Bill Text: NJ A642 | 2020-2021 | Regular Session | Introduced
Bill Title: Provides gross income tax credits to support development of New Jersey-based small business start-ups.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Introduced - Dead) 2020-01-14 - Introduced, Referred to Assembly Science, Innovation and Technology Committee [A642 Detail]
Download: New_Jersey-2020-A642-Introduced.html
STATE OF NEW JERSEY
219th LEGISLATURE
PRE-FILED FOR INTRODUCTION IN THE 2020 SESSION
Sponsored by:
Assemblyman VINCENT MAZZEO
District 2 (Atlantic)
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.
