The first measure would allow employers to immediately deduct up to $150,000 on their taxes for the costs of complying with the COVID-19 mandates and restrictions in 2020 and 2021, such as reduced capacity, ventilation requirements, plexiglass, outdoor equipment and social distancing.
That immediate tax deduction on the income or corporate business tax is known as a “bonus depreciation allowance” and does not necessarily change the amount the state collects or loses, but rather the timing of when the exemptions are claimed.
The idea behind the tax bills is that businesses would be able to immediately recoup some of the funds lost on the equipment, since the full deduction could only be claimed for the first year that the property is in use. With each passing year, the deductions that could be claimed are lowered as the value drops on the equipment, though an employer might opt to claim the deduction in a year that they generated more taxable income.
One measure – Senate Bill 4254 – was introduced on Dec. 6, and limits the tax exemption to businesses with up to 50 employees. Another measure – Senate Bill 3404 – would extend the tax exemption to any non-chain restaurant with up to 100 employees. The second was approved by a 12-0 vote by the Senate Budget and Appropriations Committee at a Dec. 6 hearing.
Eligible expenses could include heaters and overhangs, and could be claimed as long as they were after incurred Gov. Phil Murphy’s COVID-19 emergency orders went into effect on March 9, 2020.
“Small businesses have suffered immensely as a result of the COVID-19 pandemic,” sponsor Sen. Troy Singleton, D-7th District, said in a statement. “When they were able to open their doors to patrons, they had to completely redesign their spaces for safe accommodations and purchase supplies to keep their customers and their staff safe – all of which were out of pocket costs.
Meanwhile, a separate proposal – Senate Bill 4127 – allows for the deduction on income tax filings of proceeds from the sale of stock of New Jersey businesses, as long as it’s been held for at least five years. That proposal was also approved in a 12-0 vote at the SBA’s Monday committee hearing.
Eligibility is limited to companies with up to $50 million in assets. The deduction can be claimed by the individual business owners when they file their taxes, meaning it’s limited to c-corporations, where owners file their taxes separately from their business.
At the federal level, these incentives are known as the Internal Revenue Code’s “Section 1202” incentives.
One of the main sponsors, incoming Senate Republican Leader Steven Oroho, R-24th District, said the tax bill could “incentivize investment in small and mid-size businesses” with the use of “more favorable capital gains tax treatment in state filings.”
“Small and mid-size employers have a tough time finding capital investors because it takes them years to start making money and become profitable,” Oroho said in a prepared Monday statement. “The incentives provided by the bill make business investment more attractive.”[/vc_column_text][/vc_column][/vc_row]