Sponsored by:
Assemblyman JOSEPH A. LAGANA
District 38 (Bergen and Passaic)
SYNOPSIS
Modifies the gross income tax to enable the carryforward of capital losses and exclude capital gains from the sale of closely held businesses.
CURRENT VERSION OF TEXT
As introduced.
An Act modifying the gross income tax to enable the carryforward of capital losses and exclude capital gains from the sale of closely held businesses, supplementing Title 54A of the New Jersey Statutes.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. a. For taxable years beginning on or after July 1, 2015, to the extent a taxpayer has an intracategory net capital loss, the taxpayer may elect to carry that loss forward, to the earliest available intracategory use within the 20 taxable years immediately following the taxable year for which the loss is realized.
b. If a taxpayer elects to carry a net capital loss forward pursuant to this section, the intracategory items used in the calculation of that net capital loss shall not be included in the calculation of the business increment for purposes of the alternative business income deduction allowed pursuant to section 1 of P.L.2011, c.60 (C.54A:3-9).
c. As used in this section:
“Net capital loss” means the amount of intracategory capital losses in excess of intracategory income after application of ordinary intracategory losses against ordinary intracategory income and then intracategory capital gains, determined using federal income tax income characterization, gross income tax basis, and netted without respect to holding period.
2. a. For taxable years beginning on or after July 1, 2015, the gross income of a taxpayer shall not include the amount realized on the complete disposition of a closely held business that qualifies as a capital gain for federal income tax purposes. The amount realized for purposes of the exclusion shall be calculated using gross income tax basis. The exclusion allowed pursuant to this section shall be limited to $1,000,000 per business entity and allocated to taxpayers pro rata relative to their equity ownership interests in the business entity.
b. As used in this section:
“Closely held business” means a business entity whose majority equity ownership interest is held by five or fewer individual taxpayers.
“Complete disposition” means a change in ownership wherein each pre-change equity ownership interest is transferred to an owner without a history of prior ownership interests in the business entity.
3. This act shall take effect immediately.
STATEMENT
This bill modifies the gross income tax (GIT) to enable the carryforward of capital losses and exclude capital gains from the sale of closely held businesses. The purpose of this bill is to adjust the GIT liability computation to better reflect the costs of economic transactions and encourage entrepreneurship.
The bill’s 20 year net capital loss carryforward is calculated as an intracategory income item after application of ordinary losses against both ordinary and capital income.
The bill’s exclusion from sales of closely held businesses applies to the first $1 million realized on the complete disposition of a business entity with a majority interest of five or fewer individual taxpayers.
Both of the bill’s GIT modifications are scheduled to apply to taxable years beginning on or after July 1, 2015.