Statement by Ralph Albert Thomas, CPA (DC), CGMA, CEO and Executive Director, NJCPA
The New Jersey Society of Certified Public Accountants (NJCPA) applauds the passage of the Pass-Through Business Alternative Income Tax Act (A-4807/S-3246) on Dec. 16, 2019, by the New Jersey Legislature. The bill allows flow-through businesses in New Jersey, such as sub-S corporations, partnerships or LLCs, to elect to pay income taxes at the entity level instead of at the personal income tax level. The bill would take effect on Jan. 1, 2020.
Under the bill, taxpayers who earn income from pass-through businesses and pay the pass-through business alternative income tax can obtain a refundable gross income tax credit. There is no limit on the deduction of state taxes paid at the entity level under the federal Tax Cuts and Jobs Act (TCJA), only at the individual income level. Currently, pass-through business owners can only deduct up to $10,000 in state and local taxes on their personal income taxes.
The legislation is estimated to save New Jersey business owners $200 to $400 million annually on their federal tax bills. That’s millions of dollars that will be pumped back into the state’s economy. Furthermore, the bill is revenue neutral and won’t cost the state a dime.
We urge Governor Murphy to sign the legislation, which is a win-win for everyone in New Jersey.
Alan D. Sobel, CPA, CGMA, managing member at Livingston-based SobelCo and president-elect of the NJCPA, developed the concept for the bill right after passage of the TCJA. He played the lead role in writing the legislation and making it fit within New Jersey’s tax structure.
At the NJCPA, we support business-friendly tax proposals like this that bolster the growth of small businesses in New Jersey and promote a robust economic climate that benefits all New Jerseyans. This legislation is a vital step in mitigating the impact of a federal tax law change that hurt many of the state’s residents.
Again, we urge the Governor to sign the bill into law.