Under legislation sponsored by Senator Steve Oroho and advanced today by the Senate, qualifying New Jersey corporations would be able to reduce their federal tax liabilities without costing the state any revenue.
Under legislation sponsored by Sen. Steve Oroho and advanced by the Senate, qualifying New Jersey corporations would be able to reduce their federal tax liabilities without costing the state any revenue. (Pixabay)
The bipartisan bill (S-4068) amends the way business alternative income tax can be calculated in a manner that would reduce federal taxes for employers.
“Money that would otherwise go to Washington could remain here in New Jersey if this becomes law,” said Oroho, the Senate Republican Budget Officer. “We can help corporations cut their tax bill to the feds without reducing tax revenue to the state. This would be good news for employers in a state infamous for its inhospitable business environment.”
The measure revises the way the optional/elective pass-through business alternative income tax is calculated.
Currently, when a pass-through entity chooses to pay the business alternative income tax, the tax is calculated based on the portion of the entity’s income that is derived from operations conducted in New Jersey. The owners of the entity are then allowed a gross income tax credit based on the amount of tax the entity paid. Because the tax is calculated using only the entity’s income derived from New Jersey, the tax is sometimes lower than it otherwise may be and therefore the entity’s owners’ tax credit is lower.
Under the bill, the pass-through entity’s tax would be calculated based on all income of the entity if the income would be taxable under the gross income tax. The owners of pass-through entities who are New Jersey residents will therefore be able to obtain a larger gross income tax credit.
“Businesses have suffered tough times during the pandemic, and they were recently slammed by Round 1 of the payroll tax increase,” Oroho said. “This is a sensible solution that will help many of the employers our economy depends on.”
Related Facebook Post: