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Bill

A 1274

Allows exclusion of certain small business income from taxation under gross income tax and corporation business tax.

2026-2027 Regular Session Introduced by Rob Clifton and 6 co-sponsors

Allows eligible NJ small businesses to exclude up to $50,000 of entire net income from gross income and CBT, starting after 2024.

Introduced, Referred to Assembly Commerce and Economic Development Committee
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WeVote Research Nonpartisan
Bill Summary · A 1274

Summary of Bill A-1274 (Session 222, New Jersey)

Title

Allows exclusion of certain small business income from taxation under the gross income tax and corporation business tax, and revises various related provisions of Title 54A.

Main purpose and intent

  • Create a targeted tax relief for small businesses by allowing an exclusion from New Jersey gross income tax and corporation business tax (CBT) for a portion of their income.
  • Modernize and harmonize numerous definitions, rules, and transition provisions within the state’s CBT framework as part of an overarching update to Title 54A.

Key provisions and changes

1) Specific small business income exclusion

  • Beginning with privilege periods after 2024, qualified small businesses may exclude up to $50,000 of their entire net income (TNT) from tax, before applying other exclusions, deductions, or credits.
  • A “qualified small business” is defined as:
    • Independently owned and operated with at least 51% ownership by management responsible for daily and long-term operations.
    • Principal business located in New Jersey.
    • Registered to do business in NJ.
    • Gross revenues not exceeding $2,000,000 during the privilege period.
    • Employing no more than 20 full-time or part-time employees in the privilege period (seasonal or short-term hires excluded); majority of employees must be NJ residents.

2) Scope of the act and related definitions

  • Revisions to multiple definitions used in the CBT and gross income tax, including:
    • Commissioner/Director: Clarified as Director of the Division of Taxation.
    • Net worth, entire net income, taxpayer, fiscal year, privilege period, unitary business, and related terms.
    • Expanded and refined definitions around investment companies, regulated investment companies, captive investment entities, S corporations, affiliated groups, and combined groups.
    • Detailed treatment of international banking facilities, captive investment entities, and treatment of dividends from subsidiaries (with staged exclusions over time).

3) Net worth and tax base computations

  • Several amendments to determine net worth and entire net income, including:
    • 50% reduction in net worth for investment in the stock of subsidiaries meeting certain ownership criteria (80% voting control and 80% ownership in other classes).
    • Adjustments for international banking facilities, retained earnings, and related rules.
    • Specific treatments for dividends received from subsidiaries (varying percentages excluded from TNT over time, with 100% exclusion for privilege periods ending after July 31, 2023, for 80%+ ownership; phased reductions for other periods).

4) Net operating losses (NOLs) and carryforwards

  • Comprehensive NOL framework with carryover periods (up to 7 or 20 privilege periods depending on the era), with:
    • Adjustments for changes in ownership.
    • Special rules governing NOLs for certain periods (e.g., carve-outs for 2002-2005 and other transitional rules).
    • Interaction with the unitary/combined group framework.

5) Special deductions and credits

  • Cannabis licensees: allows deductions equal to certain federal-disallowed cannabis expenses and permits related R&D deductions to be treated as qualifying expenses.
  • International and foreign income: adjustments for income exempt from federal taxation under treaties or specific international operations (effective for post-2022 periods).

6) Depreciation, amortization, and asset rules

  • Several sections preserve or adapt NJ-specific depreciation allowances for utilities and other properties.
  • Provisions to ensure consistency with federal depreciation rules in various contexts.

7) Combined groups and unitary reporting

  • Refines the treatment of combined groups, including managerial members, unitary business definitions, and allocation rules.
  • Defines captives and combinable captive entities, and their treatment within the combined group for CBT purposes.

8) Compliance and administration

  • The Director is empowered to promulgate regulations as needed to implement the act’s provisions and to ensure proper reflection of entire net income for various taxpayers.

Who would be affected

  • Eligible small businesses meeting the defined criteria would directly benefit from the $50,000 exclusion, reducing their NJ tax burden.
  • Corporations participating in unitary or combined groups, including various financial, investment, and regulated investment entities, would face updated rules for net income allocation, NOLs, and dividend treatment.
  • Cannabis licensees would benefit from specific deductions related to otherwise federal-disallowed expenditures.
  • Large corporate groups with international or captive entities could see altered tax outcomes due to updated definitions and adjustments, including net deferred tax deduction provisions.

Procedural and timeline aspects

  • Effective for privilege periods beginning after December 31, 2024, for the small business income exclusion.
  • Numerous provisions reference ongoing administration by the NJ Division of Taxation, with the Director empowered to issue regulations to implement and adjust these rules.
  • Some sections include sunset-like or staged rules (e.g., phased dividend exclusions between 2016–2023, and ongoing adjustments into future privilege periods).
  • For combined groups, filing and reporting requirements include timely statements (e.g., to elect and claim certain deferred tax deductions).

Overall impact

  • Aimed at reducing the tax burden for a defined class of small, NJ-based businesses while maintaining broad alignment with federal tax concepts and NJ’s CBT framework.
  • Introduces extensive updates to the statutory architecture governing net income, allocations, and group taxation to reflect contemporary tax practices and to accommodate the small business exclusion and related reforms.

Compiled from official sources — confirm details with the bill’s official record.

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