Provides research and development tax credit under gross income tax.

A232

ASSEMBLY, No. 232

STATE OF NEW JERSEY

222nd LEGISLATURE

�

PRE-FILED FOR INTRODUCTION IN THE 2026 SESSION

Sponsored by:

Assemblyman JOHN V. AZZARITI JR., M.D.

District 39 (Bergen)

Co-Sponsored by:

Assemblymen DiMaio, Auth, DePhillips, Clifton, Inganamort
and Assemblywoman Fantasia

SYNOPSIS

���� Provides research and development tax credit under
gross income tax.

CURRENT VERSION OF TEXT

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

��

An Act

providing a gross income tax credit for certain
research and development expenses and payments, supplementing Title 54A of the
New Jersey Statutes.

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

���� 1.��� a. A taxpayer shall be
allowed a credit against the tax otherwise due for the taxable year under the
"New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq., in an
amount equal to:

���� (1)� 10 percent of the excess
of the qualified research expenses for the taxable year over the base amount;
and

���� (2)� 10 percent of the basic
research payments for the taxable year determined in accordance with section 41
of the federal Internal Revenue Code (26 U.S.C. s.41), provided, however, that
the terms "qualified research expenses," "base amount,"
"qualified organization base amount period," "basic
research," and any other terms determined by the Director of the Division
of Taxation to affect the calculation of the credit shall include only
expenditures for research conducted in this State.� Amounts paid or incurred by
the taxpayer in carrying on any trade or business of the taxpayer during the
taxable year, including as contributions, to an energy research consortium for
energy research shall also qualify as a basic research payment for purposes of
this subsection.�

���� The portion of qualified
research expenses and qualified payments of a taxpayer that is a qualified
small business within the meaning of section 41(h)(3) of the federal Internal
Revenue Code (26 U.S.C. s.41) that was disallowed for the section 41(h) tax credit
because the taxpayer made an election pursuant to sections 41(h) and 3111(f) of
the federal Internal Revenue Code (26 U.S.C. s.41 and s.3111) to take the
3111(f) credit in lieu of the 41(h) credit, shall be allowed for the purposes
of calculating the New Jersey credit provided for by this section.

���� b.��� No credit shall be
allowed under this section for expenses or payments included in the calculation
of any credit or deduction allowed under any other section of law.

���� c.��� The director shall
prescribe the order of priority of the application of the credit allowed under
this section and any other credits allowed by law against the tax otherwise due
for the taxable year under N.J.S.54A:1-1 et seq.� The amount of the credit applied
under this section against the tax imposed under N.J.S.54A:1-1 et seq. for the
taxable year, together with any other credits allowed by law, shall not reduce
the tax liability to an amount less than zero.� The amount of credit otherwise
allowable under this section that cannot be applied for the taxable year due to
the limitations of this subsection may be carried over, if necessary, to the
seven taxable years immediately following the taxable year for which the credit
is allowed.

���� d.��� A business entity that
is classified as a partnership for federal income tax purposes shall not be
allowed the credit directly under N.J.S.54A:1-1 et seq., but the amount of
credit of the 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.

���� A taxpayer that is a New
Jersey S corporation shall not be allowed the credit directly under
N.J.S.54A:1-1 et seq., 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.

���� e.��� No provision terminating
section 41 of the federal Internal Revenue Code (26 U.S.C. s.41) shall apply.

���� 2.��� This act shall take
effect immediately and shall apply to taxable years beginning on or after the
date of enactment.

STATEMENT

���� This bill allows taxpayers
subject to the New Jersey gross income tax to claim a credit for research and
development (R&D) expenses and payments in the same way that taxpayers
subject to the corporation business tax may claim the credit.� The credit is
based on the federal R&D tax credit, and is intended to incentivize R&D
spending, which will stimulate technological and economic growth in New Jersey.