Bill Text: NJ S1128 | 2024-2025 | Regular Session | Introduced

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Bill Title: Disallows tax deduction under corporation business tax and gross income tax for punitive damages paid in connection with legal action; includes amount paid as punitive damages on behalf of taxpayer in income for tax purposes.

Spectrum: Partisan Bill (Democrat 1-0)

Status: (Introduced) 2024-01-09 - Introduced in the Senate, Referred to Senate Judiciary Committee [S1128 Detail]

Download: New_Jersey-2024-S1128-Introduced.html

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SENATE, No. 1128

STATE OF NEW JERSEY

221st LEGISLATURE

 

PRE-FILED FOR INTRODUCTION IN THE 2024 SESSION

 

 

Sponsored by:

Senator  JOHN F. MCKEON

District 27 (Essex and Passaic)

 

 

 

 

SYNOPSIS

     Disallows tax deduction under corporation business tax and gross income tax for punitive damages paid in connection with legal action; includes amount paid as punitive damages on behalf of taxpayer in income for tax purposes.

 

CURRENT VERSION OF TEXT

     Introduced Pending Technical Review by Legislative Counsel.

  

An Act disallowing tax deductions for punitive damages paid in connection with the conclusion of a legal action and including amount paid as punitive damages on behalf of a taxpayer in income for tax purposes, 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.    Notwithstanding the provisions of subsection (k) of section 4 of P.L.1945, c.162 (C.54:10A-4), for privilege periods beginning on or after the January 1 next following enactment of P.L.    , c.    (C.        )(pending before the Legislature as this bill):

     a.     no deduction from entire net income shall be allowed for any amount paid or incurred for punitive damages in connection with any judgment in, or settlement of, any action; and

     b.    entire net income shall include any amount paid to or on behalf of a taxpayer as insurance or otherwise by reason of the taxpayer's liability or agreement to pay punitive damages.

 

     2.    Notwithstanding the provisions of N.J.S.54A:5-1, for the purposes of determining the amount of a category of gross income pursuant to subsections b., d., k., or p. of N.J.S.54A:5-1 for taxable years beginning on or after the January 1 next following enactment of P.L.    , c.    (C.        )(pending before the Legislature as this bill):

     a.     no deduction shall be allowed for any amount paid or incurred for punitive damages in connection with any judgment in, or settlement of, any action; and

     b.    the category of gross income shall include any amount paid to or on behalf of a taxpayer as insurance or otherwise by reason of the taxpayer's liability or agreement to pay punitive damages relating to the taxpayer's business generating income in that category.

 

     3.    This act shall take effect immediately.

 

 

STATEMENT

 

     This bill disallows tax deductions under the corporation business tax and the gross income tax for punitive damages paid or incurred in connection with a judgment in or settlement of a legal action and includes in a taxpayer's taxable income the amount paid to, or on behalf of, the taxpayer as insurance or otherwise by reason of the taxpayer's liability or agreement to pay punitive damages.

     Under current law, a corporation or an individual business owner may deduct the cost of court-ordered punitive damages as an "ordinary business expense."  This tax loophole allows companies to wreak horrible damage to public assets and private property, destroying lives and livelihoods, and write it off as a cost of doing business.

     This bill eliminates that tax break, and requires corporations risking environmental destruction to face the true costs of their actions.