Imposes temporary $1 million cap on use of net operating loss deductions under corporation business tax for certain privilege periods.

S4536 1R FISCAL NOTE

FISCAL NOTE

[First Reprint]

SENATE, No. 4536

STATE OF NEW JERSEY

222nd LEGISLATURE

DATED: JULY 6, 2026

SUMMARY

Synopsis:

Imposes temporary $1 million cap on use of net operating
loss deductions under corporation business tax for certain privilege
periods.�

Type of Impact:

Temporally limited deferral of State revenue losses to the
General Fund

Agency Affected:

Department of the Treasury

Executive
Estimate

Fiscal Impact

Fiscal Year 2027�

State Revenue Gain

$485.0 million

Office of
Legislative Services Estimate

Fiscal Impact

FY 2027�

FY 2028

FY 2029

FY 2030

FY 2031

FY 2032

State Revenue Gain

$456.0 million

$437.1 million

$418.4 million

$400.1 million

$0

$0

State Revenue Loss

$0

$0

$0

$0

$855.8 million

$855.8 million

�

The Office of Legislative Services (OLS)
generally agrees

with the Executive estimate that the $1.0 million cap on the use of net
operating losses under the corporation business tax will increase State revenue
collections by $485.0 million in FY 2027.� The OLS only projects a moderately
smaller impact in FY 2027 and extends its forecast to additional fiscal years.

�

The bill is structurally revenue-neutral in the long-run:� it
will cap the deductibility of net operating losses for the next four tax years
and then allow affected taxpayers to claim the disallowed deduction amounts in
the next two tax years.� Accordingly, the OLS projects that the bill will
temporarily disallow $1.7 billion in net operating loss deductions in the next
four tax years combined, resulting in State revenue gains in those years.� In
the two years thereafter, taxpayers will claim the deferred $1.7 billion,
yielding a cumulative two-year State revenue loss of $1.7 billion, assuming
taxpayer liabilities can fully absorb the accrued deductions.�

BILL DESCRIPTION

����� For tax years ending on or after July 31, 2026 and before
July 31, 2030, this bill caps at $1 million the currently unrestricted net
operating loss deduction under the corporation business tax.� A taxpayer that
is disallowed any portion of a net operating loss deduction due to the
temporary cap may claim the disallowed amount in tax years ending on or after
July 31, 2030 but before July 31, 2032, except that the deduction may not
reduce the taxpayer's net income by more than 75 percent.� In addition, a
taxpayer with a disallowed deduction amount may also carry over any unused deduction
amount for an additional five tax years beyond the tax year in which the
deduction would have otherwise expired.� The cap does not apply to public
utilities.

FISCAL ANALYSIS

EXECUTIVE BRANCH

����� The Department of the Treasury estimates that this
bill will generate $485 million in State revenue in FY 2027 and affect about
600 taxpayers.

OFFICE OF LEGISLATIVE SERVICES

����� The OLS generally agrees with the Executive estimate
that the $1.0 million cap on the use of net operating losses under the
corporation business tax will increase State revenue collections by $485.0
million in FY 2027.� The OLS only projects a moderately smaller impact in FY
2027 and extends its forecast to additional fiscal years.

����� The bill is structurally revenue-neutral in the
long-run:� it will cap the deductibility of net operating losses for the next
four tax years and then allow affected taxpayers to claim the disallowed
deduction amounts in the next two tax years.� Accordingly, the OLS projects
that the bill will temporarily disallow $1.7 billion in net operating loss
deductions in the next four tax years combined, resulting in State revenue
gains in those years.� In the two years thereafter, taxpayers will claim the
deferred $1.7 billion, resulting in a cumulative two-year State revenue loss of
$1.7 billion, assuming taxpayers will have sufficient tax liabilities to use
the banked deductions.� This analysis rests on the simplifying assumption that
taxpayers will have sufficient tax liabilities in the two concerned years to
claim their deferred deductions so that none of the deferred deduction amounts
will be carried forward to future tax years.���

����� The OLS bases its estimate on Department of the
Treasury data indicating that the tax year 2022 revenue loss from the net
operating loss deduction totaled $748.5 million.� The amount then jumped to
nearly $1.2 billion in tax year 2023 subsequent to the enactment of P.L.2023,
c.96, which facilitated the use of previously accumulated unused net operating
losses.� The effects of P.L.2023, c.96 are likely to moderate as accumulated
net operating losses are claimed.�

Section:

Legislative Budget and Finance Office

Analyst:

Oscar Mendez

Revenue and Economic Policy Analyst

Approved:

Thomas Koenig

Legislative Budget and Finance Officer

This fiscal note has been prepared pursuant to P.L.1980,
c.67 (C.52:13B-6 et seq.).`