TRENTON – Several bills aimed at making New Jersey more “business friendly” advanced out of an Assembly committee Tuesday.
One bill (A-1676) modifies the business tax formula used to determine the corporate income subject to tax by the state from a three-factor formula to a single sales factor formula.
Each state that imposes a corporate income tax determines the portion of the total income of a corporation subject to the tax by using formulas that measure specific activities of the corporation assigned to that state.
The portion of the corporate income subject to tax by a state is determined by the proportion of activity in the state to the total activity of the corporation.
The New Jersey corporation business tax employs a three-fraction formula that apportions a share of a corporation’s income to this state based on a weighted average of the following fractions a corporation’s property in this state over the corporation’s total property, a corporation’s sales in this state over the corporation’s total sales and the corporation’s payroll in this state over the corporation’s total payroll.
Currently, the sales fraction accounts for 50 percent of the apportionment and the property and payroll fractions each account for 25 percent of the apportionment.
This bill replaces the three-factor formula with a single sales factor formula.
The change is phased-in over three years, beginning after July 1, 2010.
For that year, the sales fraction will account for 70 percent of the apportionment and the property and payroll fractions each will account for 15 percent of the apportionment.
After July 1, 2011, the sales fraction will increase to 90 percent and the weights of property and payroll will each account for 5 percent of the apportionment.
After July 1, 2012, the sales fraction will account for 100 percent of the apportionment.
Another bill (A-3535) offers a tax break for small business owners, allowing them benefits similar to those already received by larger corporations.
Under current law, New Jersey’s personal income tax is calculated through 16 separately defined categories of income.
Unlike the federal tax code and the tax laws of 48 other states, state tax law does not permit filers who generate income from different types of businesses to offset gains derived from one business entity with losses sustained from another.
The bill would consolidate four of those income categories and give small business owners the same ability to recoup losses over 20 years that large corporations currently enjoy under a Greenwald bill signed into law two years ago.
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