Provides gross income tax credits to support development of New Jersey-based small business start-ups.

A1487

ASSEMBLY, No. 1487

STATE OF NEW JERSEY

222nd LEGISLATURE

�

PRE-FILED FOR INTRODUCTION IN THE 2026 SESSION

Sponsored by:

Assemblyman ROY FREIMAN

District 16 (Hunterdon, Mercer, Middlesex and Somerset)

Assemblyman CLINTON CALABRESE

District 36 (Bergen and Passaic)

Assemblywoman MITCHELLE DRULIS

District 16 (Hunterdon, Mercer, Middlesex and Somerset)

Co-Sponsored by:

Assemblywoman Reynolds-Jackson, Assemblyman Scharfenberger,
Assemblywomen Flynn and Haider

SYNOPSIS

���� Provides gross income tax credits to support
development of New Jersey-based small business start-ups.

CURRENT VERSION OF TEXT

���� Introduced Pending Technical Review by Legislative
Counsel.

��

An Act
providing gross income tax credits to support the
development of New Jersey-based small business start-ups, supplementing chapter
4 of Title 54A of the New Jersey Statutes.�

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

���� 1.��� As used in sections 1
through 5 of P.L.��� , c.��� (C.������� ) (pending before the Legislature as
this bill):

���� �Employee� means an individual
who is employed by, or otherwise performs work or renders services for, a
qualified small business for consideration on a full-time, part-time, seasonal,
or other basis. �Employee� includes an employee who is obtained by a qualified
small business from a temporary employee agency, professional employer
organization, or employee leasing agency, and, if a qualified small business is
classified as a partnership for federal income tax purposes, each partner of
the partnership.�

���� �Qualified small business�
means a business that:��

���� is registered to do business
in this State,

���� maintains a business location
or otherwise derives a majority of its income from business activities or
operations conducted within this State,

���� has no more than 50 employees
in any calendar month during the first taxable year in which the business is
conducted or operated for a profit by the taxpayer, and

���� has net income of not more
than $100,000 from all business activities or operations conducted within and
without this State during the first taxable year in which the business is
conducted or operated for a profit by the taxpayer.

���� 2.��� a.� A taxpayer that is a
qualified small business shall be allowed a credit against the tax imposed
pursuant to the �New Jersey Gross Income Tax Act,� N.J.S.54A:1-1 et seq., in an
amount equal to:�

���� (1)�� 75 percent of the New
Jersey gross income tax liability that is incurred and required to be paid by
the taxpayer in connection with the conduct or operation of the qualified small
business during the first taxable year in which the qualified small business is
conducted or operated for a profit by the taxpayer,

���� (2)�� 50 percent of the New
Jersey gross income tax liability that is incurred and required to be paid by
the taxpayer in connection with the conduct or operation of the qualified small
business during the second taxable year in which the qualified small business
is conducted or operated for a profit by the taxpayer, and

���� (3)�� 25 percent of the New
Jersey gross income liability that is incurred and required to be paid by the
taxpayer in connection with the conduct or operation of the qualified small
business during the third taxable year in which the qualified small business is
conducted or operated for a profit by the taxpayer.�

���� b.��� The amount of credit
allowed pursuant to paragraph (1), (2), or (3) of subsection a. of this section
shall be taken by the taxpayer to reduce the tax otherwise due and required to
be paid for the taxable year to which the credit applies. A credit allowed
pursuant to paragraph (1) of subsection a. of this section shall only be taken
by the taxpayer to reduce the tax otherwise due and required to be paid for the
first taxable year in which the qualified small business is conducted or
operated for a profit by the taxpayer. A credit allowed pursuant to paragraph
(2) of subsection a. of this section shall only be taken by the taxpayer to
reduce the tax otherwise due and required to be paid for the second taxable
year in which the qualified small business is conducted or operated for a
profit by the taxpayer. A credit allowed pursuant to paragraph (3) of
subsection a. of this section shall only be taken by the taxpayer to reduce the
tax otherwise due and required to be paid for the third taxable year in which
the qualified small business is conducted or operated for a profit by the
taxpayer.

���� c.���� The priority in which a
credit allowed pursuant to paragraph (1), (2), or (3) of subsection a. of this
section and any other credits or deductions or adjustments that are allowed by
law shall be taken shall be prescribed by the director.�

���� d.��� A qualified small
business that is classified as a partnership for federal income tax purposes
shall not be allowed a credit directly, but the amount of credit of a taxpayer
in respect of a distributive share of partnership income shall be determined by
allocating to the taxpayer that proportion of the credit acquired by the
partnership that is equal to the taxpayer�s share, whether or not distributed,
of the total distributive income or gain of the partnership for its taxable
year ending within or with the taxpayer�s taxable year except as otherwise
provided by law. A qualified small business that is a New Jersey S Corporation
shall not be allowed a credit directly, but the amount of credit of a taxpayer
in respect of a pro rata share of S Corporation income shall be determined by
allocating to the taxpayer that proportion of the credit acquired by the New
Jersey S Corporation that is equal to the taxpayer�s share, whether or not
distributed, of the total pro rata share of S Corporation income of the New Jersey
S Corporation for its privilege period ending within or with the taxpayer�s
taxable year except as otherwise provided by law.

���� 3.��� a.� Notwithstanding the
provisions of section 2 of P.L.��� ,

c.��� (C.������� ) (pending before the Legislature as this bill) to the
contrary, a taxpayer shall not be permitted to take any credits allowed in
accordance with section 2 of P.L.��� , c.��� (C.������� ) (pending before the
Legislature as this bill) to reduce or offset the New Jersey gross income tax
liability that is incurred and required to be paid by the taxpayer in
connection with the conduct or operation of a qualified small business unless
the taxpayer has obtained prior written authorization from the director in
accordance with this section.�

���� b.��� The director shall
establish an application process and prescribe the form and manner through
which a taxpayer may make and file an application to obtain the director�s
written authorization for the allowance of a credit. The application shall, at
a minimum, require the taxpayer to demonstrate, in a form and manner as shall
be prescribed by the director, that the qualified small business for which the
taxpayer is seeking the director�s written authorization for the allowance of a
credit is unrelated to the conduct or operation of any other business that was,
or is currently, conducted or operated by the taxpayer or, if the qualified
small business and any other business that was, or is currently, conducted or
operated by the taxpayer are determined by the director to be related by common
ownership, the use of similar business names, trademarks, or service marks, or
the conduct of similar business activities or operations, that the qualified
small business was not established or acquired for the purpose of enjoying the
benefit of the credit.�

���� c.���� The director shall
review each application made and filed by a taxpayer in accordance with
subsection b. of this section and make a determination regarding the approval
of an application seeking the director�s written authorization for the
allowance of a credit within 90 calendar days of the date a complete
application is received.�

���� d.��� The director shall issue
a written authorization for the allowance of a credit to each taxpayer that
made and filed a complete application that has been reviewed and approved by
the director in accordance with subsection c. of this section within five calendar
days of the date the director�s determination is made. Each taxpayer issued a
written authorization for the allowance of a credit shall include a copy of the
director�s authorization when filing a return that includes a claim for the
credit allowed in accordance with section 2 of P.L.��� , c.��� (C.������� )
(pending before the Legislature as this bill).

���� e.���� If the director fails
to make a determination regarding the approval of an application seeking the
director�s written authorization for the allowance of a credit within 90
calendar days of the date a complete application is received, or if the
director fails to issue a written authorization for the allowance of a credit
within five calendar days of the date the director�s determination is made, the
application shall be deemed to have been approved and the written authorization
shall be deemed to have been issued by the director. Each taxpayer that made
and filed a complete application in accordance with subsection b. of this
section but fails to receive a determination from the director within 90
calendar days of the date a complete application is received, or fails to
receive a written authorization for the allowance of a credit within five
calendar days of the date the director�s determination is made, shall include a
copy of the taxpayer�s application when filing a return that includes a claim
for the credit allowed in accordance with section 2 of P.L. ,
c.��� (C.������� ) (pending before the Legislature as this bill).

���� 4.��� Notwithstanding any
provisions of the �Administrative Procedure Act,� P.L.1968, c.410 (C.52:14B-1
et seq.), to the contrary, the director may adopt immediately upon filing with
the Office of Administrative Law such rules and regulations as the director determines
to be necessary and appropriate to effectuate the purposes of P.L.��� , c.���
(C.������� ) (pending before the Legislature as this bill), which rules and
regulations shall be effective for a period not to exceed 360 calendar days
following the effective date of
P.L. , c. (C.������� ) (pending
before the Legislature as this bill) and may thereafter be amended, adopted, or
readopted by the director in accordance with the requirements of P.L.1968,
c.410 (C.52:14B-1 et seq.).

���� 5.��� This act shall take
effect immediately and apply to tax liabilities incurred and required to be
paid in connection with qualified small businesses first conducted or operated
for a profit in taxable years beginning on or after January 1 next following the
date of enactment.�

STATEMENT

���� This bill provides credits
against the New Jersey gross income tax to support the development of certain
New Jersey-based small business start-ups.�

���� Under the bill, taxpayers that
meet the definition of a qualified small business are allowed gross income tax
credits that can be taken to reduce the taxpayer�s liability for tax during the
first, second, and third taxable years in which the business is conducted or
operated for a profit by the taxpayer. The bill provides that the amount of
credit permitted to be taken is determined based upon a fixed percentage of the
taxpayer�s New Jersey gross income tax liability incurred and required to be
paid in connection with the conduct or operation of the qualified small
business.

���� The bill provides that the
fixed percentage of the credit is weighted in favor of tax liabilities incurred
during the first few years of profitability. The bill specifies that in the
first taxable year the business is conducted or operated for a profit, the
taxpayer is allowed a credit equal to 75 percent of the New Jersey gross income
tax liability that is incurred and required to be paid in connection with the
conduct or operation of the qualified small business. In the second year of
profitability, the credit is equal to 50 percent of the tax liability incurred
and required to be paid in connection with the conduct or operation of the
business. In the third year, the credit is 25 percent of the tax liability
incurred and required to be paid in connection with the business.�

���� The bill limits the
application of the allowable credits to the tax otherwise due and required to
be paid for the taxable year to which the credit applies. This means, for
example, that a credit allowed for tax liabilities incurred in connection with
the conduct or operation of a qualified small business during the second
taxable year in which the business is conducted or operated for a profit can
only be taken to reduce the tax liabilities required to be paid by the taxpayer
during the second taxable year the business is profitable; the credit cannot be
carried back or carried forward to reduce a past or future tax liability.�

���� The bill establishes a
mandatory pre-approval process in connection with the credits. The bill
provides that taxpayers seeking a credit to offset a tax liability incurred and
required to be paid in connection with the conduct or operation of a qualified small
business must make and file an application with the Director of the Division of
Taxation to obtain the director�s written authorization prior to taking the
allowable credit.�

���� The bill authorizes the
director to establish an application process and prescribe the form and manner
through which a taxpayer may make and file an application to obtain the
director�s authorization for the credit, but stipulates that the taxpayer must demonstrate
that the qualified small business (for which the taxpayer is seeking a credit)
is unrelated to the conduct or operation of any other business that was, or is
currently, conducted or operated by the taxpayer or, if the qualified small
business and any other business that was, or is currently, conducted or
operated by the taxpayer are related, that the qualified small business was not
established or acquired for the purpose of enjoying the benefit of the credit.
The bill provides that taxpayer applications are deemed approved and written
authorizations are deemed issued if the director fails to make a determination regarding
the approval of an application within 90 calendar days of the date a complete
application is received or if the director fails to issue a written
authorization within five calendar days of the date the determination is made.�

���� The bill authorizes the
director to adopt rules and regulations necessary to effectuate the purposes of
the bill, and allows for the immediate filing of those rules and regulations
with the Office of Administrative Law, effective for a period not exceeding 360
calendar days following the bill�s effective date.

���� The bill takes effect
immediately and applies to tax liabilities incurred and required to be paid in
connection with qualified small businesses first conducted or operated for a
profit in taxable years beginning on or after January 1 next following the date
of enactment.�

���� For purposes of the bill, a
�qualified small business� is a business that:�

���� -- is registered to do
business in this State,

���� -- maintains a business
location or otherwise derives a majority of its income from business activities
or operations conducted within this State,

���� -- has no more than 50
employees in any calendar month during the first taxable year in which the
business is conducted or operated for a profit by the taxpayer, and

���� -- has net income of not more
than $100,000 from all business activities or operations conducted within and
without this State during the first taxable year in which the business is
conducted or operated for a profit by the taxpayer.

���� The purpose of this bill is to
support the development of start-up small businesses that are based in New
Jersey. The credit provided by the bill will significantly reduce the tax
liabilities associated with the conduct or operation of small businesses during
the first few years of profitability, and provide small business owners with
the opportunity to reinvest additional resources back into their businesses
during the most critical period in the life of any small business.