New Jersey-2014-A3025-Introduced

An Act providing credits under the corporation business tax and the gross income tax for insourcing business to New Jersey, supplementing P.L.1945, c.162 (C.54:10A-1 et seq.) 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 taxpayer shall be allowed a credit for the privilege period against the tax imposed pursuant to section 5 of P.L.1945, c.162 (C.54:10A-5), in an amount equal to 15 percent of the taxpayer's insourcing expenses allowed for the privilege period. Insourcing expenses shall be allowed for the privilege period during which the written plan to carry out the relocation has been completed and all insourcing expenses pursuant to the plan have been paid or incurred, provided however, that no credit shall be allowed unless the number of full-time employees of the taxpayer at locations in this State for the privilege period for which the credit is claimed exceeds the number of full-time employees of the taxpayer at locations in this State for the privilege period for which the insourcing expenses were first paid or incurred.

An unused credit may be carried forward, if necessary, for use in the seven privilege periods following the privilege period for which the credit is allowed.

b. The order of priority of the application of the credit allowed pursuant to this section and any other credits allowed by law shall be as prescribed by the director. The amount of the credit applied under this section against the tax imposed pursuant to section 5 of P.L.1945, c.162 for a privilege period, together with any other credits allowed by law, shall not exceed 50 percent of the tax liability otherwise due and shall not reduce the tax liability to an amount less than the statutory minimum provided in subsection (e) of section 5 of P.L.1945, c.162. No amount of expense claimed as a credit pursuant to this section shall be allowed as an amount calculated or claimed pursuant to any other credit against the tax imposed pursuant to section 5 of P.L.1945, c.162 (C.54:10A-5).

c. As used in this section:

"Business unit" means any trade or business, any line of business, and any functional unit of any trade or business or of any line of business.

"Full-time employee" means a person employed by the taxpayer for consideration for at least 35 hours a week, or who renders any other standard of service generally accepted by custom or practice as full-time employment, or a person who is employed by a professional employer organization pursuant to an employee leasing agreement between the taxpayer and the professional employer organization, in accordance with P.L.2001, c.260 (C.34:8-67 et seq.) for at least 35 hours a week, or who renders any other standard of service generally accepted by custom or practice as full-time employment, and whose wages are subject to withholding as provided in the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq. or an employee who is a resident of another State but whose income is not subject to the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq., or who renders any other standard of service generally accepted by custom or practice as full-time employment, and whose distributive share of income, gain, loss, or deduction, or whose guaranteed payments, or any combination thereof, is subject to the payment of estimated taxes, as provided in the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq. "Full-time employee" shall not include any person who works as an independent contractor or on a consulting basis for the taxpayer.

"Insourcing expense" means:

(1) the relocation expenses paid or incurred by the taxpayer in connection with the elimination of a business unit of the taxpayer located outside of the United States, and

(2) the relocation expenses paid or incurred by the taxpayer in connection with the establishment of a business unit of the taxpayer located within this State, if

(3) the establishment of the business unit described in paragraph (2) of this definition constitutes the relocation of the eliminated business unit described in paragraph (1) of this definition, and provided however,

(4) amounts shall be taken into account pursuant to paragraphs (1) and (2) of this definition only to the extent that those amounts are paid or incurred pursuant to a written plan to carry out the relocation pursuant to those paragraphs.

"Relocation expenses" means the net of expenses paid or incurred and amounts realized, if any, on liquidation associated with the relocation, but does not include any compensation or other remuneration paid or incurred in connection with severance from employment and does not include amounts paid or incurred in connection with the ongoing operation of the business unit.

2. a. A taxpayer shall be allowed a credit for the taxable year against the tax otherwise due for the taxable year pursuant to the "New Jersey Gross Income Tax Act," N.J.S.54A-1 et seq., in an amount equal to 15 percent of the taxpayer's insourcing expenses allowed for the taxable year. Insourcing expenses shall be allowed for the taxable year during which the written plan to carry out the relocation has been completed and all insourcing expenses pursuant to the plan have been paid or incurred, provided however, that no credit shall be allowed unless the number of full-time employees of the taxpayer for the taxable year for which the credit is claimed exceeds the number of full-time employees of the taxpayer for the taxable year for which the insourcing expenses were first paid or incurred.

b. The order of priority of the application of the credit allowed pursuant to this section and any other credits allowed by law shall be as prescribed by the director. The amount of the credit applied under this section against the tax imposed pursuant to "New Jersey Gross Income Tax Act," N.J.S.54A-1 et seq., for a taxable year together with any other credits allowed by law, shall not exceed 50 percent of the tax liability otherwise due. No amount of expense claimed as a credit pursuant to this section shall be allowed as an amount calculated or claimed pursuant to any other credit against the tax imposed pursuant to "New Jersey Gross Income Tax Act," N.J.S.54A-1 et seq.

A business entity classified as a partnership for federal income tax purposes shall not be allowed a credit directly under the gross income tax, 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.

A New Jersey S Corporation shall not be allowed a credit directly under the gross income tax, 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.

c. As used in this section:

"Business unit" means any trade or business, any line of business, and any functional unit of any trade or business or of any line of business.

"Full-time employee" means a person employed by the taxpayer for consideration for at least 35 hours a week, or who renders any other standard of service generally accepted by custom or practice as full-time employment, or a person who is employed by a professional employer organization pursuant to an employee leasing agreement between the taxpayer and the professional employer organization, in accordance with P.L.2001, c.260 (C.34:8-67 et seq.) for at least 35 hours a week, or who renders any other standard of service generally accepted by custom or practice as full-time employment, and whose wages are subject to withholding as provided in the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq. or an employee who is a resident of another State but whose income is not subject to the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq. or who is a partner of a taxpayer who works for the partnership for at least 35 hours a week, or who renders any other standard of service generally accepted by custom or practice as full-time employment, and whose distributive share of income, gain, loss, or deduction, or whose guaranteed payments, or any combination thereof, is subject to the payment of estimated taxes, as provided in the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq. "Full-time employee" shall not include any person who works as an independent contractor or on a consulting basis for the taxpayer.

"Insourcing expense" means:

(1) the relocation expenses paid or incurred by the taxpayer in connection with the elimination of a business unit of the taxpayer located outside of the United States, and

(2) the relocation expenses paid or incurred by the taxpayer in connection with the establishment of a business unit of the taxpayer located within this State, if

(4) amounts shall be taken into account pursuant to paragraphs (1) and (2) of this definition only to the extent that those amounts are pad or incurred pursuant to a written plan to carry out the relocation pursuant to those paragraphs.

3. This act shall take effect immediately and apply to privilege periods and taxable years beginning on or after the January 1 next following the date of enactment.

STATEMENT

This bill provides corporation business tax and gross income tax credits for insourcing business to New Jersey.

"Insourcing" has only recently become part of the business vocabulary. For decades businesses have had incentives to outsource or "offshore" business functions to foreign markets, pursuing lower labor costs. As a result, they have in some cases suffered loss of quality control and have surrendered valuable intellectual property to foreign producers.

Insourcing is returning business functions to the United States, reasserting control of input supply and quality, and protecting United States business intellectual property.

This bill provides corporation business tax credits and gross income tax credits for businesses that close down their foreign business units and relocate their functions to New Jersey. The credits are equal to 15 percent of the net cost of shutting down the foreign business unit and reestablishing an equivalent unit in New Jersey. The bill requires that the relocation be done pursuant to a written plan, and that the New Jersey full-time employees of the business be increased by the completed relocation.