall also be permitted if the taxpayer establishes by clear and convincing evidence, as determined by the director, that the disallowance of a deduction is unreasonable, or the taxpayer and the director agree in writing to the application or use of an alternative method of apportionment under section 8 of P.L.1945, c.162 (C.54:10A-8); nothing in this subsection shall be construed to limit or negate the director's authority to otherwise enter into agreements and compromises otherwise allowed by law. With respect to privilege periods ending before July 31, 2023, a deduction shall also be permitted to the extent that the taxpayer establishes by a preponderance of the evidence, as determined by the director, that the interest is directly or indirectly paid, accrued or incurred to (i) a related member in a foreign nation which has in force a comprehensive income tax treaty with the United States and the related member (aa) was subject to tax in the foreign nation on a tax base that included the payment paid, accrued, or incurred; and (bb) under which the related member's income received from the transaction was taxed at an effective tax rate equal to or greater than a rate of three percentage points less than the rate of tax applied to taxable interest by the State of New Jersey pursuant to section 5 of P.L.1945, c.162 (C.54:10A-5), provided however that the taxpayer shall disclose on its return for the privilege period the name of the related member, the amount of the interest, the relevant foreign nation, and such other information as the director may prescribe or (ii) to an independent lender and the taxpayer guarantees the debt on which the interest is required. The adjustments required by this subparagraph shall not apply to transactions between related members included in a combined group reported on a New Jersey combined return. (J) (i) Amounts deducted for federal tax purposes pursuant to section 199 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.199, except that this exclusion shall not apply to amounts deducted pursuant to that section that are exclusively based upon domestic production gross receipts of the taxpayer which are derived only from any lease, rental, license, sale, exchange, or other disposition of qualifying production property which the taxpayer demonstrates to the satisfaction of the director was manufactured or produced by the taxpayer in whole or in significant part within the United States but not qualified production property that was grown or extracted by the taxpayer. "Manufactured or produced" as used in this paragraph shall be limited to performance of an operation or series of operations the object of which is to place items of tangible personal property in a form, composition, or character different from that in which they were acquired. The change in form, composition, or character shall be a substantial change, and result in a transformation of property into a different or substantially more usable product. (ii) For privilege periods beginning after December 31, 2017, notwithstanding the provisions of P.L.1945, c.162 (C.54:10A-1 et seq.) or any other law to the contrary, for the purposes of determining the amount of income pursuant to P.L.1945, c.162 (C.54:10A-1 et seq.) that is net of expenses, no amounts shall be taken as a deduction pursuant to section 199A of the Internal Revenue Code (26 U.S.C. s.199A). (K) (i) For privilege periods beginning after December 31, 2017 and ending before July 31, 2022, the interest deduction limitation in subsection (j) of section 163 of the Internal Revenue Code (26 U.S.C. s.163), shall apply on a pro-rata basis to interest paid to both related and unrelated parties, regardless of whether the related parties are subject to the add-back provision of either subparagraph (I) of paragraph (2) of this subsection or in section 5 of P.L.2002, c.40 (C.54:10A-4.4). (ii) For privilege periods beginning after December 31, 2017 and ending on and after July 31, 2022, the interest deduction limitation in subsection (j) of section 163 of the Internal Revenue Code (26 U.S.C. s.163), shall apply to a combined group as though the combined group filed a federal consolidated return; provided, however, for the purposes of applying the limitation in subsection (j) of section 163 of the Internal Revenue Code (26 U.S.C. s.163), with regard to affiliates that were members of the federal consolidated return but were not members of the combined group included on the New Jersey combined return, the combined group and the affiliates will also be treated as having filed one federal consolidated return. (3) The director may, whenever necessary to properly reflect the entire net income of any taxpayer, determine the year or period in which any item of income or deduction shall be included, without being limited to the method of accounting employed by the taxpayer. (4) There shall be allowed as a deduction from entire net income of a banking corporation, to the extent not deductible in determining federal taxable income, the eligible net income of an international banking facility determined as follows: (A) The eligible net income of an international banking facility shall be the amount remaining after subtracting from the eligible gross income the applicable expenses; (B) Eligible gross income shall be the gross income derived by an international banking facility, which shall include, but not be limited to, gross income derived from: (i) Making, arranging for, placing or carrying loans to foreign persons, provided, however, that in the case of a foreign person which is an individual, or which is a foreign branch of a domestic corporation (other than a bank), or which is a foreign corporation or foreign partnership which is controlled by one or more domestic corporations (other than banks), domestic partnerships or resident individuals, all the proceeds of the loan are for use outside of the United States; (ii) Making or placing deposits with foreign persons which are banks or foreign branches of banks (including foreign subsidiaries) or foreign branches of the taxpayers or with other international banking facilities; (iii) Entering into foreign exchange trading or hedging transactions related to any of the transactions described in this paragraph; or (iv) Such other activities as an international banking facility may, from time to time, be authorized to engage in; (C) Applicable expenses shall be any expense or other deductions attributable, directly or indirectly, to the eligible gross income described in subparagraph (B) of this paragraph. (5) (A) (i) Entire net income shall exclude 100% of dividends which were included in computing such taxable income for federal income tax purposes, paid to the taxpayer by one or more subsidiaries owned by the taxpayer to the extent of the 80% or more ownership of investment described in subsection (d) of this section for privilege periods beginning on or before December 31, 2016. (ii) For privilege periods beginning after December 31, 2016 and before January 1, 2019, entire net income shall exclude 95% of dividends which were included in computing such taxable income for federal income tax purposes, paid or deemed paid, to the taxpayer by one or more subsidiaries owned by the taxpayer to the extent of the 80% or more ownership of investment described in subsection (d) of this section. For the purposes of calculating the tax liability owed for the paid or deemed paid dividends included in entire net income by this subsubparagraph (ii), the taxpayer shall use either their three-year average allocation factor for the taxpayer's 2014 through 2016 tax years reported on the taxpayer's tax returns or 3.5 percent, whichever is lower. (iii) For privilege periods beginning on and after January 1, 2019 and ending before July 31, 2023, entire net income shall exclude 95% of dividends which were included in computing such taxable income for federal income tax purposes, paid or deemed paid to the taxpayer by one or more subsidiaries owned by the taxpayer to the extent of the 80% or more ownership of investment described in subsection (d) of this section. (iv) For privilege periods ending on and after July 31, 2023, entire net income shall exclude 100 percent of dividends and deemed dividends that were included in computing such taxable income for federal income tax purposes, paid or deemed paid to the taxpayer by one or more subsidiaries owned by the taxpayer to the extent of the 80 percent or more ownership of investment described in subsection (d) of this section. (B) Entire net income shall exclude 50% of dividends which were included in computing such taxable income for federal income tax purposes, paid or deemed paid to the taxpayer by one or more subsidiaries owned by the taxpayer to the extent of 50% or more ownership of investment, such ownership of investment calculated in the same manner as the 80% or more of ownership of investment is calculated as described in subsection (d) of this section. (C) To the extent a subsidiary received dividends from other subsidiaries and included those dividends in its entire net income for the purposes of determining its tax liability pursuant to section 5 of P.L.1945, c.162 (C.54:10A-5) and paid tax on those dividends, the taxpayer receiving those same dividends from the subsidiary shall exclude those dividends from its entire net income based on the subsidiary's allocation factor used by the subsidiary in determining its tax liability pursuant to section 5 of P.L.1945, c.162 (C.54:10A-5). This subparagraph (C) shall not apply to privilege periods ending on and after July 31, 2019. (D) For privilege periods ending on and after July 31, 2019 but before July 31, 2020, to the extent a subsidiary received dividends from other subsidiaries and included those dividends in its entire net income for the purposes of determining its tax liability pursuant to section 5 of P.L.1945, c.162 (C.54:10A-5) and paid tax on those dividends, the taxpayer receiving those same dividends from the subsidiary shall exclude those dividends from its entire net income. (E) For privilege periods ending on and after July 31, 2020, for purposes of this paragraph (5), the members of a combined group filing a New Jersey combined return shall be treated as one taxpayer with regard to dividends and deemed dividends that were received as part of the unitary business of the combined group. (F) For privilege periods ending on and after July 31, 2023: (i) The exclusion provided by this paragraph (5) shall be deducted from entire net income after the State modifications that increase federal entire net income but before the other State modifications that reduce entire net income and before the allocation of entire net income to this State. (ii) In computing the total amount of the dividends and deemed dividends excluded by this paragraph (5) for privilege periods ending on and after July 31, 2023, the amount of dividends and deemed dividends excluded shall be reduced by the amount of the expenses and deductions that are attributable to those dividends and deemed dividends. For purposes of this paragraph (5), expenses and deductions related to dividends shall equal five percent of all dividends and deemed dividends received by a taxpayer during an income year. (G) For privilege periods ending on and after July 31, 2023, for the purposes of this paragraph (5) and for subsection d. of section 18 of P.L.2018, c.48 (C.54:10A-4.6), the income amounts required to be included in federal taxable income pursuant to 26 U.S.C. s.951A, shall be considered a dividend. (6) (A) Net operating loss deduction. For privilege periods ending before July 31, 2019, there shall be allowed as a deduction for the privilege period the net operating loss carryover to that period. (B) Net operating loss carryover. A net operating loss for any privilege period ending after June 30, 1984 shall be a net operating loss carryover to each of the seven privilege periods following the period of the loss and a net operating loss for any privilege period ending after June 30, 2009 shall be a net operating loss carryover to each of the twenty privilege periods following the period of the loss. The entire amount of the net operating loss for any privilege period (the "loss period") shall be carried to the earliest of the privilege periods to which the loss may be carried. The portion of the loss which shall be carried to each of the other privilege periods shall be the excess, if any, of the amount of the loss over the sum of the entire net income, computed without the exclusions permitted in paragraphs (4) and (5) of this subsection or the net operating loss deduction provided by subparagraph (A) of this paragraph, for each of the prior privilege periods to which the loss may be carried. (C) Net operating loss. For purposes of this paragraph the term "net operating loss" means the excess of the deductions over the gross income used in computing entire net income without the net operating loss deduction provided for in subparagraph (A) of this paragraph and the exclusions in paragraphs (4) and (5) of this subsection. (D) Change in ownership. Where there is a change in 50% or more of the ownership of a corporation because of redemption or sale of stock and the corporation changes the trade or business giving rise to the loss, no net operating loss sustained before the changes may be carried over to be deducted from income earned after such changes. In addition where the facts support the premise that the corporation was acquired under any circumstances for the primary purpose of the use of its net operating loss carryover, the director may disallow the carryover. (E) Notwithstanding the provisions of this paragraph (6) of subsection (k) of this section to the contrary, for privilege periods beginning during calendar year 2002 and calendar year 2003, no deduction for any net operating loss carryover shall be allowed and for privilege periods beginning during calendar year 2004 and calendar year 2005, there shall be allowed as a deduction for the privilege period so much of the net operating loss carryover as reduces entire net income otherwise calculated by 50%. If and only to the extent that any net operating loss carryover deduction is disallowed by reason of this subparagraph (E), the date on which the amount of the disallowed net operating loss carryover deduction would otherwise expire shall be extended by a period equal to the period for which application of the net operating loss was disallowed by this subparagraph. Provided, that this subparagraph (E) shall not restrict the surrender or acquisition of corporation business tax benefit certificates pursuant to section 1 of P.L.1997, c.334 (C.34:1B-7.42a) and shall not restrict the application of corporation business tax benefit certificates pursuant to section 2 of P.L.1997, c.334 (C.54:10A-4.2). (F) Reduction for discharge of indebtedness. A net operating loss for any privilege period ending after June 30, 2014, and any net operating loss carryover to such privilege period, shall be reduced by the amount excluded from federal taxable income under subparagraph (A), (B), or (C) of paragraph (1) of subsection (a) of section 108 of the federal Internal Revenue Code (26 U.S.C. s.108), for the privilege period of the discharge of indebtedness. (7) The entire net income of gas, electric and gas and electric public utilities that were subject to, or would have been subject to tax if doing business in this State, the provisions of P.L.1940, c.5 (C.54:30A-49 et seq.) prior to 1998, shall be adjusted by substituting the New Jersey depreciation allowance for federal tax depreciation with respect to assets placed in service prior to January 1, 1998. For gas, electric, and gas and electric public utilities that were subject to, or would have been subject to tax if doing business in this State, the provisions of P.L.1940, c.5 (C.54:30A-49 et seq.) prior to 1998, the New Jersey depreciation allowance shall be computed as follows: All depreciable assets placed in service prior to January 1, 1998 shall be considered a single asset account. The New Jersey tax basis of this depreciable asset account shall be an amount equal to the carryover adjusted basis for federal income tax purposes on December 31, 1997 of all depreciable assets in service on December 31, 1997, increased by the excess, of the "net carrying value," defined to be adjusted book basis of all assets and liabilities, excluding deferred income taxes, recorded on the public utility's books of account on December 31, 1997, over the carryover adjusted basis for federal income tax purposes on December 31, 1997 of all assets and liabilities owned by the gas, electric, or gas and electric public utility as of December 31, 1997. "Books of account" for gas, gas and electric, and electric public utilities means the uniform system of accounts as promulgated by the Federal Energy Regulatory Commission and adopted by the Board of Public Utilities. The following adjustments to entire net income shall be made pursuant to this section: (A) Depreciation for property placed in service prior to January 1, 1998 shall be adjusted as follows: (i) Depreciation for federal income tax purposes shall be disallowed in full. (ii) A deduction shall be allowed for the New Jersey depreciation allowance. The New Jersey depreciation allowance shall be computed for the single asset account described above based on the New Jersey tax basis as adjusted above as if all assets in the single asset account were first placed in service on January 1, 1998. Depreciation shall be computed using the straight line method over a thirty-year life. A full year's depreciation shall be allowed in the initial tax year. No half-year convention shall apply. The depreciable basis of the single account shall be reduced by the adjusted federal tax basis of assets sold, retired, or otherwise disposed of during any year on which gain or loss is recognized for federal income tax purposes as described in subparagraph (B) of this paragraph. (B) Gains and losses on sales, retirements and other dispositions of assets placed in service prior to January 1, 1998 shall be recognized and reported on the same basis as for federal income tax purposes. (C) The Director of the Division of Taxation shall promulgate regulations describing the methodology for allocating the single asset account in the event that a portion of the utility's operations are separated, spun-off, transferred to a separate company or otherwise desegregated. (8) In the case of taxpayers that are gas, electric, gas and electric, or telecommunications public utilities as defined pursuant to subsection (q) of this section, the director shall have authority to promulgate rules and issue guidance correcting distortions and adjusting timing differences resulting from the adoption of P.L.1997, c.162 (C.54:10A-5.25 et al.). (9) Notwithstanding paragraph (1) of this subsection, entire net income shall not include the income derived by a corporation organized in a foreign country from the international operation of a ship or ships, or from the international operation of aircraft, if such income is exempt from federal taxation pursuant to section 883 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.883. (10) Entire net income shall exclude all income of an alien corporation the activities of which are limited in this State to investing or trading in stocks and securities for its own account, investing or trading in commodities for its own account, or any combination of those activities, within the meaning of section 864 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.864, as in effect on December 31, 1998. Notwithstanding the previous sentence, if an alien corporation undertakes one or more infrequent, extraordinary or non-recurring activities, including but not limited to the sale of tangible property, only the income from such infrequent, extraordinary or non-recurring activity shall be subject to the tax imposed pursuant to P.L.1945, c.162 (C.54:10A-1 et seq.), and that amount of income subject to tax shall be determined without regard to the allocation to that specific transaction of any general business expense of the taxpayer and shall be specifically assigned to this State for taxation by this State without regard to section 6 of P.L.1945, c.162 (C.54:10A-6). For the purposes of this paragraph, "alien corporation" means a corporation organized under the laws of a jurisdiction other than the United States or its political subdivisions. (11) No deduction shall be allowed for research and experimental expenditures, to the extent that those research and experimental expenditures are qualified research expenses or basic research payments for which an amount of credit is claimed pursuant to section 1 of P.L.1993, c.175 (C.54:10A-5.24) unless those research and experimental expenditures are also used to compute a federal credit claimed pursuant to section 41 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.41; provided, however, for privilege periods beginning on and after January 1, 2022, a deduction for research and experimental expenditures shall be allowed during the same privilege period for which a credit is claimed pursuant to section 1 of P.L.1993, c.175 (C.54:10A-5.24), notwithstanding the timing schedule required by the federal Internal Revenue Code of 1986, 26 U.S.C. s.174, for the deduction of specified research and experimental expenditures. (12) (A) Notwithstanding the provisions of subsection (k) of section 168 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.168, subsection (b) of section 1400L of the federal Internal Revenue Code of 1986, 26 U.S.C. s.1400L, or any other federal law, for property acquired after September 10, 2001, the depreciation deduction otherwise allowed pursuant to section 167 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.167, shall be determined pursuant to the provisions of the federal Internal Revenue Code of 1986 (26 U.S.C. s.1 et seq.) in effect on December 31, 2001. (B) The director shall prescribe the rules and regulations necessary to carry out the provisions of this paragraph, including, among others, those for determining the adjusted basis of the acquired property for the purposes of the Corporation Business Tax Act (1945), P.L.1945, c.162. (13) (A) Notwithstanding the provisions of section 179 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.179, for property placed in service on or after January 1, 2004, the costs that a taxpayer may otherwise elect to treat as an expense which is not chargeable to a capital account shall be determined pursuant to the provisions of the federal Internal Revenue Code of 1986 (26 U.S.C. s.1 et seq.) in effect on December 31, 2002. (B) The director shall prescribe the rules and regulations necessary to carry out the provisions of this paragraph, including, among others, those for determining the adjusted basis of the acquired property for the purposes of the Corporation Business Tax Act (1945), P.L.1945, c.162. (14) Notwithstanding the provisions of subsection (i) of section 108 of the federal Internal Revenue Code of 1986 (26 U.S.C. s.108), for privilege periods beginning after December 31, 2008 and before January 1, 2011, entire net income shall include the amount of discharge of indebtedness income excluded for federal income tax purposes pursuant to subsection (i) of section 108 of the federal Internal Revenue Code of 1986 (26 U.S.C. s.108), and for privilege periods beginning on or after January 1, 2014 and before January 1, 2019, entire net income shall exclude the amount of discharge of indebtedness income included for federal income tax purposes, pursuant to subsection (i) of section 108 of the federal Internal Revenue Code of 1986 (26 U.S.C. s.108). (15) Entire net income shall exclude the gain or income derived from the sale or assignment of a tax credit transfer certificate pursuant to section 7 of P.L.2011, c.149 (C.34:1B-248) and section 10 of P.L.2014, c.63 (C.34:1B-251). (16) (A) There shall be allowed as a deduction an amount computed in accordance with this paragraph. (B) For purposes of this paragraph, "net deferred tax liability" means deferred tax liabilities that exceed the deferred tax assets of the combined group, as computed in accordance with generally accepted accounting principles, and "net deferred tax asset" means that deferred tax assets exceed the deferred tax liabilities of the combined group, as computed in accordance with generally accepted accounting principles. (C) Only publicly traded companies, including affiliated corporations participating in the filing of a publicly traded company's financial statements prepared in accordance with generally accepted accounting principles, as of the effective date of this paragraph, shall be eligible for this deduction. (D) If the provisions of sections 18 through 23 of P.L.2018, c.48 (C.54:10A-4.6 to C.54:10A-4.11) result in an aggregate increase to the members' net deferred tax liability or an aggregate decrease to the members' net deferred tax asset, or an aggregate change from a net deferred tax asset to a net deferred tax liability, the combined group shall be entitled to a deduction, as determined in this paragraph. (E) (i) Beginning with the combined group's first privilege period on or after January 1 of the fifth year after the effective date of P.L.2018, c.48 (C.54:10A-5.41 et al.), a combined group shall be entitled to a deduction from combined group entire net income equal to one-tenth of the amount necessary to offset the increase in the net deferred tax liability or decrease in the net deferred tax asset, or aggregate change from a net deferred tax asset to a net deferred tax liability, according to the schedule provided by subsubparagraphs (ii) and (iii) of this subparagraph (E). Such increase in the net deferred tax liability or decrease in the net deferred tax asset or the aggregate change from a net deferred tax asset to a net deferred tax liability shall be computed based on the change that would result from the imposition of the unitary reporting requirements under sections 1 and 18 through 23 of P.L.2018, c.48 (C.54:10A-5.41 and C.54:10A-4.6 to C.54:10A-4.11) but for the deduction provided under this paragraph as of the effective date of this paragraph. (ii) For group privilege periods beginning on and after January 1, 2023, but before January 1, 2030, the combined group may deduct one percent of the amount necessary to offset the increase in the net deferred tax liability or decrease in the net deferred tax asset, or aggregate change from a net deferred tax asset to a net deferred tax liability, during a group privilege period. Such increase in the net deferred tax liability or decrease in the net deferred tax asset or the aggregate change from a net deferred tax asset to a net deferred tax liability shall be computed based on the change that would result from the imposition of the unitary reporting requirements under sections 1 and 18 through 23 of P.L.2018, c.48 (C.54:10A-5.41 and C.54:10A-4.6 to C.54:10A-4.11) but for the deduction provided under this paragraph as of the effective date of this paragraph. (iii) For group privilege periods beginning on and after January 1, 2030, the combined group may deduct up to five percent of any remaining unused amount of the deduction during the group privilege period, until the group privilege period in which the total deduction amount has been fully utilized. Such increase in the net deferred tax liability or decrease in the net deferred tax asset or the aggregate change from a net deferred tax asset to a net deferred tax liability shall be computed based on the change that would result from the imposition of the unitary reporting requirements under sections 1 and 18 through 23 of P.L.2018, c.48 (C.54:10A-5.41 and C.54:10A-4.6 to C.54:10A-4.11) but for the deduction provided under this paragraph as of the effective date of this paragraph. (F) The deferred tax impact determined in subparagraph (E) of this paragraph must be converted to the annual Deferred Tax Deduction amount, as follows: (i) the deferred tax impact determined in subparagraph (E) of this paragraph shall be divided by the rate determined under section 5 of P.L.1945, c.162 (C.54:10A-5) at the effective date of P.L.2018, c.48 (C.54:10A-5.41 et al.); (ii) the resulting amount shall be further divided by the New Jersey unitary business allocation factor that was used by the combined group in the calculation of the deferred tax assets and deferred tax liabilities as described in subparagraph (E) of this paragraph; (iii) the resulting amount represents the total net Deferred Tax Deduction available over the period as described in subparagraph (E) of this paragraph. (G) The deduction calculated under this paragraph shall not be adjusted as a result of any events happening subsequent to such calculation, including, but not limited to, any disposition or abandonment of assets. Such deduction shall be calculated without regard to the federal tax effect and shall not alter the tax basis of any asset. If the deduction under this section is greater than combined group entire net income, any excess deduction shall be carried forward and applied as a deduction to combined group entire net income in future privilege periods until fully utilized. (H) Any combined group intending to claim a deduction under this paragraph shall file a statement with the director on or before July 1 of the year subsequent to the first privilege period for which a combined return is required. Such statement shall specify the total amount of the deduction which the combined group claims on such form and in such manner as prescribed by the director. No deduction shall be allowed under this paragraph for any privilege period except to the extent claimed on such timely filed statement in accordance with this paragraph. (17) (A) In the case of a taxpayer that is a cannabis licensee, there shall be allowed as a deduction an amount equal to any expenditure that is eligible to be claimed as a federal income tax deduction but is disallowed because cannabis is a controlled substance under federal law, and income shall be determined without regard to section 280E of the Internal Revenue Code (26 U.S.C. s.280E) for cannabis licensees. (B) In the case of a taxpayer that is a cannabis licensee, there shall be allowed as a deduction an amount equal to any expenditure that would qualify as a specified research or experimental expenditure pursuant to section 174 of the Internal Revenue Code but is disallowed as a deduction for federal tax purposes because cannabis is a controlled substance under federal law. Any expenditure that is claimed as a deduction pursuant to this subparagraph may also be claimed as a qualified research expense for purposes of the credit allowed pursuant to section 1 of P.L.1993, c.175 (C.54:10A-5.24). (C) For purposes of this paragraph, "licensee" means the same as that term is defined in section 3 of P.L.2021, c.16 (C.24:6I-33). (18) For privilege periods ending on and after July 31, 2022: (A) Notwithstanding subparagraph (A) of paragraph (2) of this subsection or any other law or treaty to the contrary, for a corporation that is incorporated or formed in a foreign nation with a comprehensive tax treaty with the United States, and that is not a member of a world-wide group combined return filed pursuant to subsection b. of section 23 of P.L.2018, c.48 (C.54:10A-4.11), entire net income shall not include an item of income or loss excluded or exempted from federal taxable income under the terms of the treaty, and no other deduction, exclusion, or elimination shall be permitted for an item of income or loss excluded by this paragraph. (B) For a non-U.S. corporation that files a federal tax return and is not a member of a combined group filing a New Jersey combined return on a world-wide basis pursuant to subsection b. of section 23 of P.L.2018, c.48 (C.54:10A-4.11), the non-U.S. corporation shall only include its income or loss included in federal taxable income, which shall be limited to only the non-U.S. corporation's effectively connected income or loss, as modified by the provisions of the Corporation Business Tax Act (1945), P.L.1945, c.162 (C.54:10A-1 et seq.), and the items of expense and the allocation factor receipts attributable to such items of income or loss. (19) (A) For privilege periods beginning after December 31, 2024, the entire net income of a corporation that is a qualified small business shall not include an amount up to $50,000 of the entire net income otherwise calculated pursuant to this subsection, prior to any other permitted exclusions, deductions, or credits. (B) For purposes of this paragraph, qualified small business means a corporation that: (i) is independently owned and operated, with management owning at least a 51 percent ownership interest in the corporation and being responsible for both its daily and long-term operations; (ii) has its principal business operations located in the State; (iii) is registered to do business in this State with the Director of the Division of Revenue and Enterprise Services in the Department of the Treasury; (iv) earned gross revenues not more than $2,000,000 during the privilege period; and (v) employed not more than 20 full-time or part-time employees during the privilege period, not including seasonal employees or part-time employees employed for less than 90 days in the privilege period, except that a majority of the full-time and part-time employees of the corporation shall be residents of this State. (l) "Real estate investment trust" shall mean any corporation, trust or association qualifying and electing to be taxed as a real estate investment trust under federal law. (m) "Financial business corporation" shall mean any corporate enterprise which is (1) in substantial competition with the business of national banks and which (2) employs moneyed capital with the object of making profit by its use as money, through discounting and negotiating promissory notes, drafts, bills of exchange and other evidences of debt; buying and selling exchange; making of or dealing in secured or unsecured loans and discounts; dealing in securities and shares of corporate stock by purchasing and selling such securities and stock without recourse, solely upon the order and for the account of customers; or investing and reinvesting in marketable obligations evidencing indebtedness of any person, copartnership, association or corporation in the form of bonds, notes or debentures commonly known as investment securities; or dealing in or underwriting obligations of the United States, any state or any political subdivision thereof, or of a corporate instrumentality of any of them. This shall include, without limitation of the foregoing, business commonly known as industrial banks, dealers in commercial paper and acceptances, sales finance, personal finance, small loan and mortgage financing businesses, as well as any other enterprise employing moneyed capital coming into competition with the business of national banks; provided that the holding of bonds, notes, or other evidences of indebtedness by individual persons not employed or engaged in the banking or investment business and representing merely personal investments not made in competition with the business of national banks, shall not be deemed financial business. Nor shall "financial business" include national banks, production credit associations organized under the Farm Credit Act of 1933 or the Farm Credit Act of 1971, Pub.L.92-181 (12 U.S.C. s.2091 et seq.), stock and mutual insurance companies duly authorized to transact business in this State, security brokers or dealers or investment companies or bankers not employing moneyed capital coming into competition with the business of national banks, real estate investment trusts, or any of the following entities organized under the laws of this State: credit unions, savings banks, savings and loan and building and loan associations, pawnbrokers, and State banks and trust companies. (n) "International banking facility" shall mean a set of asset and liability accounts segregated on the books and records of a depository institution, United States branch or agency of a foreign bank, or an Edge or Agreement Corporation that includes only international banking facility time deposits and international banking facility extensions of credit as such terms are defined in section 204.8(a)(2) and section 204.8(a)(3) of Regulation D of the board of governors of the Federal Reserve System, 12 CFR Part 204, effective December 3, 1981. In the event that the United States enacts a law, or the board of governors of the Federal Reserve System adopts a regulation which amends the present definition of international banking facility or of such facilities' time deposits or extensions of credit, the Commissioner of Banking and Insurance shall forthwith adopt regulations defining such terms in the same manner as such terms are set forth in the laws of the United States or the regulations of the board of governors of the Federal Reserve System. The regulations of the Commissioner of Banking and Insurance shall thereafter provide the applicable definitions. (o) "S corporation" means a corporation that has elected to be an "S corporation" pursuant to section 1361 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.1361, for the taxable year. (p) "New Jersey S corporation" means a taxpayer that has made a valid election to be an S corporation for federal tax purposes, and that has not made a valid election pursuant to subsection d. of section 20 of P.L.2022, c.133 (C.54:10A-5.22). (q) "Public Utility" means "public utility" as defined in R.S.48:2-13. (r) "Qualified investment partnership" means a partnership under this act that has more than 10 members or partners with no member or partner owning more than a 50% interest in the entity and that derives at least 90% of its gross income from dividends, interest, payments with respect to securities loans, and gains from the sale or other disposition of stocks or securities or foreign currencies or commodities or other similar income (including but not limited to gains from swaps, options, futures or forward contracts) derived with respect to its business of investing or trading in those stocks, securities, currencies or commodities, but "investment partnership" shall not include a "dealer in securities" within the meaning of section 1236 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.1236. (s) "Savings institution" means a state or federally chartered building and loan association, savings and loan association, or savings bank. (t) "Partnership" means an entity classified as a partnership for federal income tax purposes. (u) "Prior net operating loss conversion carryover" means a net operating loss incurred in a privilege period ending prior to July 31, 2019 and converted from a pre-allocation net operating loss to a post-allocation net operating loss as follows: (1) As used in this subsection: "Base year" means the last privilege period ending prior to July 31, 2019. "Base year BAF" means the taxpayer's business allocation factor as provided in sections 6 through 10 of P.L.1945, c.162 (C.54:10A-6 through C.54:10A-10) for purposes of calculating entire net income for the base year, as such section was in effect for the last privilege period ending prior to July 31, 2019. "UNOL" means the unabsorbed portion of net operating loss as calculated under paragraph (6) of subsection (k) of this section as such paragraph was in effect for the last privilege period ending prior to July 31, 2019, that was not deductible in previous privilege periods and was eligible for carryover on the last day of the base year subject to the limitations for deduction under such subsection, including any net operating loss sustained by the taxpayer during the base year. (2) The prior net operating loss conversion carryover shall be calculated as follows: (A) The taxpayer shall first calculate the tax value of its UNOL for the base year and for each preceding privilege period for which there is a UNOL. The value of the UNOL for each privilege period is equal to the product of (I) the amount of the taxpayer's UNOL for a privilege period, and (II) the taxpayer's base year BAF. This result shall equal the taxpayer's prior net operating loss conversion carryover. (B) The taxpayer shall continue to carry over its prior net operating loss conversion carryover to offset its allocated entire net income as provided in sections 6 through 10 of P.L.1945, c.162 (C.54:10A-6 through C.54:10A-10) for privilege periods ending on and after July 31, 2019. Such carryover periods shall not exceed the twenty privilege periods following the privilege period of the initial loss. The entire amount of the prior net operating loss conversion carryover for any privilege period shall be carried to the earliest of the privilege periods to which the loss may be carried. The portion of the prior net operating loss conversion carryover which shall be carried to each of the other privilege periods shall be the excess, if any, of the amount of the prior net operating loss conversion carryover over the sum of the entire net income, computed without the exclusions permitted in paragraphs (4) and (5) of subsection (k) of this section allocated to this State. For privilege periods ending on and after July 31, 2023, for the purpose of computing taxable net income for a current privilege period, the amount of the prior net operating loss conversion carryover shall be subtracted from entire net income allocated to this State, after the application of paragraphs (4) and (5) of subsection (k) of this section against current privilege period income when the entire net income allocated to this State for the privilege period is greater than zero. (C) The prior net operating loss conversion carryover computed under this subsection shall be applied against the entire net income allocated to this State before the net operating loss carryover computed under subsection (v) of this section. (v) "Net operating loss deduction" means the amount allowed as a deduction for the net operating loss carryover to the privilege period, calculated as follows: (1) Net operating loss carryover. A net operating loss for any privilege period ending on or after July 31, 2019, shall be a net operating loss carryover to each of the twenty privilege periods following the period of the loss. The entire amount of the net operating loss for any privilege period shall be carried to the earliest of the privilege periods to which the loss may be carried. For privilege periods ending before July 31, 2023, the portion of the loss which shall be carried to each of the other privilege periods shall be the excess, if any, of the amount of the loss over the sum of the entire net income, computed without the exclusions permitted in paragraphs (4) and (5) of subsection (k) of this section allocated to this State. For privilege periods ending on and after July 31, 2023, the portion of the loss that shall be carried to each of the other privilege periods shall be the excess, if any, of the amount of the loss over the sum of the entire net income, after the application of paragraphs (4) and (5) of subsection (k) of this section allocated to this State; provided, however, for the purpose of computing taxable net income for the privilege period, the net operating loss carryover shall only be subtracted from entire net income allocated to this State when the entire net income allocated to this State is greater than zero. (2) Net operating loss. For purposes of this paragraph the term "net operating loss" means the excess of the deductions over the gross income used in computing entire net income, without regard to any net operating loss carryover, and for privilege periods ending before July 31, 2023, computed without the exclusions in paragraphs (4) and (5) of subsection (k) of this section, and for privilege periods ending on and after July 31, 2023, computed after the application of paragraphs (4) and (5) of subsection (k) of this section, allocated to this State pursuant to sections 6 through 10 of P.L.1945, c.162 (C.54:10A-6 through C.54:10A-10). (3) Reduction for discharge of indebtedness. A net operating loss for any privilege period ending on or after July 31, 2019, and any net operating loss carryover to such privilege period, shall be reduced by the amount excluded from federal taxable income under subparagraph (A), (B), or (C) of paragraph (1) of subsection (a) of section 108 of the federal Internal Revenue Code, 26 U.S.C. s.108, for the privilege period of the discharge of indebtedness. (4) A net operating loss carryover shall not include any net operating loss incurred during any privilege period ending prior to July 31, 2019. (5) Change in ownership. Where there is a change in 50% or more of the ownership of a corporation because of redemption or sale of stock and the corporation changes the trade or business giving rise to the loss, no net operating loss sustained before the changes may be carried over to be deducted from income earned after such changes. In addition, where the facts support the premise that the corporation was acquired under any circumstances for the primary purpose of the use of its net operating loss carryover, the director may disallow the carryover; provided, however, this paragraph shall not apply between members of a combined group reported on a New Jersey combined return. (w) "Taxable net income" means entire net income allocated to this State as calculated pursuant to sections 6 through 8 of P.L.1945, c.162 (C.54:10A-6 through 54:10A-8) as modified by subtracting any prior net operating loss conversion carryforward calculated pursuant to subsection (u) of this section, and any net operating loss calculated pursuant to subsection (v) of this section; provided, however, for privilege periods ending on and after July 31, 2023, when subtracting any net operating losses calculated pursuant to subsection (v) of this section or the combined group net operating losses calculated pursuant to subsection h. of section 18 of P.L.2018, c.48 (C.54:10A-4.6), the limitation set forth in paragraph (2) of subsection (a) of Internal Revenue Code Section 172 (26 U.S.C. s.172(a)(2)) shall apply, except that August 1, 2023 is substituted for the reference to January 1, 2018 in subparagraph (A) of paragraph (2) of subsection a. of Internal Revenue Code Section 172 (26 U.S.C. s.172), and July 31, 2023 is substituted for the reference to December 31, 2017 in subparagraph (B) of paragraph (2) of subsection (a) of Internal Revenue Code Section 172 (26 U.S.C. s.172). For privilege periods ending on and after July 31, 2023, for a combined group, before subtracting the prior net operating loss conversion carryforwards and subtracting the net operating losses of the combined group when computing the total taxable net income, the combined group shall first add together the allocated entire net income from the unitary business of the combined group and the portion of allocated entire net income of members with activities independent of the group, and then subtract the prior net operating loss conversion carryforwards and then the net operating losses. (x) "Affiliated group" means, for purposes of section 23 of P.L.2018, c.48 (C.54:10A-4.11), an affiliated group as defined in section 1504 of the federal Internal Revenue Code, 26 U.S.C. s.1504, except such affiliated group shall include all U.S. domestic corporations that are commonly owned, directly or indirectly, by any member of such affiliated group, without regard to whether the affiliated group includes (1) corporations included in more than one federal consolidated return, (2) corporations engaged in one or more unitary businesses, or (3) corporations that are not engaged in a unitary business with any other member of the affiliated group. For purposes of this subsection: "U.S. domestic corporations" means: (1) business entities wherever incorporated or formed that are U.S. domestic corporations, are deemed to be, or are treated as U.S. domestic corporations under the provisions of the federal Internal Revenue Code; or (2) any entities incorporated or formed under the laws of a foreign nation that are required to file federal tax returns if such entities have effectively connected income within the meaning of the federal Internal Revenue Code; and "Commonly owned" means that more than 50 percent of the voting control of each member of an affiliated group is directly or indirectly owned by a common owner or owners, either corporate or non-corporate, whether or not the owner or owners are members of the affiliated group. Whether voting control is indirectly owned shall be determined in accordance with section 318 of the federal Internal Revenue Code (26 U.S.C. s.318). (y) "Combinable captive insurance company" means an entity that is treated as an association taxable as a corporation under the federal Internal Revenue Code: (1) more than 50% of the voting stock of which is owned or controlled, directly or indirectly, by a single entity that is treated as an association taxable as a corporation under the federal Internal Revenue Code, and not exempt from federal income tax; (2) that is licensed as a captive insurance company under the laws of this State or another jurisdiction; (3) whose business includes providing, directly and indirectly, insurance or reinsurance covering the risks of its parent, members of its affiliated group, or both; and (4) 50% or less of whose gross receipts for the privilege period consist of premiums from arrangements that constitute insurance for federal income tax purposes. A combinable captive insurance company shall not be exempt under section 3 of P.L.1945, c.162 (C.54:10A-3). A captive insurance company that does not meet the definition of combinable captive insurance company shall be excluded as provided in subsection k. of section 18 of P.L.2018, c.48 (C.54:10A-4.6) and shall be exempt under section 3 of P.L.1945, c.162 (C.54:10A-3). For purposes of this definition: "Affiliated group" shall have the same meaning as that term is given by section 1504 of the federal Internal Revenue Code, 26 U.S.C. s.1504, except that the term "common parent corporation" as used in section 1504 of the federal Internal Revenue Code, 26 U.S.C. s.1504, shall mean any person, as defined in section 7701 of the federal Internal Revenue Code, 26 U.S.C. s.7701, and references to "at least 80%" in section 1504 of the federal Internal Revenue Code, 26 U.S.C. s.1504, shall be read as "50% or more." Section 1504 of the federal Internal Revenue Code, 26 U.S.C. s.1504, shall be read without regard to the exclusions provided for in subsection (b) of that section. "Gross receipts" includes the amounts included in gross receipts for purposes of paragraph (15) of subsection (c) of section 501 of the federal Internal Revenue Code, 26 U.S.C. s.501, except that those amounts also include all premiums. "Premiums" includes consideration for annuity contracts and excludes any part of the consideration for insurance, reinsurance, or annuity contracts that do not provide bona fide insurance, reinsurance, or annuity benefits. (z) "Combined group" means the group of all companies that have common ownership and are engaged in a unitary business, where at least one company is subject to tax under this chapter, and shall include all business entities, except as provided for under any section of the Corporation Business Tax Act (1945), P.L.1945, c.162 (C.54:10A-1 et seq.). A combined group shall be treated, for privilege periods ending on and after July 31, 2020, as one taxpayer for purposes of paragraph (1) of subsection (c) of section 5 of P.L.1945, c.162 (C.54:10A-5) and section 1 of P.L.2018, c.48 (C.54:10A-5.41) for the income derived from the unitary business; provided however, with regard to the surtax imposed pursuant to section 1 of P.L.2018, c.48 (C.54:10A-5.41) and for that purpose only, the portion of income that is attributable to a member which is a public utility exempt from the surtax shall not be included when computing the surtax due. (aa) "Common ownership" means that more than 50% of the voting control of each member of a combined group is directly or indirectly owned by a common owner or owners, either corporate or non-corporate, whether or not the owner or owners are members of the combined group. Whether voting control is indirectly owned shall be determined in accordance with section 318 of the federal Internal Revenue Code, 26 U.S.C. s.318. (bb) "Group privilege period" means, if two or more members in the combined group file in the same federal consolidated tax return, the same income year as that used on the federal consolidated tax return and, in all other cases, the privilege period of the managerial member. (cc) "Managerial member" means if the combined group has a common parent corporation and that common parent corporation is a taxable member, the managerial member shall be the common parent corporation. In other cases, the combined group shall select a taxable member as its managerial member or, in the discretion of the director or upon failure of the combined group to select its managerial member, the director shall designate a taxable member of the combined group as managerial member. (dd) "Member" means a business entity that is a part of a combined group. A corporation exempt pursuant to section 3 of P.L.1945, c.162 (C.54:10A-3) from the tax imposed by P.L.1945, c.162 (C.54:10A-1 et seq.) shall not be a member of a combined group. (ee) "Nontaxable member" means a member that is: (i) not subject to tax pursuant to the Corporation Business Tax Act (1945), P.L.1945, c.162 (C.54:10A-1 et seq.); or (ii) (deleted by amendment, P.L.2020, c.118 (C.54:10A-5.46 et al.). (ff) "Taxable member" means a member that is subject to tax pursuant to the Corporation Business Tax Act (1945), P.L.1945, c.162 (C.54:10A-1 et seq.). A New Jersey S corporation shall only be included as a taxable member of a combined group filing a New Jersey combined return if the New Jersey S Corporation elects to be included as a member and taxed at the same rate as the other members of the combined group. A New Jersey S corporation that does not elect to be included shall be excluded as a member of the combined return and shall file a separate return. (gg) "Unitary business" means, for privilege periods ending before July 31, 2023, a single economic enterprise that is made up either of separate parts of a single business entity or of a group of business entities under common ownership that are sufficiently interdependent, integrated, and interrelated through their activities so as to provide a synergy and mutual benefit that produces a sharing or exchange of value among them and a significant flow of value among the separate parts. For privilege periods ending on and after July 31, 2023, "unitary business" means a single economic enterprise that is made up either of separate parts of a single business entity or of a group of business entities under common ownership that are sufficiently interdependent, integrated, or interrelated through their activities so as to provide a synergy and mutual benefit that produces a sharing or exchange of value among them and a significant flow of value among the separate parts. "Unitary business" shall be construed to the broadest extent permitted under the Constitution of the United States. A business conducted by a partnership which is in a unitary business with the combined group shall be treated as the business of the partners that are members of the combined group, whether the partnership interest is held directly or indirectly through a series of partnerships, to the extent of a partner's distributive share of partnership income. The amount of partnership income to be included in the partner's entire net income shall be determined in accordance with subsection a. of section 3 of P.L.2001, c.136 (C.54:10A-15.6) or subsection a. of section 4 of P.L.2001, c.136 (C.54:10A-15.7), as applicable. A business conducted directly or indirectly by one corporation is unitary with that portion of a business conducted by another corporation through its direct or indirect interest in a partnership. (hh) "Captive investment company" shall mean, for privilege periods ending on and after July 31, 2023, an investment company that is not regularly traded on an established securities market and of which more than 50 percent of the voting stock is owned or controlled, directly or indirectly, by a single corporation, other than an investment company, that is not exempt from federal income tax. For purposes of this subsection, a captive investment company shall not include any captive investment company of which at least 50 percent of the shares, by vote or value, is owned or controlled, directly or indirectly, by a state or federally chartered bank, savings bank, or savings and loan association with assets that do not exceed $15 billion. For privilege periods ending on and after July 31, 2023, any voting stock in an investment company that is held in a segregated asset account of a life insurance corporation, as described in section 817 of the Internal Revenue Code, shall not be taken into account for purposes of determining whether an investment company is a captive regulated investment company. For privilege periods ending on and after July 31, 2023, a captive investment company shall be taxed in the same manner as a C corporation, and subsection d. of section 5 of P.L. 1945, c. 162 (C. 54:10A-5) shall not apply. A captive investment company shall not be permitted to claim any deductions or expenses that were permitted for federal purposes, solely as a result of the entity being an investment company, when computing federal taxable net income. A captive investment company shall be a member of a combined group and shall be included as a member on the combined return. (ii) "Captive real estate investment trust" shall mean, for privilege periods ending on and after July 31, 2023, a real estate investment trust that is not regularly traded on an established securities market and of which more than 50 percent of the voting stock is owned or controlled, directly or indirectly, by a single entity that is treated as an association taxable as a corporation under the Internal Revenue Code, is not exempt from federal income tax, and is not a real estate investment trust. For purposes of this subsection, a captive real estate investment trust shall not include any captive real estate investment trust of which at least 50 percent of the shares, by vote or value, is owned or controlled, directly or indirectly, by a state or federally chartered bank, savings bank, or savings and loan association with assets that do not exceed $15 billion. For privilege periods ending on and after July 23, 2023, any voting stock in a real estate investment trust that is held in a segregated asset account of a life insurance corporation, as described in section 817 of the Internal Revenue Code (26 U.S.C. s.817), shall not be taken into account for purposes of determining whether a real estate investment trust is a captive real estate investment trust. For purposes of this subsection, an association taxable as a corporation shall not include any listed Australian property trust or any qualified foreign entity. For privilege periods ending on and after July 31, 2023, a captive real estate investment trust shall be taxed in the same manner as a C corporation, and subsection d. of section 5 of P.L.1945, c.162 (C.54:10A-5) shall not apply. A captive real estate investment trust shall not be permitted to claim any deductions or expenses that were permitted for federal purposes, solely as a result of the entity being a real estate investment trust, when computing federal taxable net income. A captive real estate investment trust shall be a member of a combined group and shall be included as a member on the combined return. As used in this subsection: "Australian property trust" means an Australian unit trust that is registered as a managed investment scheme under the Australian Corporations Act, and in which the principal class of units is listed on a recognized stock exchange in Australia and is regularly traded on an established securities market; or an entity organized as a trust, provided that a listed Australian property trust owns or controls, directly or indirectly, 75 percent or more of the voting power or value of the beneficial interests of shares of the trust. "Qualified foreign entity" means a corporation, trust, association, or partnership that is organized outside the laws of the United States and that satisfies the following criteria: (1) At least 75 percent of the entity's total asset value at the close of its taxable year is represented by real estate assets, as defined at subparagraph (B) of paragraph (5) of subsection (c) of section 856 of the Internal Revenue Code (26 U.S.C. s.856), including shares or certificates of beneficial interest in any real estate investment trust, cash and cash equivalents, and United States Government securities; (2) The entity is not subject to tax on amounts distributed to its beneficial owners, or is exempt from entity-level taxation; (3) The entity distributes, on an annual basis, at least 85 percent of its taxable income, as computed in the jurisdiction in which it is organized, to the holders of its shares or certificates of beneficial interest; (4) No more than 10 percent of the voting power or value in the entity is held directly, indirectly, or constructively by a single entity or individual, or the shares or certificates of beneficial interests of the entity are regularly traded on an established securities market; and (5) The entity is organized in a country that has a tax treaty with the United States. (jj) "Captive regulated investment company" shall mean, for privilege periods ending on and after July 31, 2023, a regulated investment company that is not regularly traded on an established securities market, and of which more than 50 percent of the voting stock is owned or controlled, directly or indirectly, by a single corporation, other than a regulated investment company, that is not exempt from federal income tax. For purposes of this subsection, a captive regulated investment company shall not include any captive regulated investment company of which at least 50 percent of the shares, by vote or value, is owned or controlled, directly or indirectly, by a state or federally chartered bank, savings bank, or savings and loan association with assets that do not exceed $15 billion. For privilege periods ending on and after July 31, 2023, any voting stock in a regulated investment company that is held in a segregated asset account of a life insurance corporation, as described in section 817 of the Internal Revenue Code (26 U.S.C. s.817), shall not be taken into account for purposes of determining whether a regulated investment company is a captive regulated investment company. For privilege periods ending on and after July 31, 2023, a captive regulated investment company shall be taxed in the same manner as a C corporation and subsection d. of section 5 of P.L.1945, c.162 (C.54:10A-5) shall not apply. A captive real estate investment company shall not be permitted to claim any deductions or expenses that were permitted for federal purposes, solely as a result of the entity being a regulated investment company, when computing federal taxable net income. A captive regulated investment company shall be a member of a combined group and shall be included as a member on the combined return. (kk) "World-wide basis" and "world-wide group" shall mean, for privilege periods ending on and after July 31, 2022, for the purposes of sections 18 through 23 of P.L.2018, c.48 (C.54:10A-4.6 through C.54:10A-4.11) and for the purposes of combined reporting in general under the Corporation Business Tax Act (1945), P.L.1945, c.162 (C.54:10A-1 et seq.), that the combined group shall include all of the members of the combined group, wherever located or formed. For privilege periods ending on and after July 31, 2022, the combined group shall include all of the income and attributes of those members regardless of how or whether those members file federal returns or report or include their income in federal taxable income for federal purposes, and without regard to any exemption or exclusion from federal taxable income under the terms of a tax treaty; provided, however, any deductions that are allowed under the federal Internal Revenue Code that are also allowable under the Corporation Business Tax Act (1945), P.L.1945, c.162 (C.54:10A-1 et seq.), that would apply to a U.S. corporation, but that a non-U.S. corporation is prohibited from claiming for federal corporation income tax purposes because the corporation's income was not included in federal taxable income for any reason or because the corporation is a non-U.S. corporation, shall be allowed for the non-U.S. corporation members of the combined group for New Jersey corporation business tax purposes as though those non-U.S. corporation members were U.S. corporations. (cf: P.L.2023, c.96, s.1) 2. Section 12 of P.L.1993, c.173 (C.54A:5-10) is amended to read as follows: 12. For the purposes of the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq.: "New Jersey S corporation" means a corporation that has made a valid election to be an S corporation for federal tax purposes for the taxable year, and that has not made a valid election pursuant to subsection d. of section 20 of P.L.2022, c.133 (C.54:10A-5.22). "Pro rata share" means the portion of any items attributable to an S corporation shareholder for a taxable year determined in the manner provided in, and subject to any election made under subsection (a) of section 1377 or subsection (e) of section 1362 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.1377 and s.1362. "Pro rata share of S corporation income" means the sum of the shareholder's proportionate share of: For a New Jersey S corporation, the S corporation income allocated to this State of all New Jersey S corporations; and the S corporation income not allocated to this State. "S corporation" means a corporation that has elected to be an "S corporation" pursuant to section 1361 of the federal Internal Revenue Code, 26 U.S.C. s.1361, for the taxable year. "S corporation income" means the net of an S corporation's items of income, loss or deduction taken into account by the shareholder in the manner provided in section 1366 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.1366; provided however that: a. S corporation income shall be determined without the exclusion, deduction or credit of: (1) any dividend exclusion or deduction otherwise allowed pursuant to paragraph 5 of subsection (k) of section 4 of P.L.1945, c.162 (C.54:10A-4); (2) taxes paid or accrued to the United States, a possession or territory of the United States, a state including this State, a political subdivision thereof, or the District of Columbia on or measured by profits or income, or business presence or business activity, of the corporation; (3) any income taxes paid or accrued to the United States, a possession or territory of the United States, a state including this State, a political subdivision thereof, or the District of Columbia paid or accrued by the S corporation on behalf of, or in satisfaction of the liabilities of, shareholders of the corporation; (4) interest income on obligations of any state other than this State, or of a political subdivision thereof, or of the federal government, except as deducted pursuant to subsection b. of this section; or (5) interest on indebtedness incurred or continued, expenses paid and incurred to purchase, carry, manage or conserve, and expenses of collection of the income or gain from obligations the income or gain from which is deductible pursuant to subsection b. of this definition; and b. S corporation income shall be determined after deduction of: (1) any gains or income derived from obligations which are referred to in N.J.S.54A:6-14 or from securities which evidence ownership in a qualified investment fund as defined in section 2 of P.L.1987, c.310 (C.54A:6-14.1), and any interest excluded from gross income pursuant to N.J.S.54A:6-14, or distributions excluded from income pursuant to section 2 of P.L.1987, c.310 (C.54A:6-14.1); and (2) (a) in the case of a taxpayer that is a cannabis licensee, an amount equal to any expenditure that is eligible to be claimed as a federal income tax deduction but is disallowed because cannabis is a controlled substance under federal law; (b) for purposes of this paragraph, "licensee" means the same as that term is defined in section 3 of P.L.2021, c.16 (C.24:6I-33); and c. The character of any S corporation item taken into account by a shareholder of an S corporation shall be determined as if such items were received or incurred by the S corporation and not its shareholder. d. (1) For taxable years beginning after December 31, 2024, the S corporation income of a qualified small business shall not include up to $50,000 of the amount otherwise calculated pursuant to this section, prior to any other permitted exclusions, deductions, or credits. (2) For purposes of this subsection, qualified small business means an S corporation that: (i) is independently owned and operated, with management owning at least a 51 percent ownership interest in the corporation and being responsible for both its daily and long-term operations; (ii) has its principal business operations located in the State; (iii) is registered to do business in this State with the Director of the Division of Revenue and Enterprise Services in the Department of the Treasury; (iv) earned gross revenues not more than $2,000,000 during the taxable year; and (v) employed not more than 20 full-time or part-time employees during the taxable year, not including seasonal employees or part-time employees employed for less than 90 days in the taxable year, except that a majority of the full-time and part-time employees of the S corporation shall be residents of this State. "S corporation income allocated to this State" means that portion of the S corporation income that is allocated to this State by the allocation factor of the corporation for the fiscal or calendar accounting period pursuant to sections 6 through 10 of P.L.1945, c.162 (C.54:10A-6 through 54:10A-10), reduced by any tax imposed pursuant to paragraph (3) of subsection (c) of section 5 of P.L.1945, c.162 (C. 54:10A-5). "S corporation income not allocated to this State" means S corporation income less S corporation income allocated to this State. (cf: P.L.2023, c.50, s.2) 3. (New section) a. For taxable years beginning after December 31, 2024, the gross income of a qualified small business shall not include up to $50,000 of the amount otherwise calculated pursuant to the provisions of N.J.S.54A:1-1 et seq., prior to any other permitted exclusions, deductions, or credits. b. For purposes of this section, qualified small business means a business entity that: (1) is independently owned and operated, with management owning at least a 51 percent ownership interest in the entity and being responsible for both its daily and long-term operations; (2) has its principal business operations located in the State; (3) is registered to do business in this State with the Director of the Division of Revenue and Enterprise Services in the Department of the Treasury; (4) earned gross revenues not more than $2,000,000 during the taxable year; (5) employed not more than 20 full-time or part-time employees during the taxable year, not including seasonal employees or part-time employees employed for less than 90 days in the taxable year. except that a majority of the full-time and part-time employees of the entity shall be residents of this State. 4. This act shall take effect immediately and shall apply to privilege periods and taxable years beginning after December 31, 2024. STATEMENT This bill excludes up to $50,000 of the income earned by qualified small businesses from taxation under the corporation business tax and the gross income tax. The provisions of this bill would apply to tax periods beginning after December 31, 2024. Under the bill, a qualified small business is defined to include a business entity that: (1) is independently owned and operated, with management owning at least a 51 percent ownership interest in the corporation and being responsible for both its daily and long-term operations; (2) has its principal business operations located in the State; (3) is registered to do business in this State with the Director of the Division of Revenue and Enterprise Services; (4) earned gross revenues not more than $2 million during the applicable tax period; and (5) employed not more than 20 full-time or part-time employees during the taxable year, not including certain seasonal employees, except that a majority of the employees are required to be residents of this State. |
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| 56 | 56 | | |
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| 57 | 57 | | An Act allowing the exclusion of certain small business income from taxation under the gross income tax and corporation business tax, revising various parts of the statutory law, and supplementing Title 54A of the New Jersey Statutes. |
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| 58 | 58 | | |
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| 59 | 59 | | |
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| 60 | 60 | | |
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| 61 | 61 | | Be It Enacted by the Senate and General Assembly of the State of New Jersey: |
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| 62 | 62 | | |
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| 63 | 63 | | |
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| 64 | 64 | | |
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| 65 | 65 | | 1. Section 4 of P.L.1945, c.162 (C.54:10A-4) is amended to read as follows |
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| 66 | 66 | | |
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| 67 | 67 | | 4. For the purposes of this act, unless the context requires a different meaning: |
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| 68 | 68 | | |
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| 69 | 69 | | (a) "Commissioner" or "director" shall mean the Director of the Division of Taxation of the State Department of the Treasury. |
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| 70 | 70 | | |
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| 71 | 71 | | (b) "Allocation factor" shall mean the proportionate part of a taxpayer's net worth or entire net income used to determine a measure of its tax under this act. |
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| 72 | 72 | | |
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| 73 | 73 | | (c) "Corporation" shall mean any corporation, joint-stock company or association and any business conducted by a trustee or trustees wherein interest or ownership is evidenced by a certificate of interest or ownership or similar written instrument, any other entity classified as a corporation for federal income tax purposes, and any state or federally chartered building and loan association or savings and loan association. |
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| 74 | 74 | | |
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| 75 | 75 | | (d) "Net worth" shall mean the aggregate of the values disclosed by the books of the corporation for (1) issued and outstanding capital stock, (2) paid-in or capital surplus, (3) earned surplus and undivided profits, and (4) surplus reserves which can reasonably be expected to accrue to holders or owners of equitable shares, not including reasonable valuation reserves, such as reserves for depreciation or obsolescence or depletion. Notwithstanding the foregoing, net worth shall not include any deduction for the amount of the excess depreciation described in paragraph (2) (F) of subsection (k) of this section. The foregoing aggregate of values shall be reduced by 50% of the amount disclosed by the books of the corporation for investment in the capital stock of one or more subsidiaries, which investment is defined as ownership (1) of at least 80% of the total combined voting power of all classes of stock of the subsidiary entitled to vote and (2) of at least 80% of the total number of shares of all other classes of stock except nonvoting stock which is limited and preferred as to dividends. In the case of investment in an entity organized under the laws of a foreign country, the foregoing requisite degree of ownership shall effect a like reduction of such investment from the net worth of the taxpayer, if the foreign entity is considered a corporation for any purpose under the United States federal income tax laws, such as (but not by way of sole examples) for the purpose of supplying deemed paid foreign tax credits or for the purpose of status as a controlled foreign corporation. In calculating the net worth of a taxpayer entitled to reduction for investment in subsidiaries, the amount of liabilities of the taxpayer shall be reduced by such proportion of the liabilities as corresponds to the ratio which the excluded portion of the subsidiary values bears to the total assets of the taxpayer. |
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| 76 | 76 | | |
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| 77 | 77 | | In the case of banking corporations which have international banking facilities as defined in subsection (n), the foregoing aggregate of values shall also be reduced by retained earnings of the international banking facility. Retained earnings means the earnings accumulated over the life of such facility and shall not include the distributive share of dividends paid and federal income taxes paid or payable during the tax year. |
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| 78 | 78 | | |
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| 79 | 79 | | If in the opinion of the director, the corporation's books do not disclose fair valuations the director may make a reasonable determination of the net worth which, in his opinion, would reflect the fair value of the assets, exclusive of subsidiary investments as defined aforesaid, carried on the books of the corporation, in accordance with sound accounting principles, and such determination shall be used as net worth for the purpose of this act. |
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| 80 | 80 | | |
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| 81 | 81 | | (e) (Deleted by amendment, P.L.1998, c.114.) |
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| 82 | 82 | | |
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| 83 | 83 | | (f) "Investment company" shall mean any corporation whose business during the period covered by its report consisted, to the extent of at least 90 percent thereof of holding, investing and reinvesting in stocks, bonds, notes, mortgages, debentures, patents, patent rights and other securities for its own account, but this shall not include any corporation which: (1) is a merchant or a dealer of stocks, bonds and other securities, regularly engaged in buying the same and selling the same to customers; or (2) had less than 90 percent of its average gross assets in New Jersey, at cost, invested in stocks, bonds, debentures, mortgages, notes, patents, patent rights or other securities or consisting of cash on deposit during the period covered by its report; or (3) is a banking corporation, a savings institution, or a financial business corporation as defined in the Corporation Business Tax Act. |
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| 84 | 84 | | |
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| 85 | 85 | | (g) "Regulated investment company" shall mean any corporation which for a period covered by its report, is registered and regulated under the Investment Company Act of 1940 (54 Stat. 789), as amended. |
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| 86 | 86 | | |
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| 87 | 87 | | (h) "Taxpayer" shall mean any corporation, any combined group filing a mandatory or elective New Jersey combined return, and any partnership required, or consenting, to report or to pay taxes, interest or penalties under this act. "Taxpayer" shall not include a partnership that is listed on a United States national stock exchange. |
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| 88 | 88 | | |
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| 89 | 89 | | (i) "Fiscal year" shall mean an accounting period ending on any day other than the last day of December on the basis of which the taxpayer is required to report for federal income tax purposes. |
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| 90 | 90 | | |
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| 91 | 91 | | (j) Except as herein provided, "privilege period" shall mean the calendar or fiscal accounting period for which a tax is payable under this act. |
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| 92 | 92 | | |
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| 93 | 93 | | (k) "Entire net income" shall mean total net income from all sources, whether within or without the United States, and shall include the gain derived from the employment of capital or labor, or from both combined, as well as profit gained through a sale or conversion of capital assets. |
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| 94 | 94 | | |
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| 95 | 95 | | For the purpose of this act, the amount of a taxpayer's entire net income shall be deemed prima facie to be equal in amount to the taxable income, before net operating loss deduction and special deductions, which the taxpayer is required to report, or, if the taxpayer is classified as a partnership for federal tax purposes, would otherwise be required to report, to the United States Treasury Department for the purpose of computing its federal income tax, provided however, that in the determination of such entire net income, |
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| 96 | 96 | | |
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| 97 | 97 | | (1) Entire net income shall exclude for the periods set forth in paragraph (2)(F)(i) of this subsection, any amount, except with respect to qualified mass commuting vehicles as described in section 168(f)(8)(D)(v) of the Internal Revenue Code as in effect immediately prior to January 1, 1984, which is included in a taxpayer's federal taxable income solely as a result of an election made pursuant to the provisions of paragraph (8) of that section. |
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| 98 | 98 | | |
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| 99 | 99 | | (2) Entire net income shall be determined without the exclusion, deduction or credit of: |
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| 100 | 100 | | |
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| 101 | 101 | | (A) The amount of any exemption or credit allowed in any law of the United States imposing any tax on or measured by the income of corporations. |
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| 102 | 102 | | |
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| 103 | 103 | | (B) Any part of any income from dividends or interest on any kind of stock, securities or indebtedness, except as provided in paragraph (5) of subsection (k) of this section. |
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| 104 | 104 | | |
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| 105 | 105 | | (C) Taxes paid or accrued to the United States, a possession or territory of the United States, a state, a political subdivision thereof, or the District of Columbia, or to any foreign country, state, province, territory or subdivision thereof, on or measured by profits or income, or business presence or business activity, or the tax imposed by this act, or any tax paid or accrued with respect to subsidiary dividends excluded from entire net income as provided in paragraph (5) of subsection (k) of this section. |
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| 106 | 106 | | |
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| 107 | 107 | | (D) (Deleted by amendment, P.L.1985, c.143.) |
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| 108 | 108 | | |
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| 109 | 109 | | (E) (Deleted by amendment, P.L.1995, c.418.) |
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| 110 | 110 | | |
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| 111 | 111 | | (F) (i) The amount by which depreciation reported to the United States Treasury Department for property placed in service on and after January 1, 1981, but prior to taxpayer fiscal or calendar accounting years beginning on and after the effective date of P.L.1993, c.172, for purposes of computing federal taxable income in accordance with section 168 of the Internal Revenue Code in effect after December 31, 1980, exceeds the amount of depreciation determined in accordance with the Internal Revenue Code provisions in effect prior to January 1, 1981, but only with respect to a taxpayer's accounting period ending after December 31, 1981; provided, however, that where a taxpayer's accounting period begins in 1981 and ends in 1982, no modification shall be required with respect to this paragraph (F) for the report filed for such period with respect to property placed in service during that part of the accounting period which occurs in 1981. The provisions of this subparagraph shall not apply to assets placed in service prior to January 1, 1998 of a gas, gas and electric, and electric public utility that was subject to the provisions of P.L.1940, c.5 (C.54:30A-49 et seq.) prior to 1998. |
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| 112 | 112 | | |
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| 113 | 113 | | (ii) For the periods set forth in subparagraph (F)(i) of paragraph (2) of this subsection, any amount, except with respect to qualified mass commuting vehicles as described in section 168(f)(8)(D)(v) of the Internal Revenue Code as in effect immediately prior to January 1, 1984, which the taxpayer claimed as a deduction in computing federal income tax pursuant to a qualified lease agreement under paragraph (8) of that section. |
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| 114 | 114 | | |
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| 115 | 115 | | The director shall promulgate rules and regulations necessary to carry out the provisions of this section, which rules shall provide, among others, the manner in which the remaining life of property shall be reported. |
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| 116 | 116 | | |
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| 117 | 117 | | (G) (i) The amount of any civil, civil administrative, or criminal penalty or fine, including a penalty or fine under an administrative consent order, assessed and collected for a violation of a State or federal environmental law, an administrative consent order, or an environmental ordinance or resolution of a local governmental entity, and any interest earned on the penalty or fine, and any economic benefits having accrued to the violator as a result of a violation, which benefits are assessed and recovered in a civil, civil administrative, or criminal action, or pursuant to an administrative consent order. The provisions of this paragraph shall not apply to a penalty or fine assessed or collected for a violation of a State or federal environmental law, or local environmental ordinance or resolution, if the penalty or fine was for a violation that resulted from fire, riot, sabotage, flood, storm event, natural cause, or other act of God beyond the reasonable control of the violator, or caused by an act or omission of a person who was outside the reasonable control of the violator. |
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| 118 | 118 | | |
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| 119 | 119 | | (ii) The amount of treble damages paid to the Department of Environmental Protection pursuant to subsection a. of section 7 of P.L.1976, c.141 (C.58:10-23.11f), for costs incurred by the department in removing, or arranging for the removal of, an unauthorized discharge upon failure of the discharger to comply with a directive from the department to remove, or arrange for the removal of, the discharge. |
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| 120 | 120 | | |
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| 121 | 121 | | (H) The amount of any sales and use tax paid by a utility vendor pursuant to section 71 of P.L.1997, c.162. |
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| 122 | 122 | | |
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| 123 | 123 | | (I) With respect to privilege periods ending before July 31, 2023, interest paid, accrued or incurred for the privilege period to a related member, as defined in section 5 of P.L.2002, c.40 (C.54:10A-4.4), except that a deduction shall be permitted to the extent that the taxpayer establishes by clear and convincing evidence, as determined by the director, that: (i) a principal purpose of the transaction giving rise to the payment of the interest was not to avoid taxes otherwise due under Title 54 of the Revised Statutes or Title 54A of the New Jersey Statutes, (ii) the interest is paid pursuant to arm's length contracts at an arm's length rate of interest, and (iii)(aa) the related member was subject to a tax on its net income or receipts in this State or another state or possession of the United States or in a foreign nation, (bb) a measure of the tax includes the interest received from the related member, and (cc) the rate of tax applied to the interest received by the related member is equal to or greater than a rate three percentage points less than the rate of tax applied to taxable interest by this State pursuant to section 5 of P.L.1945, c.162 (C.54:10A-5). |
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| 124 | 124 | | |
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| 125 | 125 | | With respect to privilege periods ending before July 31, 2023, a deduction shall also be permitted if the taxpayer establishes by clear and convincing evidence, as determined by the director, that the disallowance of a deduction is unreasonable, or the taxpayer and the director agree in writing to the application or use of an alternative method of apportionment under section 8 of P.L.1945, c.162 (C.54:10A-8); nothing in this subsection shall be construed to limit or negate the director's authority to otherwise enter into agreements and compromises otherwise allowed by law. |
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| 126 | 126 | | |
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| 127 | 127 | | With respect to privilege periods ending before July 31, 2023, a deduction shall also be permitted to the extent that the taxpayer establishes by a preponderance of the evidence, as determined by the director, that the interest is directly or indirectly paid, accrued or incurred to (i) a related member in a foreign nation which has in force a comprehensive income tax treaty with the United States and the related member (aa) was subject to tax in the foreign nation on a tax base that included the payment paid, accrued, or incurred; and (bb) under which the related member's income received from the transaction was taxed at an effective tax rate equal to or greater than a rate of three percentage points less than the rate of tax applied to taxable interest by the State of New Jersey pursuant to section 5 of P.L.1945, c.162 (C.54:10A-5), provided however that the taxpayer shall disclose on its return for the privilege period the name of the related member, the amount of the interest, the relevant foreign nation, and such other information as the director may prescribe or (ii) to an independent lender and the taxpayer guarantees the debt on which the interest is required. The adjustments required by this subparagraph shall not apply to transactions between related members included in a combined group reported on a New Jersey combined return. |
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| 128 | 128 | | |
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| 129 | 129 | | (J) (i) Amounts deducted for federal tax purposes pursuant to section 199 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.199, except that this exclusion shall not apply to amounts deducted pursuant to that section that are exclusively based upon domestic production gross receipts of the taxpayer which are derived only from any lease, rental, license, sale, exchange, or other disposition of qualifying production property which the taxpayer demonstrates to the satisfaction of the director was manufactured or produced by the taxpayer in whole or in significant part within the United States but not qualified production property that was grown or extracted by the taxpayer. "Manufactured or produced" as used in this paragraph shall be limited to performance of an operation or series of operations the object of which is to place items of tangible personal property in a form, composition, or character different from that in which they were acquired. The change in form, composition, or character shall be a substantial change, and result in a transformation of property into a different or substantially more usable product. |
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| 130 | 130 | | |
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| 131 | 131 | | (ii) For privilege periods beginning after December 31, 2017, notwithstanding the provisions of P.L.1945, c.162 (C.54:10A-1 et seq.) or any other law to the contrary, for the purposes of determining the amount of income pursuant to P.L.1945, c.162 (C.54:10A-1 et seq.) that is net of expenses, no amounts shall be taken as a deduction pursuant to section 199A of the Internal Revenue Code (26 U.S.C. s.199A). |
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| 132 | 132 | | |
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| 133 | 133 | | (K) (i) For privilege periods beginning after December 31, 2017 and ending before July 31, 2022, the interest deduction limitation in subsection (j) of section 163 of the Internal Revenue Code (26 U.S.C. s.163), shall apply on a pro-rata basis to interest paid to both related and unrelated parties, regardless of whether the related parties are subject to the add-back provision of either subparagraph (I) of paragraph (2) of this subsection or in section 5 of P.L.2002, c.40 (C.54:10A-4.4). |
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| 134 | 134 | | |
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| 135 | 135 | | (ii) For privilege periods beginning after December 31, 2017 and ending on and after July 31, 2022, the interest deduction limitation in subsection (j) of section 163 of the Internal Revenue Code (26 U.S.C. s.163), shall apply to a combined group as though the combined group filed a federal consolidated return; provided, however, for the purposes of applying the limitation in subsection (j) of section 163 of the Internal Revenue Code (26 U.S.C. s.163), with regard to affiliates that were members of the federal consolidated return but were not members of the combined group included on the New Jersey combined return, the combined group and the affiliates will also be treated as having filed one federal consolidated return. |
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| 136 | 136 | | |
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| 137 | 137 | | (3) The director may, whenever necessary to properly reflect the entire net income of any taxpayer, determine the year or period in which any item of income or deduction shall be included, without being limited to the method of accounting employed by the taxpayer. |
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| 138 | 138 | | |
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| 139 | 139 | | (4) There shall be allowed as a deduction from entire net income of a banking corporation, to the extent not deductible in determining federal taxable income, the eligible net income of an international banking facility determined as follows: |
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| 140 | 140 | | |
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| 141 | 141 | | (A) The eligible net income of an international banking facility shall be the amount remaining after subtracting from the eligible gross income the applicable expenses; |
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| 142 | 142 | | |
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| 143 | 143 | | (B) Eligible gross income shall be the gross income derived by an international banking facility, which shall include, but not be limited to, gross income derived from: |
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| 144 | 144 | | |
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| 145 | 145 | | (i) Making, arranging for, placing or carrying loans to foreign persons, provided, however, that in the case of a foreign person which is an individual, or which is a foreign branch of a domestic corporation (other than a bank), or which is a foreign corporation or foreign partnership which is controlled by one or more domestic corporations (other than banks), domestic partnerships or resident individuals, all the proceeds of the loan are for use outside of the United States; |
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| 146 | 146 | | |
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| 147 | 147 | | (ii) Making or placing deposits with foreign persons which are banks or foreign branches of banks (including foreign subsidiaries) or foreign branches of the taxpayers or with other international banking facilities; |
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| 148 | 148 | | |
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| 149 | 149 | | (iii) Entering into foreign exchange trading or hedging transactions related to any of the transactions described in this paragraph; or |
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| 150 | 150 | | |
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| 151 | 151 | | (iv) Such other activities as an international banking facility may, from time to time, be authorized to engage in; |
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| 152 | 152 | | |
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| 153 | 153 | | (C) Applicable expenses shall be any expense or other deductions attributable, directly or indirectly, to the eligible gross income described in subparagraph (B) of this paragraph. |
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| 154 | 154 | | |
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| 155 | 155 | | (5) (A) (i) Entire net income shall exclude 100% of dividends which were included in computing such taxable income for federal income tax purposes, paid to the taxpayer by one or more subsidiaries owned by the taxpayer to the extent of the 80% or more ownership of investment described in subsection (d) of this section for privilege periods beginning on or before December 31, 2016. |
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| 156 | 156 | | |
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| 157 | 157 | | (ii) For privilege periods beginning after December 31, 2016 and before January 1, 2019, entire net income shall exclude 95% of dividends which were included in computing such taxable income for federal income tax purposes, paid or deemed paid, to the taxpayer by one or more subsidiaries owned by the taxpayer to the extent of the 80% or more ownership of investment described in subsection (d) of this section. For the purposes of calculating the tax liability owed for the paid or deemed paid dividends included in entire net income by this subsubparagraph (ii), the taxpayer shall use either their three-year average allocation factor for the taxpayer's 2014 through 2016 tax years reported on the taxpayer's tax returns or 3.5 percent, whichever is lower. |
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| 158 | 158 | | |
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| 159 | 159 | | (iii) For privilege periods beginning on and after January 1, 2019 and ending before July 31, 2023, entire net income shall exclude 95% of dividends which were included in computing such taxable income for federal income tax purposes, paid or deemed paid to the taxpayer by one or more subsidiaries owned by the taxpayer to the extent of the 80% or more ownership of investment described in subsection (d) of this section. |
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| 160 | 160 | | |
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| 161 | 161 | | (iv) For privilege periods ending on and after July 31, 2023, entire net income shall exclude 100 percent of dividends and deemed dividends that were included in computing such taxable income for federal income tax purposes, paid or deemed paid to the taxpayer by one or more subsidiaries owned by the taxpayer to the extent of the 80 percent or more ownership of investment described in subsection (d) of this section. |
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| 162 | 162 | | |
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| 163 | 163 | | (B) Entire net income shall exclude 50% of dividends which were included in computing such taxable income for federal income tax purposes, paid or deemed paid to the taxpayer by one or more subsidiaries owned by the taxpayer to the extent of 50% or more ownership of investment, such ownership of investment calculated in the same manner as the 80% or more of ownership of investment is calculated as described in subsection (d) of this section. |
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| 164 | 164 | | |
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| 165 | 165 | | (C) To the extent a subsidiary received dividends from other subsidiaries and included those dividends in its entire net income for the purposes of determining its tax liability pursuant to section 5 of P.L.1945, c.162 (C.54:10A-5) and paid tax on those dividends, the taxpayer receiving those same dividends from the subsidiary shall exclude those dividends from its entire net income based on the subsidiary's allocation factor used by the subsidiary in determining its tax liability pursuant to section 5 of P.L.1945, c.162 (C.54:10A-5). This subparagraph (C) shall not apply to privilege periods ending on and after July 31, 2019. |
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| 166 | 166 | | |
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| 167 | 167 | | (D) For privilege periods ending on and after July 31, 2019 but before July 31, 2020, to the extent a subsidiary received dividends from other subsidiaries and included those dividends in its entire net income for the purposes of determining its tax liability pursuant to section 5 of P.L.1945, c.162 (C.54:10A-5) and paid tax on those dividends, the taxpayer receiving those same dividends from the subsidiary shall exclude those dividends from its entire net income. |
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| 168 | 168 | | |
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| 169 | 169 | | (E) For privilege periods ending on and after July 31, 2020, for purposes of this paragraph (5), the members of a combined group filing a New Jersey combined return shall be treated as one taxpayer with regard to dividends and deemed dividends that were received as part of the unitary business of the combined group. |
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| 170 | 170 | | |
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| 171 | 171 | | (F) For privilege periods ending on and after July 31, 2023: |
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| 172 | 172 | | |
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| 173 | 173 | | (i) The exclusion provided by this paragraph (5) shall be deducted from entire net income after the State modifications that increase federal entire net income but before the other State modifications that reduce entire net income and before the allocation of entire net income to this State. |
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| 174 | 174 | | |
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| 175 | 175 | | (ii) In computing the total amount of the dividends and deemed dividends excluded by this paragraph (5) for privilege periods ending on and after July 31, 2023, the amount of dividends and deemed dividends excluded shall be reduced by the amount of the expenses and deductions that are attributable to those dividends and deemed dividends. For purposes of this paragraph (5), expenses and deductions related to dividends shall equal five percent of all dividends and deemed dividends received by a taxpayer during an income year. |
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| 176 | 176 | | |
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| 177 | 177 | | (G) For privilege periods ending on and after July 31, 2023, for the purposes of this paragraph (5) and for subsection d. of section 18 of P.L.2018, c.48 (C.54:10A-4.6), the income amounts required to be included in federal taxable income pursuant to 26 U.S.C. s.951A, shall be considered a dividend. |
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| 178 | 178 | | |
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| 179 | 179 | | (6) (A) Net operating loss deduction. For privilege periods ending before July 31, 2019, there shall be allowed as a deduction for the privilege period the net operating loss carryover to that period. |
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| 180 | 180 | | |
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| 181 | 181 | | (B) Net operating loss carryover. A net operating loss for any privilege period ending after June 30, 1984 shall be a net operating loss carryover to each of the seven privilege periods following the period of the loss and a net operating loss for any privilege period ending after June 30, 2009 shall be a net operating loss carryover to each of the twenty privilege periods following the period of the loss. The entire amount of the net operating loss for any privilege period (the "loss period") shall be carried to the earliest of the privilege periods to which the loss may be carried. The portion of the loss which shall be carried to each of the other privilege periods shall be the excess, if any, of the amount of the loss over the sum of the entire net income, computed without the exclusions permitted in paragraphs (4) and (5) of this subsection or the net operating loss deduction provided by subparagraph (A) of this paragraph, for each of the prior privilege periods to which the loss may be carried. |
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| 182 | 182 | | |
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| 183 | 183 | | (C) Net operating loss. For purposes of this paragraph the term "net operating loss" means the excess of the deductions over the gross income used in computing entire net income without the net operating loss deduction provided for in subparagraph (A) of this paragraph and the exclusions in paragraphs (4) and (5) of this subsection. |
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| 184 | 184 | | |
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| 185 | 185 | | (D) Change in ownership. Where there is a change in 50% or more of the ownership of a corporation because of redemption or sale of stock and the corporation changes the trade or business giving rise to the loss, no net operating loss sustained before the changes may be carried over to be deducted from income earned after such changes. In addition where the facts support the premise that the corporation was acquired under any circumstances for the primary purpose of the use of its net operating loss carryover, the director may disallow the carryover. |
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| 186 | 186 | | |
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| 187 | 187 | | (E) Notwithstanding the provisions of this paragraph (6) of subsection (k) of this section to the contrary, for privilege periods beginning during calendar year 2002 and calendar year 2003, no deduction for any net operating loss carryover shall be allowed and for privilege periods beginning during calendar year 2004 and calendar year 2005, there shall be allowed as a deduction for the privilege period so much of the net operating loss carryover as reduces entire net income otherwise calculated by 50%. If and only to the extent that any net operating loss carryover deduction is disallowed by reason of this subparagraph (E), the date on which the amount of the disallowed net operating loss carryover deduction would otherwise expire shall be extended by a period equal to the period for which application of the net operating loss was disallowed by this subparagraph. |
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| 188 | 188 | | |
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| 189 | 189 | | Provided, that this subparagraph (E) shall not restrict the surrender or acquisition of corporation business tax benefit certificates pursuant to section 1 of P.L.1997, c.334 (C.34:1B-7.42a) and shall not restrict the application of corporation business tax benefit certificates pursuant to section 2 of P.L.1997, c.334 (C.54:10A-4.2). |
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| 190 | 190 | | |
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| 191 | 191 | | (F) Reduction for discharge of indebtedness. A net operating loss for any privilege period ending after June 30, 2014, and any net operating loss carryover to such privilege period, shall be reduced by the amount excluded from federal taxable income under subparagraph (A), (B), or (C) of paragraph (1) of subsection (a) of section 108 of the federal Internal Revenue Code (26 U.S.C. s.108), for the privilege period of the discharge of indebtedness. |
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| 192 | 192 | | |
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| 193 | 193 | | (7) The entire net income of gas, electric and gas and electric public utilities that were subject to, or would have been subject to tax if doing business in this State, the provisions of P.L.1940, c.5 (C.54:30A-49 et seq.) prior to 1998, shall be adjusted by substituting the New Jersey depreciation allowance for federal tax depreciation with respect to assets placed in service prior to January 1, 1998. For gas, electric, and gas and electric public utilities that were subject to, or would have been subject to tax if doing business in this State, the provisions of P.L.1940, c.5 (C.54:30A-49 et seq.) prior to 1998, the New Jersey depreciation allowance shall be computed as follows: All depreciable assets placed in service prior to January 1, 1998 shall be considered a single asset account. The New Jersey tax basis of this depreciable asset account shall be an amount equal to the carryover adjusted basis for federal income tax purposes on December 31, 1997 of all depreciable assets in service on December 31, 1997, increased by the excess, of the "net carrying value," defined to be adjusted book basis of all assets and liabilities, excluding deferred income taxes, recorded on the public utility's books of account on December 31, 1997, over the carryover adjusted basis for federal income tax purposes on December 31, 1997 of all assets and liabilities owned by the gas, electric, or gas and electric public utility as of December 31, 1997. "Books of account" for gas, gas and electric, and electric public utilities means the uniform system of accounts as promulgated by the Federal Energy Regulatory Commission and adopted by the Board of Public Utilities. The following adjustments to entire net income shall be made pursuant to this section: |
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| 194 | 194 | | |
|---|
| 195 | 195 | | (A) Depreciation for property placed in service prior to January 1, 1998 shall be adjusted as follows: |
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| 196 | 196 | | |
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| 197 | 197 | | (i) Depreciation for federal income tax purposes shall be disallowed in full. |
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| 198 | 198 | | |
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| 199 | 199 | | (ii) A deduction shall be allowed for the New Jersey depreciation allowance. The New Jersey depreciation allowance shall be computed for the single asset account described above based on the New Jersey tax basis as adjusted above as if all assets in the single asset account were first placed in service on January 1, 1998. Depreciation shall be computed using the straight line method over a thirty-year life. A full year's depreciation shall be allowed in the initial tax year. No half-year convention shall apply. The depreciable basis of the single account shall be reduced by the adjusted federal tax basis of assets sold, retired, or otherwise disposed of during any year on which gain or loss is recognized for federal income tax purposes as described in subparagraph (B) of this paragraph. |
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| 200 | 200 | | |
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| 201 | 201 | | (B) Gains and losses on sales, retirements and other dispositions of assets placed in service prior to January 1, 1998 shall be recognized and reported on the same basis as for federal income tax purposes. |
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| 202 | 202 | | |
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| 203 | 203 | | (C) The Director of the Division of Taxation shall promulgate regulations describing the methodology for allocating the single asset account in the event that a portion of the utility's operations are separated, spun-off, transferred to a separate company or otherwise desegregated. |
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| 204 | 204 | | |
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| 205 | 205 | | (8) In the case of taxpayers that are gas, electric, gas and electric, or telecommunications public utilities as defined pursuant to subsection (q) of this section, the director shall have authority to promulgate rules and issue guidance correcting distortions and adjusting timing differences resulting from the adoption of P.L.1997, c.162 (C.54:10A-5.25 et al.). |
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| 206 | 206 | | |
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| 207 | 207 | | (9) Notwithstanding paragraph (1) of this subsection, entire net income shall not include the income derived by a corporation organized in a foreign country from the international operation of a ship or ships, or from the international operation of aircraft, if such income is exempt from federal taxation pursuant to section 883 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.883. |
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| 208 | 208 | | |
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| 209 | 209 | | (10) Entire net income shall exclude all income of an alien corporation the activities of which are limited in this State to investing or trading in stocks and securities for its own account, investing or trading in commodities for its own account, or any combination of those activities, within the meaning of section 864 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.864, as in effect on December 31, 1998. Notwithstanding the previous sentence, if an alien corporation undertakes one or more infrequent, extraordinary or non-recurring activities, including but not limited to the sale of tangible property, only the income from such infrequent, extraordinary or non-recurring activity shall be subject to the tax imposed pursuant to P.L.1945, c.162 (C.54:10A-1 et seq.), and that amount of income subject to tax shall be determined without regard to the allocation to that specific transaction of any general business expense of the taxpayer and shall be specifically assigned to this State for taxation by this State without regard to section 6 of P.L.1945, c.162 (C.54:10A-6). For the purposes of this paragraph, "alien corporation" means a corporation organized under the laws of a jurisdiction other than the United States or its political subdivisions. |
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| 210 | 210 | | |
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| 211 | 211 | | (11) No deduction shall be allowed for research and experimental expenditures, to the extent that those research and experimental expenditures are qualified research expenses or basic research payments for which an amount of credit is claimed pursuant to section 1 of P.L.1993, c.175 (C.54:10A-5.24) unless those research and experimental expenditures are also used to compute a federal credit claimed pursuant to section 41 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.41; provided, however, for privilege periods beginning on and after January 1, 2022, a deduction for research and experimental expenditures shall be allowed during the same privilege period for which a credit is claimed pursuant to section 1 of P.L.1993, c.175 (C.54:10A-5.24), notwithstanding the timing schedule required by the federal Internal Revenue Code of 1986, 26 U.S.C. s.174, for the deduction of specified research and experimental expenditures. |
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| 212 | 212 | | |
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| 213 | 213 | | (12) (A) Notwithstanding the provisions of subsection (k) of section 168 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.168, subsection (b) of section 1400L of the federal Internal Revenue Code of 1986, 26 U.S.C. s.1400L, or any other federal law, for property acquired after September 10, 2001, the depreciation deduction otherwise allowed pursuant to section 167 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.167, shall be determined pursuant to the provisions of the federal Internal Revenue Code of 1986 (26 U.S.C. s.1 et seq.) in effect on December 31, 2001. |
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| 214 | 214 | | |
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| 215 | 215 | | (B) The director shall prescribe the rules and regulations necessary to carry out the provisions of this paragraph, including, among others, those for determining the adjusted basis of the acquired property for the purposes of the Corporation Business Tax Act (1945), P.L.1945, c.162. |
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| 216 | 216 | | |
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| 217 | 217 | | (13) (A) Notwithstanding the provisions of section 179 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.179, for property placed in service on or after January 1, 2004, the costs that a taxpayer may otherwise elect to treat as an expense which is not chargeable to a capital account shall be determined pursuant to the provisions of the federal Internal Revenue Code of 1986 (26 U.S.C. s.1 et seq.) in effect on December 31, 2002. |
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| 218 | 218 | | |
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| 219 | 219 | | (B) The director shall prescribe the rules and regulations necessary to carry out the provisions of this paragraph, including, among others, those for determining the adjusted basis of the acquired property for the purposes of the Corporation Business Tax Act (1945), P.L.1945, c.162. |
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| 220 | 220 | | |
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| 221 | 221 | | (14) Notwithstanding the provisions of subsection (i) of section 108 of the federal Internal Revenue Code of 1986 (26 U.S.C. s.108), for privilege periods beginning after December 31, 2008 and before January 1, 2011, entire net income shall include the amount of discharge of indebtedness income excluded for federal income tax purposes pursuant to subsection (i) of section 108 of the federal Internal Revenue Code of 1986 (26 U.S.C. s.108), and for privilege periods beginning on or after January 1, 2014 and before January 1, 2019, entire net income shall exclude the amount of discharge of indebtedness income included for federal income tax purposes, pursuant to subsection (i) of section 108 of the federal Internal Revenue Code of 1986 (26 U.S.C. s.108). |
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| 222 | 222 | | |
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| 223 | 223 | | (15) Entire net income shall exclude the gain or income derived from the sale or assignment of a tax credit transfer certificate pursuant to section 7 of P.L.2011, c.149 (C.34:1B-248) and section 10 of P.L.2014, c.63 (C.34:1B-251). |
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| 224 | 224 | | |
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| 225 | 225 | | (16) (A) There shall be allowed as a deduction an amount computed in accordance with this paragraph. |
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| 226 | 226 | | |
|---|
| 227 | 227 | | (B) For purposes of this paragraph, "net deferred tax liability" means deferred tax liabilities that exceed the deferred tax assets of the combined group, as computed in accordance with generally accepted accounting principles, and "net deferred tax asset" means that deferred tax assets exceed the deferred tax liabilities of the combined group, as computed in accordance with generally accepted accounting principles. |
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| 228 | 228 | | |
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| 229 | 229 | | (C) Only publicly traded companies, including affiliated corporations participating in the filing of a publicly traded company's financial statements prepared in accordance with generally accepted accounting principles, as of the effective date of this paragraph, shall be eligible for this deduction. |
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| 230 | 230 | | |
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| 231 | 231 | | (D) If the provisions of sections 18 through 23 of P.L.2018, c.48 (C.54:10A-4.6 to C.54:10A-4.11) result in an aggregate increase to the members' net deferred tax liability or an aggregate decrease to the members' net deferred tax asset, or an aggregate change from a net deferred tax asset to a net deferred tax liability, the combined group shall be entitled to a deduction, as determined in this paragraph. |
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| 232 | 232 | | |
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| 233 | 233 | | (E) (i) Beginning with the combined group's first privilege period on or after January 1 of the fifth year after the effective date of P.L.2018, c.48 (C.54:10A-5.41 et al.), a combined group shall be entitled to a deduction from combined group entire net income equal to one-tenth of the amount necessary to offset the increase in the net deferred tax liability or decrease in the net deferred tax asset, or aggregate change from a net deferred tax asset to a net deferred tax liability, according to the schedule provided by subsubparagraphs (ii) and (iii) of this subparagraph (E). Such increase in the net deferred tax liability or decrease in the net deferred tax asset or the aggregate change from a net deferred tax asset to a net deferred tax liability shall be computed based on the change that would result from the imposition of the unitary reporting requirements under sections 1 and 18 through 23 of P.L.2018, c.48 (C.54:10A-5.41 and C.54:10A-4.6 to C.54:10A-4.11) but for the deduction provided under this paragraph as of the effective date of this paragraph. |
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| 234 | 234 | | |
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| 235 | 235 | | (ii) For group privilege periods beginning on and after January 1, 2023, but before January 1, 2030, the combined group may deduct one percent of the amount necessary to offset the increase in the net deferred tax liability or decrease in the net deferred tax asset, or aggregate change from a net deferred tax asset to a net deferred tax liability, during a group privilege period. Such increase in the net deferred tax liability or decrease in the net deferred tax asset or the aggregate change from a net deferred tax asset to a net deferred tax liability shall be computed based on the change that would result from the imposition of the unitary reporting requirements under sections 1 and 18 through 23 of P.L.2018, c.48 (C.54:10A-5.41 and C.54:10A-4.6 to C.54:10A-4.11) but for the deduction provided under this paragraph as of the effective date of this paragraph. |
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| 236 | 236 | | |
|---|
| 237 | 237 | | (iii) For group privilege periods beginning on and after January 1, 2030, the combined group may deduct up to five percent of any remaining unused amount of the deduction during the group privilege period, until the group privilege period in which the total deduction amount has been fully utilized. Such increase in the net deferred tax liability or decrease in the net deferred tax asset or the aggregate change from a net deferred tax asset to a net deferred tax liability shall be computed based on the change that would result from the imposition of the unitary reporting requirements under sections 1 and 18 through 23 of P.L.2018, c.48 (C.54:10A-5.41 and C.54:10A-4.6 to C.54:10A-4.11) but for the deduction provided under this paragraph as of the effective date of this paragraph. |
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| 238 | 238 | | |
|---|
| 239 | 239 | | (F) The deferred tax impact determined in subparagraph (E) of this paragraph must be converted to the annual Deferred Tax Deduction amount, as follows: |
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| 240 | 240 | | |
|---|
| 241 | 241 | | (i) the deferred tax impact determined in subparagraph (E) of this paragraph shall be divided by the rate determined under section 5 of P.L.1945, c.162 (C.54:10A-5) at the effective date of P.L.2018, c.48 (C.54:10A-5.41 et al.); |
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| 242 | 242 | | |
|---|
| 243 | 243 | | (ii) the resulting amount shall be further divided by the New Jersey unitary business allocation factor that was used by the combined group in the calculation of the deferred tax assets and deferred tax liabilities as described in subparagraph (E) of this paragraph; |
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| 244 | 244 | | |
|---|
| 245 | 245 | | (iii) the resulting amount represents the total net Deferred Tax Deduction available over the period as described in subparagraph (E) of this paragraph. |
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| 246 | 246 | | |
|---|
| 247 | 247 | | (G) The deduction calculated under this paragraph shall not be adjusted as a result of any events happening subsequent to such calculation, including, but not limited to, any disposition or abandonment of assets. Such deduction shall be calculated without regard to the federal tax effect and shall not alter the tax basis of any asset. If the deduction under this section is greater than combined group entire net income, any excess deduction shall be carried forward and applied as a deduction to combined group entire net income in future privilege periods until fully utilized. |
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| 248 | 248 | | |
|---|
| 249 | 249 | | (H) Any combined group intending to claim a deduction under this paragraph shall file a statement with the director on or before July 1 of the year subsequent to the first privilege period for which a combined return is required. Such statement shall specify the total amount of the deduction which the combined group claims on such form and in such manner as prescribed by the director. No deduction shall be allowed under this paragraph for any privilege period except to the extent claimed on such timely filed statement in accordance with this paragraph. |
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| 250 | 250 | | |
|---|
| 251 | 251 | | (17) (A) In the case of a taxpayer that is a cannabis licensee, there shall be allowed as a deduction an amount equal to any expenditure that is eligible to be claimed as a federal income tax deduction but is disallowed because cannabis is a controlled substance under federal law, and income shall be determined without regard to section 280E of the Internal Revenue Code (26 U.S.C. s.280E) for cannabis licensees. |
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| 252 | 252 | | |
|---|
| 253 | 253 | | (B) In the case of a taxpayer that is a cannabis licensee, there shall be allowed as a deduction an amount equal to any expenditure that would qualify as a specified research or experimental expenditure pursuant to section 174 of the Internal Revenue Code but is disallowed as a deduction for federal tax purposes because cannabis is a controlled substance under federal law. Any expenditure that is claimed as a deduction pursuant to this subparagraph may also be claimed as a qualified research expense for purposes of the credit allowed pursuant to section 1 of P.L.1993, c.175 (C.54:10A-5.24). |
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| 254 | 254 | | |
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| 255 | 255 | | (C) For purposes of this paragraph, "licensee" means the same as that term is defined in section 3 of P.L.2021, c.16 (C.24:6I-33). |
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| 256 | 256 | | |
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| 257 | 257 | | (18) For privilege periods ending on and after July 31, 2022: |
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| 258 | 258 | | |
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| 259 | 259 | | (A) Notwithstanding subparagraph (A) of paragraph (2) of this subsection or any other law or treaty to the contrary, for a corporation that is incorporated or formed in a foreign nation with a comprehensive tax treaty with the United States, and that is not a member of a world-wide group combined return filed pursuant to subsection b. of section 23 of P.L.2018, c.48 (C.54:10A-4.11), entire net income shall not include an item of income or loss excluded or exempted from federal taxable income under the terms of the treaty, and no other deduction, exclusion, or elimination shall be permitted for an item of income or loss excluded by this paragraph. |
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| 260 | 260 | | |
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| 261 | 261 | | (B) For a non-U.S. corporation that files a federal tax return and is not a member of a combined group filing a New Jersey combined return on a world-wide basis pursuant to subsection b. of section 23 of P.L.2018, c.48 (C.54:10A-4.11), the non-U.S. corporation shall only include its income or loss included in federal taxable income, which shall be limited to only the non-U.S. corporation's effectively connected income or loss, as modified by the provisions of the Corporation Business Tax Act (1945), P.L.1945, c.162 (C.54:10A-1 et seq.), and the items of expense and the allocation factor receipts attributable to such items of income or loss. |
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| 262 | 262 | | |
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| 263 | 263 | | (19) (A) For privilege periods beginning after December 31, 2024, the entire net income of a corporation that is a qualified small business shall not include an amount up to $50,000 of the entire net income otherwise calculated pursuant to this subsection, prior to any other permitted exclusions, deductions, or credits. |
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| 264 | 264 | | |
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| 265 | 265 | | (B) For purposes of this paragraph, qualified small business means a corporation that: |
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| 266 | 266 | | |
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| 267 | 267 | | (i) is independently owned and operated, with management owning at least a 51 percent ownership interest in the corporation and being responsible for both its daily and long-term operations; |
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| 268 | 268 | | |
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| 269 | 269 | | (ii) has its principal business operations located in the State; |
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| 270 | 270 | | |
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| 271 | 271 | | (iii) is registered to do business in this State with the Director of the Division of Revenue and Enterprise Services in the Department of the Treasury; |
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| 272 | 272 | | |
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| 273 | 273 | | (iv) earned gross revenues not more than $2,000,000 during the privilege period; and |
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| 274 | 274 | | |
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| 275 | 275 | | (v) employed not more than 20 full-time or part-time employees during the privilege period, not including seasonal employees or part-time employees employed for less than 90 days in the privilege period, except that a majority of the full-time and part-time employees of the corporation shall be residents of this State. |
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| 276 | 276 | | |
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| 277 | 277 | | (l) "Real estate investment trust" shall mean any corporation, trust or association qualifying and electing to be taxed as a real estate investment trust under federal law. |
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| 278 | 278 | | |
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| 279 | 279 | | (m) "Financial business corporation" shall mean any corporate enterprise which is (1) in substantial competition with the business of national banks and which (2) employs moneyed capital with the object of making profit by its use as money, through discounting and negotiating promissory notes, drafts, bills of exchange and other evidences of debt; buying and selling exchange; making of or dealing in secured or unsecured loans and discounts; dealing in securities and shares of corporate stock by purchasing and selling such securities and stock without recourse, solely upon the order and for the account of customers; or investing and reinvesting in marketable obligations evidencing indebtedness of any person, copartnership, association or corporation in the form of bonds, notes or debentures commonly known as investment securities; or dealing in or underwriting obligations of the United States, any state or any political subdivision thereof, or of a corporate instrumentality of any of them. This shall include, without limitation of the foregoing, business commonly known as industrial banks, dealers in commercial paper and acceptances, sales finance, personal finance, small loan and mortgage financing businesses, as well as any other enterprise employing moneyed capital coming into competition with the business of national banks; provided that the holding of bonds, notes, or other evidences of indebtedness by individual persons not employed or engaged in the banking or investment business and representing merely personal investments not made in competition with the business of national banks, shall not be deemed financial business. Nor shall "financial business" include national banks, production credit associations organized under the Farm Credit Act of 1933 or the Farm Credit Act of 1971, Pub.L.92-181 (12 U.S.C. s.2091 et seq.), stock and mutual insurance companies duly authorized to transact business in this State, security brokers or dealers or investment companies or bankers not employing moneyed capital coming into competition with the business of national banks, real estate investment trusts, or any of the following entities organized under the laws of this State: credit unions, savings banks, savings and loan and building and loan associations, pawnbrokers, and State banks and trust companies. |
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| 280 | 280 | | |
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| 281 | 281 | | (n) "International banking facility" shall mean a set of asset and liability accounts segregated on the books and records of a depository institution, United States branch or agency of a foreign bank, or an Edge or Agreement Corporation that includes only international banking facility time deposits and international banking facility extensions of credit as such terms are defined in section 204.8(a)(2) and section 204.8(a)(3) of Regulation D of the board of governors of the Federal Reserve System, 12 CFR Part 204, effective December 3, 1981. In the event that the United States enacts a law, or the board of governors of the Federal Reserve System adopts a regulation which amends the present definition of international banking facility or of such facilities' time deposits or extensions of credit, the Commissioner of Banking and Insurance shall forthwith adopt regulations defining such terms in the same manner as such terms are set forth in the laws of the United States or the regulations of the board of governors of the Federal Reserve System. The regulations of the Commissioner of Banking and Insurance shall thereafter provide the applicable definitions. |
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| 282 | 282 | | |
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| 283 | 283 | | (o) "S corporation" means a corporation that has elected to be an "S corporation" pursuant to section 1361 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.1361, for the taxable year. |
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| 284 | 284 | | |
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| 285 | 285 | | (p) "New Jersey S corporation" means a taxpayer that has made a valid election to be an S corporation for federal tax purposes, and that has not made a valid election pursuant to subsection d. of section 20 of P.L.2022, c.133 (C.54:10A-5.22). |
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| 286 | 286 | | |
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| 287 | 287 | | (q) "Public Utility" means "public utility" as defined in R.S.48:2-13. |
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| 288 | 288 | | |
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| 289 | 289 | | (r) "Qualified investment partnership" means a partnership under this act that has more than 10 members or partners with no member or partner owning more than a 50% interest in the entity and that derives at least 90% of its gross income from dividends, interest, payments with respect to securities loans, and gains from the sale or other disposition of stocks or securities or foreign currencies or commodities or other similar income (including but not limited to gains from swaps, options, futures or forward contracts) derived with respect to its business of investing or trading in those stocks, securities, currencies or commodities, but "investment partnership" shall not include a "dealer in securities" within the meaning of section 1236 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.1236. |
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| 290 | 290 | | |
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| 291 | 291 | | (s) "Savings institution" means a state or federally chartered building and loan association, savings and loan association, or savings bank. |
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| 292 | 292 | | |
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| 293 | 293 | | (t) "Partnership" means an entity classified as a partnership for federal income tax purposes. |
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| 294 | 294 | | |
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| 295 | 295 | | (u) "Prior net operating loss conversion carryover" means a net operating loss incurred in a privilege period ending prior to July 31, 2019 and converted from a pre-allocation net operating loss to a post-allocation net operating loss as follows: |
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| 296 | 296 | | |
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| 297 | 297 | | (1) As used in this subsection: |
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| 298 | 298 | | |
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| 299 | 299 | | "Base year" means the last privilege period ending prior to July 31, 2019. |
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| 300 | 300 | | |
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| 301 | 301 | | "Base year BAF" means the taxpayer's business allocation factor as provided in sections 6 through 10 of P.L.1945, c.162 (C.54:10A-6 through C.54:10A-10) for purposes of calculating entire net income for the base year, as such section was in effect for the last privilege period ending prior to July 31, 2019. |
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| 302 | 302 | | |
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| 303 | 303 | | "UNOL" means the unabsorbed portion of net operating loss as calculated under paragraph (6) of subsection (k) of this section as such paragraph was in effect for the last privilege period ending prior to July 31, 2019, that was not deductible in previous privilege periods and was eligible for carryover on the last day of the base year subject to the limitations for deduction under such subsection, including any net operating loss sustained by the taxpayer during the base year. |
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| 304 | 304 | | |
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| 305 | 305 | | (2) The prior net operating loss conversion carryover shall be calculated as follows: |
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| 306 | 306 | | |
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| 307 | 307 | | (A) The taxpayer shall first calculate the tax value of its UNOL for the base year and for each preceding privilege period for which there is a UNOL. The value of the UNOL for each privilege period is equal to the product of (I) the amount of the taxpayer's UNOL for a privilege period, and (II) the taxpayer's base year BAF. This result shall equal the taxpayer's prior net operating loss conversion carryover. |
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| 308 | 308 | | |
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| 309 | 309 | | (B) The taxpayer shall continue to carry over its prior net operating loss conversion carryover to offset its allocated entire net income as provided in sections 6 through 10 of P.L.1945, c.162 (C.54:10A-6 through C.54:10A-10) for privilege periods ending on and after July 31, 2019. Such carryover periods shall not exceed the twenty privilege periods following the privilege period of the initial loss. The entire amount of the prior net operating loss conversion carryover for any privilege period shall be carried to the earliest of the privilege periods to which the loss may be carried. The portion of the prior net operating loss conversion carryover which shall be carried to each of the other privilege periods shall be the excess, if any, of the amount of the prior net operating loss conversion carryover over the sum of the entire net income, computed without the exclusions permitted in paragraphs (4) and (5) of subsection (k) of this section allocated to this State. For privilege periods ending on and after July 31, 2023, for the purpose of computing taxable net income for a current privilege period, the amount of the prior net operating loss conversion carryover shall be subtracted from entire net income allocated to this State, after the application of paragraphs (4) and (5) of subsection (k) of this section against current privilege period income when the entire net income allocated to this State for the privilege period is greater than zero. |
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| 310 | 310 | | |
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| 311 | 311 | | (C) The prior net operating loss conversion carryover computed under this subsection shall be applied against the entire net income allocated to this State before the net operating loss carryover computed under subsection (v) of this section. |
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| 312 | 312 | | |
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| 313 | 313 | | (v) "Net operating loss deduction" means the amount allowed as a deduction for the net operating loss carryover to the privilege period, calculated as follows: |
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| 314 | 314 | | |
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| 315 | 315 | | (1) Net operating loss carryover. A net operating loss for any privilege period ending on or after July 31, 2019, shall be a net operating loss carryover to each of the twenty privilege periods following the period of the loss. The entire amount of the net operating loss for any privilege period shall be carried to the earliest of the privilege periods to which the loss may be carried. For privilege periods ending before July 31, 2023, the portion of the loss which shall be carried to each of the other privilege periods shall be the excess, if any, of the amount of the loss over the sum of the entire net income, computed without the exclusions permitted in paragraphs (4) and (5) of subsection (k) of this section allocated to this State. For privilege periods ending on and after July 31, 2023, the portion of the loss that shall be carried to each of the other privilege periods shall be the excess, if any, of the amount of the loss over the sum of the entire net income, after the application of paragraphs (4) and (5) of subsection (k) of this section allocated to this State; provided, however, for the purpose of computing taxable net income for the privilege period, the net operating loss carryover shall only be subtracted from entire net income allocated to this State when the entire net income allocated to this State is greater than zero. |
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| 316 | 316 | | |
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| 317 | 317 | | (2) Net operating loss. For purposes of this paragraph the term "net operating loss" means the excess of the deductions over the gross income used in computing entire net income, without regard to any net operating loss carryover, and for privilege periods ending before July 31, 2023, computed without the exclusions in paragraphs (4) and (5) of subsection (k) of this section, and for privilege periods ending on and after July 31, 2023, computed after the application of paragraphs (4) and (5) of subsection (k) of this section, allocated to this State pursuant to sections 6 through 10 of P.L.1945, c.162 (C.54:10A-6 through C.54:10A-10). |
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| 318 | 318 | | |
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| 319 | 319 | | (3) Reduction for discharge of indebtedness. A net operating loss for any privilege period ending on or after July 31, 2019, and any net operating loss carryover to such privilege period, shall be reduced by the amount excluded from federal taxable income under subparagraph (A), (B), or (C) of paragraph (1) of subsection (a) of section 108 of the federal Internal Revenue Code, 26 U.S.C. s.108, for the privilege period of the discharge of indebtedness. |
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| 320 | 320 | | |
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| 321 | 321 | | (4) A net operating loss carryover shall not include any net operating loss incurred during any privilege period ending prior to July 31, 2019. |
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| 322 | 322 | | |
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| 323 | 323 | | (5) Change in ownership. Where there is a change in 50% or more of the ownership of a corporation because of redemption or sale of stock and the corporation changes the trade or business giving rise to the loss, no net operating loss sustained before the changes may be carried over to be deducted from income earned after such changes. In addition, where the facts support the premise that the corporation was acquired under any circumstances for the primary purpose of the use of its net operating loss carryover, the director may disallow the carryover; provided, however, this paragraph shall not apply between members of a combined group reported on a New Jersey combined return. |
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| 324 | 324 | | |
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| 325 | 325 | | (w) "Taxable net income" means entire net income allocated to this State as calculated pursuant to sections 6 through 8 of P.L.1945, c.162 (C.54:10A-6 through 54:10A-8) as modified by subtracting any prior net operating loss conversion carryforward calculated pursuant to subsection (u) of this section, and any net operating loss calculated pursuant to subsection (v) of this section; provided, however, for privilege periods ending on and after July 31, 2023, when subtracting any net operating losses calculated pursuant to subsection (v) of this section or the combined group net operating losses calculated pursuant to subsection h. of section 18 of P.L.2018, c.48 (C.54:10A-4.6), the limitation set forth in paragraph (2) of subsection (a) of Internal Revenue Code Section 172 (26 U.S.C. s.172(a)(2)) shall apply, except that August 1, 2023 is substituted for the reference to January 1, 2018 in subparagraph (A) of paragraph (2) of subsection a. of Internal Revenue Code Section 172 (26 U.S.C. s.172), and July 31, 2023 is substituted for the reference to December 31, 2017 in subparagraph (B) of paragraph (2) of subsection (a) of Internal Revenue Code Section 172 (26 U.S.C. s.172). For privilege periods ending on and after July 31, 2023, for a combined group, before subtracting the prior net operating loss conversion carryforwards and subtracting the net operating losses of the combined group when computing the total taxable net income, the combined group shall first add together the allocated entire net income from the unitary business of the combined group and the portion of allocated entire net income of members with activities independent of the group, and then subtract the prior net operating loss conversion carryforwards and then the net operating losses. |
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| 326 | 326 | | |
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| 327 | 327 | | (x) "Affiliated group" means, for purposes of section 23 of P.L.2018, c.48 (C.54:10A-4.11), an affiliated group as defined in section 1504 of the federal Internal Revenue Code, 26 U.S.C. s.1504, except such affiliated group shall include all U.S. domestic corporations that are commonly owned, directly or indirectly, by any member of such affiliated group, without regard to whether the affiliated group includes (1) corporations included in more than one federal consolidated return, (2) corporations engaged in one or more unitary businesses, or (3) corporations that are not engaged in a unitary business with any other member of the affiliated group. |
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| 328 | 328 | | |
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| 329 | 329 | | For purposes of this subsection: |
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| 330 | 330 | | |
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| 331 | 331 | | "U.S. domestic corporations" means: (1) business entities wherever incorporated or formed that are U.S. domestic corporations, are deemed to be, or are treated as U.S. domestic corporations under the provisions of the federal Internal Revenue Code; or (2) any entities incorporated or formed under the laws of a foreign nation that are required to file federal tax returns if such entities have effectively connected income within the meaning of the federal Internal Revenue Code; and |
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| 332 | 332 | | |
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| 333 | 333 | | "Commonly owned" means that more than 50 percent of the voting control of each member of an affiliated group is directly or indirectly owned by a common owner or owners, either corporate or non-corporate, whether or not the owner or owners are members of the affiliated group. Whether voting control is indirectly owned shall be determined in accordance with section 318 of the federal Internal Revenue Code (26 U.S.C. s.318). |
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| 334 | 334 | | |
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| 335 | 335 | | (y) "Combinable captive insurance company" means an entity that is treated as an association taxable as a corporation under the federal Internal Revenue Code: |
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| 336 | 336 | | |
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| 337 | 337 | | (1) more than 50% of the voting stock of which is owned or controlled, directly or indirectly, by a single entity that is treated as an association taxable as a corporation under the federal Internal Revenue Code, and not exempt from federal income tax; |
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| 338 | 338 | | |
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| 339 | 339 | | (2) that is licensed as a captive insurance company under the laws of this State or another jurisdiction; |
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| 340 | 340 | | |
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| 341 | 341 | | (3) whose business includes providing, directly and indirectly, insurance or reinsurance covering the risks of its parent, members of its affiliated group, or both; and |
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| 342 | 342 | | |
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| 343 | 343 | | (4) 50% or less of whose gross receipts for the privilege period consist of premiums from arrangements that constitute insurance for federal income tax purposes. |
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| 344 | 344 | | |
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| 345 | 345 | | A combinable captive insurance company shall not be exempt under section 3 of P.L.1945, c.162 (C.54:10A-3). A captive insurance company that does not meet the definition of combinable captive insurance company shall be excluded as provided in subsection k. of section 18 of P.L.2018, c.48 (C.54:10A-4.6) and shall be exempt under section 3 of P.L.1945, c.162 (C.54:10A-3). |
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| 346 | 346 | | |
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| 347 | 347 | | For purposes of this definition: |
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| 348 | 348 | | |
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| 349 | 349 | | "Affiliated group" shall have the same meaning as that term is given by section 1504 of the federal Internal Revenue Code, 26 U.S.C. s.1504, except that the term "common parent corporation" as used in section 1504 of the federal Internal Revenue Code, 26 U.S.C. s.1504, shall mean any person, as defined in section 7701 of the federal Internal Revenue Code, 26 U.S.C. s.7701, and references to "at least 80%" in section 1504 of the federal Internal Revenue Code, 26 U.S.C. s.1504, shall be read as "50% or more." Section 1504 of the federal Internal Revenue Code, 26 U.S.C. s.1504, shall be read without regard to the exclusions provided for in subsection (b) of that section. |
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| 350 | 350 | | |
|---|
| 351 | 351 | | "Gross receipts" includes the amounts included in gross receipts for purposes of paragraph (15) of subsection (c) of section 501 of the federal Internal Revenue Code, 26 U.S.C. s.501, except that those amounts also include all premiums. |
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| 352 | 352 | | |
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| 353 | 353 | | "Premiums" includes consideration for annuity contracts and excludes any part of the consideration for insurance, reinsurance, or annuity contracts that do not provide bona fide insurance, reinsurance, or annuity benefits. |
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| 354 | 354 | | |
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| 355 | 355 | | (z) "Combined group" means the group of all companies that have common ownership and are engaged in a unitary business, where at least one company is subject to tax under this chapter, and shall include all business entities, except as provided for under any section of the Corporation Business Tax Act (1945), P.L.1945, c.162 (C.54:10A-1 et seq.). |
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| 356 | 356 | | |
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| 357 | 357 | | A combined group shall be treated, for privilege periods ending on and after July 31, 2020, as one taxpayer for purposes of paragraph (1) of subsection (c) of section 5 of P.L.1945, c.162 (C.54:10A-5) and section 1 of P.L.2018, c.48 (C.54:10A-5.41) for the income derived from the unitary business; provided however, with regard to the surtax imposed pursuant to section 1 of P.L.2018, c.48 (C.54:10A-5.41) and for that purpose only, the portion of income that is attributable to a member which is a public utility exempt from the surtax shall not be included when computing the surtax due. |
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| 358 | 358 | | |
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| 359 | 359 | | (aa) "Common ownership" means that more than 50% of the voting control of each member of a combined group is directly or indirectly owned by a common owner or owners, either corporate or non-corporate, whether or not the owner or owners are members of the combined group. Whether voting control is indirectly owned shall be determined in accordance with section 318 of the federal Internal Revenue Code, 26 U.S.C. s.318. |
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| 360 | 360 | | |
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| 361 | 361 | | (bb) "Group privilege period" means, if two or more members in the combined group file in the same federal consolidated tax return, the same income year as that used on the federal consolidated tax return and, in all other cases, the privilege period of the managerial member. |
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| 362 | 362 | | |
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| 363 | 363 | | (cc) "Managerial member" means if the combined group has a common parent corporation and that common parent corporation is a taxable member, the managerial member shall be the common parent corporation. In other cases, the combined group shall select a taxable member as its managerial member or, in the discretion of the director or upon failure of the combined group to select its managerial member, the director shall designate a taxable member of the combined group as managerial member. |
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| 364 | 364 | | |
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| 365 | 365 | | (dd) "Member" means a business entity that is a part of a combined group. |
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| 366 | 366 | | |
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| 367 | 367 | | A corporation exempt pursuant to section 3 of P.L.1945, c.162 (C.54:10A-3) from the tax imposed by P.L.1945, c.162 (C.54:10A-1 et seq.) shall not be a member of a combined group. |
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| 368 | 368 | | |
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| 369 | 369 | | (ee) "Nontaxable member" means a member that is: (i) not subject to tax pursuant to the Corporation Business Tax Act (1945), P.L.1945, c.162 (C.54:10A-1 et seq.); or (ii) (deleted by amendment, P.L.2020, c.118 (C.54:10A-5.46 et al.). |
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| 370 | 370 | | |
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| 371 | 371 | | (ff) "Taxable member" means a member that is subject to tax pursuant to the Corporation Business Tax Act (1945), P.L.1945, c.162 (C.54:10A-1 et seq.). |
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| 372 | 372 | | |
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| 373 | 373 | | A New Jersey S corporation shall only be included as a taxable member of a combined group filing a New Jersey combined return if the New Jersey S Corporation elects to be included as a member and taxed at the same rate as the other members of the combined group. A New Jersey S corporation that does not elect to be included shall be excluded as a member of the combined return and shall file a separate return. |
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| 374 | 374 | | |
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| 375 | 375 | | (gg) "Unitary business" means, for privilege periods ending before July 31, 2023, a single economic enterprise that is made up either of separate parts of a single business entity or of a group of business entities under common ownership that are sufficiently interdependent, integrated, and interrelated through their activities so as to provide a synergy and mutual benefit that produces a sharing or exchange of value among them and a significant flow of value among the separate parts. For privilege periods ending on and after July 31, 2023, "unitary business" means a single economic enterprise that is made up either of separate parts of a single business entity or of a group of business entities under common ownership that are sufficiently interdependent, integrated, or interrelated through their activities so as to provide a synergy and mutual benefit that produces a sharing or exchange of value among them and a significant flow of value among the separate parts. "Unitary business" shall be construed to the broadest extent permitted under the Constitution of the United States. A business conducted by a partnership which is in a unitary business with the combined group shall be treated as the business of the partners that are members of the combined group, whether the partnership interest is held directly or indirectly through a series of partnerships, to the extent of a partner's distributive share of partnership income. The amount of partnership income to be included in the partner's entire net income shall be determined in accordance with subsection a. of section 3 of P.L.2001, c.136 (C.54:10A-15.6) or subsection a. of section 4 of P.L.2001, c.136 (C.54:10A-15.7), as applicable. A business conducted directly or indirectly by one corporation is unitary with that portion of a business conducted by another corporation through its direct or indirect interest in a partnership. |
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| 376 | 376 | | |
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| 377 | 377 | | (hh) "Captive investment company" shall mean, for privilege periods ending on and after July 31, 2023, an investment company that is not regularly traded on an established securities market and of which more than 50 percent of the voting stock is owned or controlled, directly or indirectly, by a single corporation, other than an investment company, that is not exempt from federal income tax. For purposes of this subsection, a captive investment company shall not include any captive investment company of which at least 50 percent of the shares, by vote or value, is owned or controlled, directly or indirectly, by a state or federally chartered bank, savings bank, or savings and loan association with assets that do not exceed $15 billion. |
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| 378 | 378 | | |
|---|
| 379 | 379 | | For privilege periods ending on and after July 31, 2023, any voting stock in an investment company that is held in a segregated asset account of a life insurance corporation, as described in section 817 of the Internal Revenue Code, shall not be taken into account for purposes of determining whether an investment company is a captive regulated investment company. |
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| 380 | 380 | | |
|---|
| 381 | 381 | | For privilege periods ending on and after July 31, 2023, a captive investment company shall be taxed in the same manner as a C corporation, and subsection d. of section 5 of P.L. 1945, c. 162 (C. 54:10A-5) shall not apply. A captive investment company shall not be permitted to claim any deductions or expenses that were permitted for federal purposes, solely as a result of the entity being an investment company, when computing federal taxable net income. A captive investment company shall be a member of a combined group and shall be included as a member on the combined return. |
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| 382 | 382 | | |
|---|
| 383 | 383 | | (ii) "Captive real estate investment trust" shall mean, for privilege periods ending on and after July 31, 2023, a real estate investment trust that is not regularly traded on an established securities market and of which more than 50 percent of the voting stock is owned or controlled, directly or indirectly, by a single entity that is treated as an association taxable as a corporation under the Internal Revenue Code, is not exempt from federal income tax, and is not a real estate investment trust. For purposes of this subsection, a captive real estate investment trust shall not include any captive real estate investment trust of which at least 50 percent of the shares, by vote or value, is owned or controlled, directly or indirectly, by a state or federally chartered bank, savings bank, or savings and loan association with assets that do not exceed $15 billion. |
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| 384 | 384 | | |
|---|
| 385 | 385 | | For privilege periods ending on and after July 23, 2023, any voting stock in a real estate investment trust that is held in a segregated asset account of a life insurance corporation, as described in section 817 of the Internal Revenue Code (26 U.S.C. s.817), shall not be taken into account for purposes of determining whether a real estate investment trust is a captive real estate investment trust. For purposes of this subsection, an association taxable as a corporation shall not include any listed Australian property trust or any qualified foreign entity. |
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| 386 | 386 | | |
|---|
| 387 | 387 | | For privilege periods ending on and after July 31, 2023, a captive real estate investment trust shall be taxed in the same manner as a C corporation, and subsection d. of section 5 of P.L.1945, c.162 (C.54:10A-5) shall not apply. A captive real estate investment trust shall not be permitted to claim any deductions or expenses that were permitted for federal purposes, solely as a result of the entity being a real estate investment trust, when computing federal taxable net income. A captive real estate investment trust shall be a member of a combined group and shall be included as a member on the combined return. |
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| 388 | 388 | | |
|---|
| 389 | 389 | | As used in this subsection: |
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| 390 | 390 | | |
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| 391 | 391 | | "Australian property trust" means an Australian unit trust that is registered as a managed investment scheme under the Australian Corporations Act, and in which the principal class of units is listed on a recognized stock exchange in Australia and is regularly traded on an established securities market; or an entity organized as a trust, provided that a listed Australian property trust owns or controls, directly or indirectly, 75 percent or more of the voting power or value of the beneficial interests of shares of the trust. |
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| 392 | 392 | | |
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| 393 | 393 | | "Qualified foreign entity" means a corporation, trust, association, or partnership that is organized outside the laws of the United States and that satisfies the following criteria: |
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| 394 | 394 | | |
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| 395 | 395 | | (1) At least 75 percent of the entity's total asset value at the close of its taxable year is represented by real estate assets, as defined at subparagraph (B) of paragraph (5) of subsection (c) of section 856 of the Internal Revenue Code (26 U.S.C. s.856), including shares or certificates of beneficial interest in any real estate investment trust, cash and cash equivalents, and United States Government securities; |
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| 396 | 396 | | |
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| 397 | 397 | | (2) The entity is not subject to tax on amounts distributed to its beneficial owners, or is exempt from entity-level taxation; |
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| 398 | 398 | | |
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| 399 | 399 | | (3) The entity distributes, on an annual basis, at least 85 percent of its taxable income, as computed in the jurisdiction in which it is organized, to the holders of its shares or certificates of beneficial interest; |
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| 400 | 400 | | |
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| 401 | 401 | | (4) No more than 10 percent of the voting power or value in the entity is held directly, indirectly, or constructively by a single entity or individual, or the shares or certificates of beneficial interests of the entity are regularly traded on an established securities market; and |
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| 402 | 402 | | |
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| 403 | 403 | | (5) The entity is organized in a country that has a tax treaty with the United States. |
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| 404 | 404 | | |
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| 405 | 405 | | (jj) "Captive regulated investment company" shall mean, for privilege periods ending on and after July 31, 2023, a regulated investment company that is not regularly traded on an established securities market, and of which more than 50 percent of the voting stock is owned or controlled, directly or indirectly, by a single corporation, other than a regulated investment company, that is not exempt from federal income tax. For purposes of this subsection, a captive regulated investment company shall not include any captive regulated investment company of which at least 50 percent of the shares, by vote or value, is owned or controlled, directly or indirectly, by a state or federally chartered bank, savings bank, or savings and loan association with assets that do not exceed $15 billion. |
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| 406 | 406 | | |
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| 407 | 407 | | For privilege periods ending on and after July 31, 2023, any voting stock in a regulated investment company that is held in a segregated asset account of a life insurance corporation, as described in section 817 of the Internal Revenue Code (26 U.S.C. s.817), shall not be taken into account for purposes of determining whether a regulated investment company is a captive regulated investment company. |
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| 408 | 408 | | |
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| 409 | 409 | | For privilege periods ending on and after July 31, 2023, a captive regulated investment company shall be taxed in the same manner as a C corporation and subsection d. of section 5 of P.L.1945, c.162 (C.54:10A-5) shall not apply. A captive real estate investment company shall not be permitted to claim any deductions or expenses that were permitted for federal purposes, solely as a result of the entity being a regulated investment company, when computing federal taxable net income. A captive regulated investment company shall be a member of a combined group and shall be included as a member on the combined return. |
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| 410 | 410 | | |
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| 411 | 411 | | (kk) "World-wide basis" and "world-wide group" shall mean, for privilege periods ending on and after July 31, 2022, for the purposes of sections 18 through 23 of P.L.2018, c.48 (C.54:10A-4.6 through C.54:10A-4.11) and for the purposes of combined reporting in general under the Corporation Business Tax Act (1945), P.L.1945, c.162 (C.54:10A-1 et seq.), that the combined group shall include all of the members of the combined group, wherever located or formed. For privilege periods ending on and after July 31, 2022, the combined group shall include all of the income and attributes of those members regardless of how or whether those members file federal returns or report or include their income in federal taxable income for federal purposes, and without regard to any exemption or exclusion from federal taxable income under the terms of a tax treaty; provided, however, any deductions that are allowed under the federal Internal Revenue Code that are also allowable under the Corporation Business Tax Act (1945), P.L.1945, c.162 (C.54:10A-1 et seq.), that would apply to a U.S. corporation, but that a non-U.S. corporation is prohibited from claiming for federal corporation income tax purposes because the corporation's income was not included in federal taxable income for any reason or because the corporation is a non-U.S. corporation, shall be allowed for the non-U.S. corporation members of the combined group for New Jersey |
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| 412 | 412 | | |
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| 413 | 413 | | corporation business tax purposes as though those non-U.S. corporation members were U.S. corporations. |
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| 414 | 414 | | |
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| 415 | 415 | | (cf: P.L.2023, c.96, s.1) |
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| 416 | 416 | | |
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| 417 | 417 | | |
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| 418 | 418 | | |
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| 419 | 419 | | 2. Section 12 of P.L.1993, c.173 (C.54A:5-10) is amended to read as follows: |
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| 420 | 420 | | |
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| 421 | 421 | | 12. For the purposes of the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq.: |
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| 422 | 422 | | |
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| 423 | 423 | | "New Jersey S corporation" means a corporation that has made a valid election to be an S corporation for federal tax purposes for the taxable year, and that has not made a valid election pursuant to subsection d. of section 20 of P.L.2022, c.133 (C.54:10A-5.22). |
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| 424 | 424 | | |
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| 425 | 425 | | "Pro rata share" means the portion of any items attributable to an S corporation shareholder for a taxable year determined in the manner provided in, and subject to any election made under subsection (a) of section 1377 or subsection (e) of section 1362 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.1377 and s.1362. |
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| 426 | 426 | | |
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| 427 | 427 | | "Pro rata share of S corporation income" means the sum of the shareholder's proportionate share of: |
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| 428 | 428 | | |
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| 429 | 429 | | For a New Jersey S corporation, the S corporation income allocated to this State of all New Jersey S corporations; and the S corporation income not allocated to this State. |
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| 430 | 430 | | |
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| 431 | 431 | | "S corporation" means a corporation that has elected to be an "S corporation" pursuant to section 1361 of the federal Internal Revenue Code, 26 U.S.C. s.1361, for the taxable year. |
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| 432 | 432 | | |
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| 433 | 433 | | "S corporation income" means the net of an S corporation's items of income, loss or deduction taken into account by the shareholder in the manner provided in section 1366 of the federal Internal Revenue Code of 1986, 26 U.S.C. s.1366; provided however that: |
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| 434 | 434 | | |
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| 435 | 435 | | a. S corporation income shall be determined without the exclusion, deduction or credit of: |
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| 436 | 436 | | |
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| 437 | 437 | | (1) any dividend exclusion or deduction otherwise allowed pursuant to paragraph 5 of subsection (k) of section 4 of P.L.1945, c.162 (C.54:10A-4); |
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| 438 | 438 | | |
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| 439 | 439 | | (2) taxes paid or accrued to the United States, a possession or territory of the United States, a state including this State, a political subdivision thereof, or the District of Columbia on or measured by profits or income, or business presence or business activity, of the corporation; |
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| 440 | 440 | | |
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| 441 | 441 | | (3) any income taxes paid or accrued to the United States, a possession or territory of the United States, a state including this State, a political subdivision thereof, or the District of Columbia paid or accrued by the S corporation on behalf of, or in satisfaction of the liabilities of, shareholders of the corporation; |
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| 442 | 442 | | |
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| 443 | 443 | | (4) interest income on obligations of any state other than this State, or of a political subdivision thereof, or of the federal government, except as deducted pursuant to subsection b. of this section; or |
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| 444 | 444 | | |
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| 445 | 445 | | (5) interest on indebtedness incurred or continued, expenses paid and incurred to purchase, carry, manage or conserve, and expenses of collection of the income or gain from obligations the income or gain from which is deductible pursuant to subsection b. of this definition; and |
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| 446 | 446 | | |
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| 447 | 447 | | b. S corporation income shall be determined after deduction of: |
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| 448 | 448 | | |
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| 449 | 449 | | (1) any gains or income derived from obligations which are referred to in N.J.S.54A:6-14 or from securities which evidence ownership in a qualified investment fund as defined in section 2 of P.L.1987, c.310 (C.54A:6-14.1), and any interest excluded from gross income pursuant to N.J.S.54A:6-14, or distributions excluded from income pursuant to section 2 of P.L.1987, c.310 (C.54A:6-14.1); and |
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| 450 | 450 | | |
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| 451 | 451 | | (2) (a) in the case of a taxpayer that is a cannabis licensee, an amount equal to any expenditure that is eligible to be claimed as a federal income tax deduction but is disallowed because cannabis is a controlled substance under federal law; |
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| 452 | 452 | | |
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| 453 | 453 | | (b) for purposes of this paragraph, "licensee" means the same as that term is defined in section 3 of P.L.2021, c.16 (C.24:6I-33); and |
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| 454 | 454 | | |
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| 455 | 455 | | c. The character of any S corporation item taken into account by a shareholder of an S corporation shall be determined as if such items were received or incurred by the S corporation and not its shareholder. |
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| 456 | 456 | | |
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| 457 | 457 | | d. (1) For taxable years beginning after December 31, 2024, the S corporation income of a qualified small business shall not include up to $50,000 of the amount otherwise calculated pursuant to this section, prior to any other permitted exclusions, deductions, or credits. |
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| 458 | 458 | | |
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| 459 | 459 | | (2) For purposes of this subsection, qualified small business means an S corporation that: |
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| 460 | 460 | | |
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| 461 | 461 | | (i) is independently owned and operated, with management owning at least a 51 percent ownership interest in the corporation and being responsible for both its daily and long-term operations; |
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| 462 | 462 | | |
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| 463 | 463 | | (ii) has its principal business operations located in the State; |
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| 464 | 464 | | |
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| 465 | 465 | | (iii) is registered to do business in this State with the Director of the Division of Revenue and Enterprise Services in the Department of the Treasury; |
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| 466 | 466 | | |
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| 467 | 467 | | (iv) earned gross revenues not more than $2,000,000 during the taxable year; and |
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| 468 | 468 | | |
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| 469 | 469 | | (v) employed not more than 20 full-time or part-time employees during the taxable year, not including seasonal employees or part-time employees employed for less than 90 days in the taxable year, except that a majority of the full-time and part-time employees of the S corporation shall be residents of this State. |
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| 470 | 470 | | |
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| 471 | 471 | | "S corporation income allocated to this State" means that portion of the S corporation income that is allocated to this State by the allocation factor of the corporation for the fiscal or calendar accounting period pursuant to sections 6 through 10 of P.L.1945, c.162 (C.54:10A-6 through 54:10A-10), reduced by any tax imposed pursuant to paragraph (3) of subsection (c) of section 5 of P.L.1945, c.162 (C. 54:10A-5). |
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| 472 | 472 | | |
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| 473 | 473 | | "S corporation income not allocated to this State" means S corporation income less S corporation income allocated to this State. |
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| 474 | 474 | | |
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| 475 | 475 | | (cf: P.L.2023, c.50, s.2) |
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| 476 | 476 | | |
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| 477 | 477 | | |
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| 478 | 478 | | |
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| 479 | 479 | | 3. (New section) a. For taxable years beginning after December 31, 2024, the gross income of a qualified small business shall not include up to $50,000 of the amount otherwise calculated pursuant to the provisions of N.J.S.54A:1-1 et seq., prior to any other permitted exclusions, deductions, or credits. |
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| 480 | 480 | | |
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| 481 | 481 | | b. For purposes of this section, qualified small business means a business entity that: |
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| 482 | 482 | | |
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| 483 | 483 | | (1) is independently owned and operated, with management owning at least a 51 percent ownership interest in the entity and being responsible for both its daily and long-term operations; |
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| 484 | 484 | | |
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| 485 | 485 | | (2) has its principal business operations located in the State; |
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| 486 | 486 | | |
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| 487 | 487 | | (3) is registered to do business in this State with the Director of the Division of Revenue and Enterprise Services in the Department of the Treasury; |
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| 488 | 488 | | |
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| 489 | 489 | | (4) earned gross revenues not more than $2,000,000 during the taxable year; |
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| 490 | 490 | | |
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| 491 | 491 | | (5) employed not more than 20 full-time or part-time employees during the taxable year, not including seasonal employees or part-time employees employed for less than 90 days in the taxable year. except that a majority of the full-time and part-time employees of the entity shall be residents of this State. |
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| 492 | 492 | | |
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| 493 | 493 | | |
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| 494 | 494 | | |
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| 495 | 495 | | 4. This act shall take effect immediately and shall apply to privilege periods and taxable years beginning after December 31, 2024. |
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| 496 | 496 | | |
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| 497 | 497 | | |
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| 498 | 498 | | |
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| 499 | 499 | | |
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| 500 | 500 | | |
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| 501 | 501 | | STATEMENT |
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| 502 | 502 | | |
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| 503 | 503 | | |
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| 504 | 504 | | |
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| 505 | 505 | | This bill excludes up to $50,000 of the income earned by qualified small businesses from taxation under the corporation business tax and the gross income tax. The provisions of this bill would apply to tax periods beginning after December 31, 2024. |
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| 506 | 506 | | |
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| 507 | 507 | | Under the bill, a qualified small business is defined to include a business entity that: (1) is independently owned and operated, with management owning at least a 51 percent ownership interest in the corporation and being responsible for both its daily and long-term operations; (2) has its principal business operations located in the State; (3) is registered to do business in this State with the Director of the Division of Revenue and Enterprise Services; (4) earned gross revenues not more than $2 million during the applicable tax period; and (5) employed not more than 20 full-time or part-time employees during the taxable year, not including certain seasonal employees, except that a majority of the employees are required to be residents of this State. |
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