TRENTON – Legislation authored by Senators Paul Sarlo (D-Bergen), Troy Singleton (D-Burlington), Steve Oroho (R-Sussex), and Anthony Bucco Sr. (R-Morris) that will preserve the federal deductibility of an estimated $23 billion in state income taxes for small businesses and partnerships was approved by the Senate today.
The bill is a product of the Economic and Fiscal Policy Workgroup, the blue-ribbon study group that made recommendations to improve New Jersey’s fiscal practices and economic strength. The legislation is part of the “Path To Progress” initiative.
The legislation, S-3246, will amend New Jersey’s state tax code to the system that was in place prior to 1993 under which S corporations, Limited Liability Corporations (LLC’s) and other business partnerships directly paid the state income tax liability of their owners and partners. Entitled the “Pass-Through Business Alternative Income Tax Act,” the bill would establish an elective entity-level tax to be paid by pass-through businesses and would provide an offsetting credit to taxpayers who receive income from a pass-through business.
Based on the most recent IRS statistics, more than 260,000 individuals and families in New Jersey reported $23 billion in S corporation and partnership income in 2015 that would no longer be tax-deductible under the federal tax law if paid on individual income taxes, but would be deductible if New Jersey returned to the previous entity-level system of taxation.
The senators developed the plan with assistance from the New Jersey Society of Certified Public Accountants and its executive director, Ralph Thomas.
The bill was approved with a vote of 40-0.