Bill Text: NJ S4537 | 2026-2027 | Regular Session | Introduced
Bill Title: Modifies eligibility for alternative business calculation adjustment allowed under gross income tax.
Sponsorship: Partisan Bill (Democrat 1)
Status: (Introduced) 2026-06-30 - Substituted by A5323 [S4537 Detail]
Download: New_Jersey-2026-S4537-Introduced.html
Sponsored by:
Senator NICHOLAS P. SCUTARI
District 22 (Somerset and Union)
SYNOPSIS
Modifies eligibility for alternative business calculation adjustment allowed under gross income tax.
CURRENT VERSION OF TEXT
As introduced.
An Act concerning the alternative business calculation adjustment allowed under the gross income tax and amending P.L.2011, c.60.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. Section 1 of P.L.2011, c.60 (C.54A:3-9) is amended to read as follows:
1. a. Notwithstanding the provisions of N.J.S.54A:5-1, for the purposes of the alternative business calculation pursuant to this section, a taxpayer who sustains a net loss in one or more of the net categories of gross income determined pursuant to subsections b., d., k., and p. of N.J.S.54A:5-1 shall net that loss against any other gains or losses sustained in those categories of gross income and any loss carryforward allowed pursuant to subsection b. of this section to determine alternative business income or loss.
b. Notwithstanding the provisions of N.J.S.54A:5-2, a taxpayer who sustains an alternative business loss pursuant to the provisions of subsection a. of this section may carry that loss forward, if necessary and in accordance with the terms and conditions prescribed by the director, for application pursuant to the provisions of subsection a. of this section during each of the 20 taxable years following the alternative business loss' taxable year.
c. (1) A taxpayer shall calculate regular business income as the total of the subsection b., d., k., and p. categories of gross income determined pursuant to N.J.S.54A:5-1 in accordance with N.J.S.54A:5-2.
(2) A taxpayer shall subtract alternative business income from regular business income determined pursuant to paragraph (1) of this subsection to determine the business increment.
(3) For purposes of calculating a taxpayer's liability pursuant to the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq., a taxpayer shall adjust the taxpayer's taxable income pursuant to the following schedule:
(a) For taxable years beginning in 2012, the taxpayer shall subtract from taxable income 10[%] percent of the business increment;
(b) For taxable years beginning in 2013, the taxpayer shall subtract from taxable income 20[%] percent of the business increment;
(c) For taxable years beginning in 2014, the taxpayer shall subtract from taxable income 30[%] percent of the business increment;
(d) For taxable years beginning in 2015, the taxpayer shall subtract from taxable income 40[%] percent of the business increment[.];
(e) For taxable years beginning in 2016 and [thereafter] ending with taxable years beginning in 2025, the taxpayer shall subtract from taxable income 50[%] percent of the business increment; and
(f) For taxable years beginning in 2026 and thereafter, the percentage of the business increment that a taxpayer may subtract from taxable income shall be determined as follows:
(i) a taxpayer with gross income of no more than $500,000 for the taxable year shall subtract from taxable income 50 percent of the business increment;
(ii) a taxpayer with gross income of more than $500,000, but no more than $1,000,000 for the taxable year shall subtract from taxable income 25 percent of the business increment; and
(iii) a taxpayer with gross income of more than $1,000,000 for the taxable year shall not subtract any percentage of the business increment.
(cf: P.L.2011, c.60, s.1)
2. This act shall take effect immediately and shall apply retroactively to taxable years beginning on or after January 1, 2026.
STATEMENT
This bill makes certain modifications to the alternative business calculation adjustment allowed under the gross income tax. Specifically, the bill imposes limitations on the gross income of taxpayers who are eligible for the alternative business calculation adjustment and reduces the amount of the authorized deduction for taxpayers with gross income over $500,000.
Under current law, the alternative business calculation adjustment permits gross income taxpayers to deduct 50 percent of their "business increment" from their taxable income. A taxpayer's business increment is the difference between the taxpayer's regular business income and the taxpayer's alternative business income. Regular business income is a taxpayer's business income without the ability to net out income and losses across certain business-related categories of income. Alternative business income is a taxpayer's business income when the taxpayer is allowed to offset income generated in one category of business income against losses sustained in another category of business income.
For purposes of the adjustment, the categories of income that may be offset in calculating a taxpayer's alternative business income include: (1) net profits from businesses; (2) net gains or net income from or in the form of rents, royalties, patents, and copyrights; (3) distributive share of partnership income; and (4) net pro rata share of S corporation income. Notably, a taxpayer's alternative business income cannot be less than zero for a taxable year, and any losses which are not taken in one taxable year may be carried forward for up to 20 taxable years following the taxable year in which the taxpayer sustained an alternative business loss.
Beginning with taxable year 2026, the bill would phase out the adjustment for taxpayers with gross incomes over $500,000. A taxpayer with a gross income of more than $500,000 but no more than $1 million would be able to deduct 25 percent of the amount of their business increment from their taxable income, while a taxpayer with a gross income of over $1 million would be ineligible for the deduction. However, the bill would continue to allow certain taxpayers to continue to deduct 50 percent of their business increment from their taxable income, provided that their gross income is $500,000 or under.
This bill implements the Governor's Fiscal Year 2027 budget recommendations to enact legislation to impose certain income limits on the alternative business calculation adjustment under the gross income tax. The Department of the Treasury estimates this bill will increase State revenues by $120 million per year. The adjustment is expected to affect approximately 10,000 taxpayers, representing less than one percent of all gross income tax filers.
