S3126

An Act providing temporary credits under the corporation business tax and the gross income tax for insourcing business to New Jersey, supplementing P.L.1945, c.162 (C.54:10A-1 et seq.) and Title 54A of the New Jersey Statutes.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. a. For privilege periods beginning on or after January 1, 2019 but before January 1, 2024, a taxpayer shall be allowed a credit for the privilege period against the tax imposed pursuant to section 5 of P.L.1945, c.162 (C.54:10A-5), in an amount equal to 35 percent of the taxpayer’s insourcing expenses from outside the United States and 25 percent of the taxpayer’s insourcing expenses from within the United States but outside this State.

The credit shall be allowed for the privilege period during which the written plan to carry out the insourcing has been completed and all insourcing expenses pursuant to the plan have been paid or incurred, provided however, that no credit shall be allowed unless the number of full-time employees of the taxpayer at locations in this State during the privilege period for which the credit is claimed exceeds the number of full-time employees of the taxpayer at locations in this State during the privilege period for which the insourcing expenses were first paid or incurred.

An unused credit may be carried forward, if necessary, for use in the four privilege periods following the privilege period for which the credit is allowed, provided it is used before January 1, 2025.

If the taxpayer reduces the number of full-time employees at locations in this State in any of the five privilege periods following the privilege period for which the credit is allowed, the director shall issue a tax assessment for the recapture of the credit previously allowed pursuant to this section and shall deny any outstanding credit allowed pursuant to this section.

b. The order of priority of the application of the credit allowed pursuant to this section and any other credits allowed by law shall be as prescribed by the director. The amount of the credit applied under this section against the tax imposed pursuant to section 5 of P.L.1945, c.162 (C.54:10A-5) for a privilege period, together with any other credits allowed by law, shall not exceed 50 percent of the tax liability otherwise due and shall not reduce the tax liability to an amount less than the statutory minimum provided in subsection (e) of section 5 of P.L.1945, c.162 (C.54:10A-5). No amount of expense claimed as a credit pursuant to this section shall be allowed as an amount calculated or claimed pursuant to any other credit against the tax imposed pursuant to section 5 of P.L.1945, c.162 (C.54:10A-5).

c. As used in this section:

“Business unit” means any trade or business, any line of business, and any functional unit of any trade or business or of any line of business.

"Full-time employee" means a person employed by the taxpayer for consideration for at least 35 hours a week, or who renders any other standard of service generally accepted by custom or practice as full-time employment, or a person who is employed by a professional employer organization pursuant to an employee leasing agreement between the taxpayer and the professional employer organization, in accordance with P.L.2001, c.260 (C.34:8-67 et seq.) for at least 35 hours a week, or who renders any other standard of service generally accepted by custom or practice as full-time employment, and whose wages are subject to withholding as provided in the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq. or an employee who is a resident of another State but whose income is not subject to the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq., or who renders any other standard of service generally accepted by custom or practice as full-time employment, and whose distributive share of income, gain, loss, or deduction, or whose guaranteed payments, or any combination thereof, is subject to the payment of estimated taxes, as provided in the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq. "Full-time employee" shall not include any person who works as an independent contractor or on a consulting basis for the taxpayer.

“Insourcing expense” means the net of expenses paid or incurred and amounts realized, if any, on liquidation associated with the elimination of a business unit of the taxpayer located outside the United States or in the United States but outside this State, and expenses paid or incurred by the taxpayer in connection with the establishment of a business unit of the taxpayer located within this State that replaces the eliminated unit outside the United States or outside this State, and includes expenses paid or incurred for moving employees, but does not include any compensation or other remuneration paid or incurred in connection with severance from employment; provided however, amounts shall be taken into account only to the extent that those amounts are paid or incurred pursuant to a written plan to carry out the elimination and replacement of the business unit, and provided further, amounts shall be taken into account only to the extent that those amounts do not include expenses paid or incurred by the taxpayer in connection with relocating an existing business unit already present in this State.

2. a. For taxable years commencing January 1, 2019 through January 1, 2023, a taxpayer shall be allowed a credit for the taxable year against the tax otherwise due for the taxable year pursuant to the “New Jersey Gross Income Tax Act,” N.J.S.54A:1-1 et seq., in an amount equal to 35 percent of the taxpayer’s insourcing expenses from outside the United States and 25 percent of the taxpayer’s insourcing expenses from within the United States but outside this State.

The credit shall be allowed for the taxable year during which the written plan to carry out the insourcing has been completed and all insourcing expenses pursuant to the plan have been paid or incurred, provided however, that no credit shall be allowed unless the number of full-time employees of the taxpayer during the taxable year for which the credit is claimed exceeds the number of full-time employees of the taxpayer during the taxable year for which the insourcing expenses were first paid or incurred.

If the taxpayer reduces the number of full-time employees at locations in this State in any of the five taxable years following the taxable year for which the credit is allowed, the director shall issue a tax assessment for the recapture of the credit previously allowed pursuant to this section.

b. The order of priority of the application of the credit allowed pursuant to this section and any other credits allowed by law shall be as prescribed by the director. The amount of the credit applied under this section against the tax imposed pursuant to “New Jersey Gross Income Tax Act,” N.J.S.54A:1-1 et seq., for a taxable year together with any other credits allowed by law, shall not exceed 50 percent of the tax liability otherwise due. No amount of expense claimed as a credit pursuant to this section shall be allowed as an amount calculated or claimed pursuant to any other credit against the tax imposed pursuant to “New Jersey Gross Income Tax Act,” N.J.S.54A:1-1 et seq.

A business entity classified as a partnership for federal income tax purposes shall not be allowed a credit directly under the gross income tax, but the amount of credit of a taxpayer in respect of a distributive share of partnership income shall be determined by allocating to the taxpayer that proportion of the credit acquired by the partnership that is equal to the taxpayer's share, whether or not distributed, of the total distributive income or gain of the partnership for its taxable year ending within or with the taxpayer's taxable year.

A New Jersey S Corporation shall not be allowed a credit directly under the gross income tax, but the amount of credit of a taxpayer in respect of a pro rata share of S Corporation income shall be determined by allocating to the taxpayer that proportion of the credit acquired by the New Jersey S Corporation that is equal to the taxpayer's share, whether or not distributed, of the total pro rata share of S Corporation income of the New Jersey S Corporation for its privilege period ending within or with the taxpayer's taxable year.

c. As used in this section:

“Business unit” means any trade or business, any line of business, and any functional unit of any trade or business or of any line of business.

"Full-time employee" means a person employed by the taxpayer for consideration for at least 35 hours a week, or who renders any other standard of service generally accepted by custom or practice as full-time employment, or a person who is employed by a professional employer organization pursuant to an employee leasing agreement between the taxpayer and the professional employer organization, in accordance with P.L.2001, c.260 (C.34:8-67 et seq.) for at least 35 hours a week, or who renders any other standard of service generally accepted by custom or practice as full-time employment, and whose wages are subject to withholding as provided in the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq. or an employee who is a resident of another State but whose income is not subject to the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq. or who is a partner of a taxpayer who works for the partnership for at least 35 hours a week, or who renders any other standard of service generally accepted by custom or practice as full-time employment, and whose distributive share of income, gain, loss, or deduction, or whose guaranteed payments, or any combination thereof, is subject to the payment of estimated taxes, as provided in the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq. "Full-time employee" shall not include any person who works as an independent contractor or on a consulting basis for the taxpayer.

3. This act shall take effect immediately and apply to privilege periods and taxable years beginning on or after January 1, 2019.

STATEMENT

This bill provides, for a five-year period, corporation business tax credits and gross income tax credits for insourcing business to New Jersey.

Insourcing is bringing business functions to this State by closing down an out of country or out of State business unit and relocating it to New Jersey. For decades businesses have had incentives to outsource business functions, pursuing lower tax rates or labor costs. The credit provided by this bill aims to reverse that trend by incentivizing businesses to relocate to New Jersey and take advantage of the State’s robust and diverse labor pool.

The credits are equal to 35 percent of the net cost of shutting down the out of country business unit, or 25 percent of the net cost of shutting down the out of State business unit, and reestablishing an equivalent unit in New Jersey. The credit will be earnable in the five years between January 1, 2019 and December 31, 2023.

The bill requires that the relocation be done pursuant to a written plan, and that the New Jersey full-time employees of the business be increased by the completed relocation. If the taxpayer reduces the amount of full-time employees in this State in any of the five years subsequent to the credit being allowed, the credit outstanding will be denied and any amount previously allowed will be subject to recapture by the State.