Sponsored by:
Assemblyman TROY SINGLETON
District 7 (Burlington)
SYNOPSIS
Establishes a manufacturing reinvestment account program to incentivize capital investment and workforce training in New Jersey with income tax rate reductions, deferrals, and accelerated deductions.
CURRENT VERSION OF TEXT
As introduced.
An Act establishing a manufacturing reinvestment account program, supplementing Title 54 of the Revised Statutes and 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 qualified manufacturer shall be allowed to deduct against entire net income for the privilege period the amount contributed to a manufacturing reinvestment account in the privilege period. The deduction allowed pursuant to this subsection for a privilege period shall not exceed $100,000. Amounts contributed and deducted pursuant to this subsection shall not be eligible for deduction or capitalization upon disposition in a qualified reinvestment expenditure or otherwise.
b. (1) To the extent not distributed from a manufacturing reinvestment account in the privilege period, a qualified manufacturer's entire net income shall not include earnings on a manufacturing reinvestment account contribution or accrued deposit.
(2) To the extent distributed and used for a qualified reinvestment expenditure in the privilege period, deposits shall not be treated as entire net income and earnings from a manufacturing reinvestment account shall be included in entire net income, but the earnings shall be subject to one-half of the rate of tax imposed pursuant to section 5 of P.L.1945, c.162 (C.54:10A-5), except that this rate reduction shall not apply to the computation of minimum tax due. All other distributions of deposits and earnings from a manufacturing reinvestment account shall be included in a qualified manufacturer's entire net income subject to the tax imposed pursuant to section 5 of P.L.1945, c.162 (C.54:10A-5).
c. (1) To qualify for the tax benefits allowed pursuant to this section a taxpayer shall not deposit more than $100,000 in the manufacturing reinvestment account for a privilege period. A taxpayer shall not be allowed more than one manufacturing reinvestment account. The tax benefits associated with a manufacturing reinvestment account shall only apply to the five consecutive privilege periods beginning with the privilege period in which the taxpayer first makes a deposit to the manufacturing reinvestment account. Amounts remaining in a manufacturing reinvestment account after the fifth privilege period shall be deemed to be distributed and previously not included earnings shall be included in entire net income subject to the tax imposed pursuant to section 5 of P.L.1945, c.162 (C.54:10A-5).
(2) The amount of a qualified reinvestment expenditure distribution from a manufacturing reinvestment account representing previously not included account earnings to be included in entire net income for the privilege period of distribution and subject to the reduced rate of taxation allowed by this section shall be determined by applying the percentage that the total distribution represents of the total amount deposited by the taxpayer into the manufacturing reinvestment account to the date of the distribution against the total amount of previously not included earnings in the manufacturing reinvestment account to the date of the distribution.
(3) The Director of the Division of Taxation in the Department of the Treasury shall prescribe basis adjustments for qualified reinvestment expenditure items to the extent required and the order of application of deductions against entire net income relative to the rate reduction allowed pursuant to this section.
d. As used in this section:
"Manufacturing reinvestment account" means an interest bearing account that solely accepts cash deposits, which is held by a New Jersey bank.
"Manufacturing facility" means a commercial product production or assembly site located in New Jersey.
"New Jersey bank" means a financial institution located and authorized to conduct business, by the New Jersey Department of Banking and Insurance, in New Jersey.
"Qualified reinvestment expenditure" means the use of a manufacturing reinvestment account distribution to make payment for: (i) machinery or equipment for use in the taxpayer's manufacturing facility; or (ii) New Jersey personnel workforce training, development, or expansion at the taxpayer's manufacturing facility.
"Qualified manufacturer" means a taxpayer that is in a line of business involving manufacturing, is in good standing with respect to State tax responsibilities, and employs no more than fifty employees.
2. a. A qualified manufacturer shall be allowed to deduct against gross income for the taxable year the amount contributed to a manufacturing reinvestment account in the taxable year. The deduction allowed pursuant to this subsection for a taxable year shall not exceed $100,000. Amounts contributed and deducted pursuant to this subsection shall not be eligible for deduction or capitalization upon disposition in a qualified reinvestment expenditure or otherwise.
b. (1) To the extent not distributed from a manufacturing reinvestment account in the taxable year, a qualified manufacturer's gross income shall not include earnings on a manufacturing reinvestment account contribution or accrued deposit.
(2) To the extent distributed and used for a qualified reinvestment expenditure in the taxable year, deposits shall not be treated as gross income and earnings from a manufacturing reinvestment account shall be included in gross income, but the earnings shall be subject to one-half of the rate of tax imposed pursuant to N.J.S.54A:2-1 with the earnings allocated to the taxpayer's highest tax rate. All other distributions of deposits and earnings from a manufacturing reinvestment account shall be included in a qualified manufacturer's gross income subject to the tax imposed pursuant to the New Jersey Gross Income Tax Act, N.J.S.54A:1-1 et seq.
c. (1) To qualify for the tax benefits allowed pursuant to this section a taxpayer shall not deposit more than $100,000 in the manufacturing reinvestment account for a taxable year. A taxpayer shall not be allowed more than one manufacturing reinvestment account. The tax benefits associated with a manufacturing reinvestment account shall only apply to the five consecutive taxable years beginning with the taxable year in which the taxpayer first makes a deposit to the manufacturing reinvestment account. Amounts remaining in a manufacturing reinvestment account after the fifth taxable year shall be deemed to be distributed and previously not included earnings shall be included in gross income subject to the tax imposed pursuant to the New Jersey Gross Income Tax Act, N.J.S.54A:1-1 et seq.
(2) The amount of a qualified reinvestment expenditure distribution from a manufacturing reinvestment account representing previously not included account earnings to be included in gross income for the taxable year of distribution and subject to the reduced rate of taxation allowed by this section shall be determined by applying the percentage that the total distribution represents of the total amount deposited by the taxpayer into the manufacturing reinvestment account to the date of the distribution against the total amount of previously not included earnings in the manufacturing reinvestment account to the date of the distribution.
(3) The Director of the Division of Taxation in the Department of the Treasury shall prescribe basis adjustments for qualified reinvestment expenditure items to the extent required and the order of application of deductions against gross income relative to the rate reduction allowed pursuant to this section.
d. As used in this section:
"Manufacturing reinvestment account" means an interest bearing account that solely accepts cash deposits, which is held by a New Jersey bank.
"Manufacturing facility" means a commercial product production or assembly site located in New Jersey.
"New Jersey bank" means a financial institution located and authorized to conduct business, by the New Jersey Department of Banking and Insurance, in New Jersey.
"Qualified reinvestment expenditure" means the use of a manufacturing reinvestment account distribution to make payment for: (i) machinery or equipment for use in the taxpayer's manufacturing facility; or (ii) New Jersey personnel workforce training, development, or expansion at the taxpayer's manufacturing facility.
"Qualified manufacturer" means a taxpayer that is in a line of business involving manufacturing, is in good standing with respect to State tax responsibilities, and employs no more than fifty employees.
3. This act shall take effect immediately and apply to privilege periods and taxable years beginning on or after the date of enactment.
STATEMENT
This bill establishes a manufacturing reinvestment account program to incentivize capital investment and workforce training in New Jersey through the use of income tax rate reductions, deferrals, and accelerated deductions. The purpose of this bill is to make it easier for New Jersey's small businesses to invest in manufacturing machinery, equipment, and workforce development.
The bill offers three incentives for New Jersey's small manufacturing businesses through the gross income tax and corporation business tax: (i) an accelerated deduction for amounts deposited in a manufacturing reinvestment account for future use on qualified capital purchases and workforce training; (ii) deferred taxation on account earnings; and (iii) a rate reduction for the earnings on account deposits upon distribution. The bill is structured to offer these incentives through one manufacturing reinvestment account program.
The bill's manufacturing reinvestment account program allows qualified manufactures to make a deductible deposit of up to $100,000 annually in an account for five years. Earnings in the account are not taxed until withdrawn. For withdrawals made during the account's five-year life for spending on New Jersey based manufacturing equipment, machinery, or workforce development, a qualified manufacturer receives a one-half rate reduction on the withdrawn account earnings. Nonqualified withdrawals are included in whole in taxable income without the rate reduction on earnings.
To qualify for the manufacturing reinvestment account program, the bill requires a manufacturer to have no more than 50 employees and be in good tax standing. The bill restricts qualified manufacturing reinvestment accounts to those accounts offered by financial institutions in New Jersey to accept solely cash deposits and bear interest.
The bill is scheduled to take effect immediately and apply to tax years beginning on or after the date of enactment.