A 5323

�2
Note
P.L.
2026, CHAPTER 22, approved June 30, 2026
Assembly, No. 5323
An Act concerning the alternative business calculation
adjustment allowed under the gross income tax and amending P.L.2011, c.60.
���� Be It Enacted by the Senate and General Assembly of the State of New
Jersey:
���� 1.��� Section 1 of P.L.2011, c.60 (C.54A:3-9) is
amended to read as follows:
���� 1. a. Notwithstanding the provisions of N.J.S.54A:5-1,
for the purposes of the alternative business calculation pursuant to this
section, a taxpayer who sustains a net loss in one or more of the net
categories of gross income determined pursuant to subsections b., d., k., and
p. of N.J.S.54A:5-1 shall net that loss against any other gains or losses
sustained in those categories of gross income and any loss carryforward allowed
pursuant to subsection b. of this section to determine alternative business
income or loss.
���� b.��� Notwithstanding the provisions of N.J.S.54A:5-2,
a taxpayer who sustains an alternative business loss pursuant to the provisions
of subsection a. of this section may carry that loss forward, if necessary and
in accordance with the terms and conditions prescribed by the director, for
application pursuant to the provisions of subsection a. of this section during
each of the 20 taxable years following the alternative business loss' taxable
year.
���� c. (1) A taxpayer shall calculate regular business
income as the total of the subsection b., d., k., and p. categories of gross
income determined pursuant to N.J.S.54A:5-1 in accordance with N.J.S.54A:5-2.
���� (2)�� A taxpayer shall subtract alternative business
income from regular business income determined pursuant to paragraph (1) of
this subsection to determine the business increment.
���� (3)�� For purposes of calculating a taxpayer's
liability pursuant to the "New Jersey Gross Income Tax Act,"
N.J.S.54A:1-1 et seq., a taxpayer shall adjust the taxpayer's taxable income
pursuant to the following schedule:
���� (a)�� For taxable years beginning in 2012, the
taxpayer shall subtract from taxable income 10[%] percent
of the business increment;
���� (b)�� For taxable years beginning in 2013, the
taxpayer shall subtract from taxable income 20[%] percent
of the business increment;
���� (c)�� For taxable years beginning in 2014, the
taxpayer shall subtract from taxable income 30[%] percent
of the business increment;
���� (d)�� For taxable years beginning in 2015, the
taxpayer shall subtract from taxable income 40[%] percent
of the business increment[.];
���� (e)�� For taxable years beginning in 2016 and [thereafter] ending
with taxable years beginning in 2025, the taxpayer shall subtract from
taxable income 50[%] percent
of the business increment; and
���� (f)�� For taxable years beginning in 2026 and
thereafter, the percentage of the business increment that a taxpayer may
subtract from taxable income shall be determined as follows:
���� (i)��� a taxpayer with gross income of no more than
$500,000 for the taxable year shall subtract from taxable income 50 percent of
the business increment;
���� (ii)�� a taxpayer with gross income of more than
$500,000, but no more than $1,000,000 for the taxable year shall subtract from
taxable income 25 percent of the business increment; and
���� (iii)� a taxpayer with gross income of more than
$1,000,000 for the taxable year shall not subtract any percentage of the
business increment.
(cf: P.L.2011, c.60, s.1)
���� 2.��� This act shall take effect immediately and shall
apply retroactively to taxable years beginning on or after January 1, 2026.
STATEMENT
���� This bill makes certain modifications to the
alternative business calculation adjustment allowed under the gross income
tax.� Specifically, the bill imposes limitations on the gross income of
taxpayers who are eligible for the alternative business calculation adjustment and
reduces the amount of the authorized deduction for taxpayers with gross income
over $500,000.
���� Under current law, the alternative business calculation
adjustment permits gross income taxpayers to deduct 50 percent of their
�business increment� from their taxable income.� A taxpayer�s business
increment is the difference between the taxpayer�s regular business income and
the taxpayer�s alternative business income.� Regular business income is a
taxpayer�s business income without the ability to net out income and losses
across certain business-related categories of income.� Alternative business
income is a taxpayer�s business income when the taxpayer is allowed to offset income
generated in one category of business income against losses sustained in
another category of business income.�
���� For purposes of the adjustment, the categories of
income that may be offset in calculating a taxpayer�s alternative business
income include: (1) net profits from businesses; (2) net gains or net income
from or in the form of rents, royalties, patents, and copyrights; (3)
distributive share of partnership income; and (4) net pro rata share of S
corporation income.� Notably, a taxpayer�s alternative business income cannot
be less than zero for a taxable year, and any losses which are not taken in one
taxable year may be carried forward for up to 20 taxable years following the
taxable year in which the taxpayer sustained an alternative business loss.
���� Beginning with taxable year 2026, the bill would phase
out the adjustment for taxpayers with gross incomes over $500,000.� A taxpayer
with a gross income of more than $500,000 but no more than $1 million would be
able to deduct 25 percent of the amount of their business increment from their
taxable income, while a taxpayer with a gross income of over $1 million would
be ineligible for the deduction.� However, the bill would continue to allow
certain taxpayers to continue to deduct 50 percent of their business increment
from their taxable income, provided that their gross income is $500,000 or
under.
���� This bill implements the Governor�s Fiscal Year 2027
budget recommendations to enact legislation to impose certain income limits on
the alternative business calculation adjustment under the gross income tax.�
The Department of the Treasury estimates this bill will increase State revenues
by $120 million per year. �The adjustment is expected to affect approximately
10,000 taxpayers, representing less than one percent of all gross income tax
filers.
���� Modifies eligibility for alternative business
calculation adjustment allowed under gross income tax.