Bill Text: NJ S3704 | 2022-2023 | Regular Session | Amended
Bill Title: Revises pass-through business alternative income tax to include more forms of S corporation income in calculation of pass-through business alternative income tax liability; modifies election and revocation dates for pass-through business alternative income tax.
Spectrum: Bipartisan Bill
Status: (Engrossed - Dead) 2023-06-22 - Received in the Assembly, Referred to Assembly Commerce and Economic Development Committee [S3704 Detail]
Download: New_Jersey-2022-S3704-Amended.html
Sponsored by:
Senator PAUL A. SARLO
District 36 (Bergen and Passaic)
Senator STEVEN V. OROHO
District 24 (Morris, Sussex and Warren)
SYNOPSIS
Revises pass-through business alternative income tax to include more forms of S corporation income in calculation of pass-through business alternative income tax liability; modifies election and revocation dates for pass-through business alternative income tax.
CURRENT VERSION OF TEXT
As reported by the Senate Budget and Appropriations Committee on June 12, 2023, with amendments.
An Act concerning the elective pass-through business alternative income tax and amending P.L.2019, c.320.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. Section 2 of P.L.2019, c.320 (C.54A:12-2) is amended to read as follows:
2. As used in P.L.2019, c.320 (C.54A:12-1 et al.):
"Direct share of the tax paid" means the portion of business alternative income tax calculated on the sum of each member's share of distributive proceeds attributable to the pass-through entity.
"Director" means the Director of the Division of Taxation in the Department of the Treasury.
"Distributive proceeds" means (1) in the case of a pass-through entity classified as a partnership for purposes of federal income tax law, the sum of (a) the distributive share of partnership income derived from sources both inside and outside New Jersey of all partners who are resident individuals, estates, or trusts that the partnership is required to report to the director under N.J.S.54A:5-4 plus (b) the distributive share of partnership income derived from sources inside New Jersey of all partners of the pass-through entity who are not resident individuals, estates, or trusts that the partnership is required to report to the director under section N.J.S.54A:5-4; [and] 1and1 (2) in the case of [an electing] 1[a standard] a New Jersey1 S corporation, 1the sum of (a)1 the pro rata share of S corporation income allocated to this State 1and the pro rata share of S corporation income not allocated to this State,1 as determined under section 12 of P.L.1993, c.173 (C.54A:5-10) 1[; and (3) in the case of an electing resident S corporation, the pro rata share of S corporation income allocated to this State and the pro rata share of S corporation income not allocated to this State, as determined under section 12 of P.L.1993, c.173 (C.54A:5-10)] , of all shareholders who are resident individuals, estates or trusts that the S corporation is required to report to the director under section 12 of P.L.1993, c.173 (C.54A:5-10) plus (b) the pro rata share of S corporation income allocated to this State of all shareholders who are not resident individuals, estates or trusts that the S corporation is required to report to the director under section 12 of P.L.1993, c.173 (C.54A:5-10)1. For purposes of determining distributive proceeds, a pass-through entity shall apply the allocation factors determined under N.J.S.54A:5-7.
1["Electing resident S corporation" means an S corporation that certifies, at the time of its election to pay the pass-through business alternative income tax, that all of its shareholders are resident individuals.
"Standard S corporation" means an S corporation that is not an electing resident S corporation.]1
"Limited liability company" means an entity organized pursuant to the "Revised Uniform Limited Liability Company Act," P.L.2012, c.50 (C.42:2C-1 et seq.), or prior law providing for the formation of a limited liability company in this State, or formed as a limited liability company under similar statutes of other states, that is classified as a partnership or an S Corporation for purposes of federal income tax law.
"Member" means a shareholder of an S corporation; a partner in a general, limited, or limited liability partnership; or a member of a limited liability company.
"Partnership" means a syndicate, group, pool, joint venture, or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on in this State.
"Pass-through business alternative income tax" means the tax set forth in subsection b. of section 3 of P.L.2019, c.320 (C.54A:12-3).
"Pass-through entity" means a partnership, an S corporation, or a limited liability company, with at least one member who is liable for tax on distributive proceeds pursuant to the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq., in a taxable year.
"Share of distributive proceeds" means the portion of distributive proceeds attributable to a member of a pass-through entity in a taxable year.
"Taxable year" means the same as in N.J.S.54A:1-2.
"Taxed at the business entity level" means taxed pursuant to an election made under P.L.2019, c.320 (C.54A:12-1 et al.).
(cf: P.L.2021, c.419, s.1)
2. Section 3 of P.L.2019, 1[c.419] c.3201 (C.54A:12-3) is amended to read as follows:
3. a. A pass-through entity with at least one member who is liable pursuant to the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq., for tax on that member's share of distributive proceeds of the pass-through entity in a taxable year may elect to be liable for, and pay, a pass-through business alternative income tax in the taxable year.
b. Each pass-through entity that makes an election for a taxable year pursuant to this section shall annually report to each of its members, for the taxable year, the member's share of distributive proceeds.
(1) The election to pay tax at the entity level is available if consent is made by each member of the electing entity who is a member at the time the election is filed or by any officer, manager, or member of the electing entity who is authorized, under law or the entity's organizational documents, to make the election and who represents to having such authorization under penalties of perjury. This election shall be made annually on or before the 1[due date of the entity's return as established by the director] 15th day of the third month of the taxable year1 and on forms prescribed by the director. This election shall not be made retroactively. If the members decide to revoke an election, that revocation shall occur on or before the 1[due date of the entity's return] 15th day of the third month of the taxable year1.
(2) The tax imposed on a pass-through entity pursuant to this section shall be determined in accordance with the following table with respect to the sum of each member's share of distributive proceeds attributable to the pass-through entity for the taxable year.
For taxable years beginning on or after January 1, 2020:
If the sum of each member's
share of distributive proceeds
attributable to the pass-through
entity is: The tax is:
Not over $250,000.00.......... 5.675% of the sum of distributive proceeds
Over $250,000.00 but not
over $1,000,000.00...... $14,187.50 plus 6.52% of the
excess over $250,000.00
Over $1,000,000.00 $63,087.50 plus 10.9% of the excess over $1,000,000.00
1[(3) An electing resident S corporation shall certify, at the time of its election, that all of its shareholders are resident individuals. Any S corporation that elects to be liable for, and pay, a pass-through alternative business income tax and does not certify that all of its shareholders are resident individuals shall be treated as a standard S corporation.]1
c. The amount of pass-through business alternative income tax due from a pass-through entity in a taxable year shall be exclusive of any amount of tax due and paid by the pass-through entity pursuant to the "Corporation Business Tax Act (1945)," P.L.1945, c.162 (C.54:10A-1 et seq.), during any privilege period, except as otherwise provided in P.L.2019, c.320 (C.54A:12-1 et al.).
(1) A pass-through entity which elects to pay the pass-through business entity income tax shall be included in a combined group, as defined in subsection (z) of section 4 of P.L.1945, c.162 (C.54:10A-4), and file a New Jersey combined return pursuant to the Corporation Business Tax Act, P.L.1945, c.162 (C.54:10A-1 et seq.). A pass-through entity which elects to pay the pass-through business entity income tax shall be excluded from a combined group, as defined in subsection (z) of section 4 of P.L.1945, c.162 (C.54:10A-4), and from filing a New Jersey combined return pursuant to the Corporation Business Tax Act, P.L.1945, c.162 (C.54:10A-1 et seq.) if the pass-through entity meets the following: (a) all of the members of the pass-through entity are taxpayers otherwise liable for the tax under the "New Jersey Gross Income Tax Act," N.J.S.A.54A:1-1 et seq., and (b) no business entity taxed as a corporation under the Corporation Business Tax Act, P.L.1945, c.162 (C.54:10A-1 et seq.), has a direct, indirect, beneficial, or constructive ownership or control of the pass-through entity.
(2) Nothing shall prevent a group of pass-through entities under common ownership by an individual, estate, or trust, or a group of related individuals, estates, or trusts, from filing a composite or consolidated pass-through business entity income tax return. In determining whether the pass-through entities are under common ownership, the individual, estate, or trust, or a group of related individuals, estates, or trusts, must own more than 50 percent of the direct or indirect voting control of each pass-through entity; provided, however, section 318 of the federal Internal Revenue Code, 26 U.S.C. s.318, shall apply for determining voting control.
d. Pass-through entities whose members have made the business alternative income tax election shall file an entity tax return and make payments on or before the 15th day of the third month following the close of each entity's taxable year for federal income tax purposes. A pass-through entity shall make estimated entity tax payments on or before the 15th day of each of the fourth month, sixth month, and ninth month of the taxable year and on or before the 15th day of the first month succeeding the close of the taxable year.
e. A pass-through entity that overpays tax in one taxable year shall be allowed to apply the overpayment of tax to the subsequent taxable year's estimated entity tax payments.
(cf: P.L.2021, c.419, s.2)
3. This act shall take effect immediately and apply to taxable years beginning on and after January 1, 2024.
