Modifies eligibility for alternative business calculation adjustment allowed under gross income tax, the official text

ASSEMBLY, No. 5323

STATE OF NEW JERSEY

222nd LEGISLATURE

INTRODUCED JUNE 23, 2026

Sponsored by:

Assemblyman  GABRIEL RODRIGUEZ

District 33 (Hudson)

Senator  NICHOLAS P. SCUTARI

District 22 (Somerset and Union)

SYNOPSIS

Modifies eligibility for alternative business
calculation adjustment allowed under gross income tax.

CURRENT VERSION OF TEXT

As introduced.

An Act concerning the alternative business calculation
adjustment allowed under the gross income tax and amending P.L.2011, c.60.

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

1.    Section 1 of P.L.2011,
c.60 (C.54A:3-9) is amended to read as follows:

1. a. Notwithstanding the
provisions of N.J.S.54A:5-1, for the purposes of the alternative business
calculation pursuant to this section, a taxpayer who sustains a net loss
in one or more of the net categories of gross income determined pursuant to
subsections b., d., k., and p. of N.J.S.54A:5-1 shall net that loss against any
other gains or losses sustained in those categories of gross income and any
loss carryforward allowed pursuant to subsection b. of this section to
determine alternative business income or loss.

b.    Notwithstanding the
provisions of N.J.S.54A:5-2, a taxpayer who sustains an alternative business
loss pursuant to the provisions of subsection a. of this section may carry that
loss forward, if necessary and in accordance with the terms and conditions prescribed
by the director, for application pursuant to the provisions of subsection a. of
this section during each of the 20 taxable years following the alternative
business loss' taxable year.

c. (1) A taxpayer shall
calculate regular business income as the total of the subsection b., d., k.,
and p. categories of gross income determined pursuant to N.J.S.54A:5-1 in
accordance with N.J.S.54A:5-2.

(2)  A taxpayer shall subtract
alternative business income from regular business income determined pursuant to
paragraph (1) of this subsection to determine the business increment.

(3)  For purposes of
calculating a taxpayer's liability pursuant to the "New Jersey Gross
Income Tax Act," N.J.S.54A:1-1 et seq., a taxpayer shall adjust the
taxpayer's taxable income pursuant to the following schedule:

(a)   For taxable years
beginning in 2012, the taxpayer shall subtract from taxable income 10[%] percent
of the business increment;

(b)  For taxable years
beginning in 2013, the taxpayer shall subtract from taxable income 20[%] percent
of the business increment;

(c)   For taxable years
beginning in 2014, the taxpayer shall subtract from taxable income 30[%] percent
of the business increment;

(d)  For taxable years
beginning in 2015, the taxpayer shall subtract from taxable income 40[%] percent
of the business increment[.];

(e)   For taxable years
beginning in 2016 and [thereafter] ending
with taxable years beginning in 2025, the taxpayer shall subtract from
taxable income 50[%] percent
of the business increment; and

(f)   For taxable years
beginning in 2026 and thereafter, the percentage of the business increment that
a taxpayer may subtract from taxable income shall be determined as follows:

(i)   a taxpayer with gross
income of no more than $500,000 for the taxable year shall subtract from
taxable income 50 percent of the business increment;

(ii)  a taxpayer with gross
income of more than $500,000, but no more than $1,000,000 for the taxable year
shall subtract from taxable income 25 percent of the business increment; and

(iii) a taxpayer with gross
income of more than $1,000,000 for the taxable year shall not subtract any
percentage of the business increment.

(cf: P.L.2011, c.60, s.1)

2.    This act shall take
effect immediately and shall apply retroactively to taxable years beginning on
or after January 1, 2026.

STATEMENT

This bill makes certain
modifications to the alternative business calculation adjustment allowed under
the gross income tax.  Specifically, the bill imposes limitations on the gross
income of taxpayers who are eligible for the alternative business calculation
adjustment and reduces the amount of the authorized deduction for taxpayers
with gross income over $500,000.

Under current law, the
alternative business calculation adjustment permits gross income taxpayers to deduct
50 percent of their “business increment” from their taxable income.  A
taxpayer’s business increment is the difference between the taxpayer’s regular
business income and the taxpayer’s alternative business income.  Regular
business income is a taxpayer’s business income without the ability to net out
income and losses across certain business-related categories of income.
Alternative business income is a taxpayer’s business income when the taxpayer
is allowed to offset income generated in one category of business income
against losses sustained in another category of business income.

For purposes of the adjustment,
the categories of income that may be offset in calculating a taxpayer’s
alternative business income include: (1) net profits from businesses; (2) net
gains or net income from or in the form of rents, royalties, patents, and
copyrights; (3) distributive share of partnership income; and (4) net pro rata
share of S corporation income.  Notably, a taxpayer’s alternative business
income cannot be less than zero for a taxable year, and any losses which are
not taken in one taxable year may be carried forward for up to 20 taxable years
following the taxable year in which the taxpayer sustained an alternative
business loss.

Beginning with taxable year
2026, the bill would phase out the adjustment for taxpayers with gross incomes
over $500,000.  A taxpayer with a gross income of more than $500,000 but no
more than $1 million would be able to deduct 25 percent of the amount of their
business increment from their taxable income, while a taxpayer with a gross
income of over $1 million would be ineligible for the deduction.  However, the
bill would continue to allow certain taxpayers to continue to deduct 50 percent
of their business increment from their taxable income, provided that their
gross income is $500,000 or under.

This bill implements the
Governor’s Fiscal Year 2027 budget recommendations to enact legislation to
impose certain income limits on the alternative business calculation adjustment
under the gross income tax.  The Department of the Treasury estimates this bill
will increase State revenues by $120 million per year.  The adjustment is
expected to affect approximately 10,000 taxpayers, representing less than one
percent of all gross income tax filers.