Allows exemption from New Jersey gross income of certain capital gains from sale or exchange of qualified small business stock.*

2024-2025 Regular Session Introduced by Raj Mukherji and 2 co-sponsors

NJ would exclude QSBS gains from gross income to mirror federal §1202, reducing state revenue by about $10–12 million annually.

Substituted by A4455 (ACS/1R)

#corporations #incometax

Summary — S 4503 (substituted by A4455, ACS/1R)

Status and key dates
- Bill number: S 4503 (Senate Committee Substitute simplified and later substituted by A4455 (ACS/1R))
- Introduced: February 6, 2025
- Reported as substitute by Senate Committee: June 26, 2025
- Substituted by A4455: June 30, 2025
- Sponsors: Sen. Gustavo Rivera (primary), Sen. Luis R. Sepúlveda (cosponsor)
- Subject: Corporations; State income tax treatment of qualified small business stock (QSBS)

Purpose / intent
- To exempt from New Jersey gross income the capital gains (net gains or income) from the sale, exchange, or other disposition of qualified small business stock (QSBS) to the extent those gains are already excluded from federal taxable income under Internal Revenue Code section 1202. The intent is to conform New Jersey’s tax treatment for these gains to the federal exclusion.

What the bill would do (key provisions)
- Provides a state-level exclusion: Gross income shall not include QSBS gains to the extent they are exempt under IRC §1202 (i.e., generally gains from QSBS held more than five years, subject to federal limits).
- Effective date / application: Takes effect immediately; applies to taxable years beginning on or after the January 1 next following enactment.
- The Senate Committee Substitute text is concise and mirrors the federal statute. (The originally introduced text included more detailed, NJ-specific limits and definitions—e.g., NJ payroll-location adjustments, $10M / $8M thresholds, employee and asset caps— but the enacted substitute narrows the measure to an exclusion “to the extent” of the federal §1202 exclusion.)

Who would be affected
- Taxpayers who realize qualifying QSBS gains that meet federal §1202 rules (most commonly investors in qualifying C corporations whose stock is held >5 years).
- Revenue impact is concentrated among higher-income taxpayers: federal and IRS analyses indicate that most excluded QSBS income is attributable to taxpayers with income of $400,000+ (and a large share to taxpayers with $500,000+).

Fiscal and administrative impact
- Office of Legislative Services (OLS) estimate: annual State gross income tax revenue loss of approximately $10 million to $12 million, beginning FY2027 (assuming enactment in 2025 and first returns filed in 2027).
- Executive branch (Budget in Brief) estimate: roughly $10.4 million annual loss beginning FY2026.
- The fiscal note cites the Department of the Treasury and OLS calculations based on federal tax expenditure estimates (federal FY2024 QSBS exclusion estimated to reduce federal revenue by $1.93 billion) and New Jersey shares of reported capital gains.
- Agencies affected: New Jersey Department of the Treasury; impact to the State Property Tax Relief Fund (loss to that fund is noted).

Procedural notes / related legislation
- Original bill text contained detailed NJ-specific QSBS rules; the adopted committee substitute narrows language to mirror federal exclusion.
- Related / companion measures: A5884, A4455 (companion/substitute), prior-session S2952, S6260.
- Because the exclusion applies only to taxable years starting after the January 1 following enactment, revenue effects are realized in the fiscal year when those returns are filed.