Sponsored by:
Assemblyman ROY FREIMAN
District 16 (Hunterdon, Mercer, Middlesex and Somerset)
SYNOPSIS
Allows deduction from New Jersey gross income of certain capital gains from sale or exchange of New Jersey qualified small business stock held for more than five years.
CURRENT VERSION OF TEXT
As introduced.
An Act allowing a deduction from New Jersey gross income of certain capital gains from sale or exchange of New Jersey qualified small business stock held for more than five years, 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. Notwithstanding the provisions of N.J.S.54A:5-1, a taxpayer who is an individual shall be allowed to deduct from the taxpayer's gross income in a taxable year the eligible gain from the sale or exchange of New Jersey qualified small business stock held for more than five years.
b. (1) If the taxpayer has eligible gain for the taxable year from one or more dispositions of stock issued by any corporation, the aggregate amount of the gain from dispositions of stock issued by the corporation which may be taken into account under subsection a. for the taxable year shall not exceed the greater of either of the following:
(a) Ten million dollars ($10,000,000) reduced by the aggregate amount of eligible gain taken into account by the taxpayer under subsection a. for prior taxable years and attributable to dispositions of stock issued by the corporation.
(b) Ten times the aggregate adjusted bases of qualified small business stock issued by the corporation and disposed of by the taxpayer during the taxable year. For purposes of this subparagraph (b), the adjusted basis of any stock shall be determined without regard to any addition to basis after the date on which the stock was originally issued.
(2) For purposes of this subsection b., the term eligible gain means any gain from the sale or exchange of qualified small business stock held for more than five years.
(3) (a) In the case of a married individual filing a separate return, subparagraph (a) of paragraph (1) of this subsection shall be five million dollars ($5,000,000).
(b) In the case of a married taxpayer filing a joint return, the amount of gain taken into account under subsection a. shall be allocated equally between the spouses for purposes of applying this subsection to subsequent taxable years.
c. As used in this section:
(1) Qualified small business stock means any stock in a C corporation which is originally issued after the effective date of P.L. , c. (C. ) (pending before the Legislature as this bill), if both of the following apply:
(a) As of the date of issuance, the corporation is a qualified small business.
(b) Except as provided in subsections e. and g., the stock is acquired by the taxpayer at its original issue (directly or through an underwriter) in either of the following manners:
(i) In exchange for money or other property (not including stock).
(ii) As compensation for services provided to the corporation (other than services performed as an underwriter of the stock).
(2) (a) Stock in a corporation shall not be treated as qualified small business stock unless, during substantially all of the taxpayers holding period for the stock, the corporation meets the active business requirements of subsection d. of this section and the corporation is a C corporation.
(b) (i) Notwithstanding subsection d. of this section, a corporation shall be treated as meeting the active business requirements of subsection d. for any period during which the corporation qualifies as a specialized small business investment company.
(ii) For purposes of subsubparagraph (i) of this subparagraph, the term specialized small business investment company means any eligible corporation (as defined in paragraph (4) of subsection d. of this section) that is licensed to operate under Section 301(d) of the federal Small Business Investment Act of 1958 (as in effect on May 13, 1993).
(3) (a) Stock acquired by the taxpayer shall not be treated as qualified small business stock if, at any time during the four-year period beginning on the date two years before the issuance of the stock, the corporation issuing the stock purchased (directly or indirectly) any of its stock from the taxpayer or from a related person to the taxpayer. For the purposes of this subparagraph, "related person" means a corporation, partnership, association or trust controlled by the taxpayer; an individual, corporation, partnership, association or trust that is in the control of the taxpayer; a corporation, partnership, association or trust controlled by an individual, corporation, partnership, association or trust that is in the control of the taxpayer; or a member of the same controlled group as the taxpayer.
(b) Stock issued by a corporation shall not be treated as qualified small business stock if, during the two-year period beginning on the date one year before the issuance of the stock, the corporation made one or more purchases of its stock with an aggregate value (as of the time of the respective purchases) exceeding five percent of the aggregate value of all of its stock as of the beginning of the two-year period.
(c) If any transaction is treated under section 304(a) of the Internal Revenue Code (26 U.S.C. s.304(a)) as a distribution in redemption of the stock of any corporation, for purposes of subparagraphs (a) and (b), the corporation shall be treated as purchasing an amount of its stock equal to the amount treated as a distribution in redemption of the stock of the corporation under section 304(a) of the Internal Revenue Code (26 U.S.C. s.304(a)).
(4) Qualified small business means any domestic corporation (as defined in section 7701(a)(4) of the Internal Revenue Code (26 U.S.C. s.7701(a)(4))) which is a C corporation, if all of the following apply:
(a) The aggregate gross assets of the corporation (or any predecessor thereof) at all times on or after the effective date of P.L. , c. (C. ) (pending before the Legislature as this bill), and before the issuance did not exceed $50,000,000;
(b) The aggregate gross assets of the corporation immediately after the issuance (determined by taking into account amounts received in the issuance) do not exceed $50,000,000, where aggregate gross assets mean the amount of cash and the aggregate adjusted basis of other property held by the corporation, but the adjusted basis of any property contributed to the corporation (or other property with a basis determined in whole or in part by reference to the adjusted basis of property so contributed) shall be determined as if the basis of the property contributed to the corporation immediately after the contribution was equal to its fair market value as of the time of the contribution; and
(c) Has fewer than 225 employees and at least 80 percent of the corporations payroll, as measured by total dollar value, is attributable to employment located within this State.
Provided, however, that all corporations which are members of the same parent-subsidiary controlled group shall be treated as one corporation for purposes of this subsection, where parent-subsidiary controlled group means any controlled group of corporations as defined in section 1563(a)(1) of the Internal Revenue Code (26 U.S.C. s.1563(a)(1)), except that that percentages of ownership and value that control shall exist in situations involving at least 50 percent of ownership and value as otherwise provided involving at least 80 percent required by section 1563(a)(1) (26 U.S.C. s.1563(a)(1)), and section 1563(a)(4) of the Internal Revenue Code (26 U.S.C. s.1563(a)(4)) shall not apply.