SENATE BUDGET AND APPROPRIATIONS COMMITTEE

STATEMENT TO

[First Reprint]

SENATE, No. 1422

with committee amendments

STATE OF NEW JERSEY

DATED:  MARCH 11, 2024

      The Senate Budget and Appropriations Committee reports favorably and with committee amendments Senate Bill No. 1422 (1R).

      As amended, this bill allows a taxpayer to claim a depreciation deduction under the “Corporation Business Tax Act,” P.L.1945, c.162 (C.54:10A-1 et seq.) and the “New Jersey Gross Income Tax Act,” (N.J.S.54A:1-1 et seq.) for eligible property expenditures incurred by the taxpayer for the construction of a new affordable housing development owned by the taxpayer.  The bill permits a taxpayer to claim the deduction over a 10-year period.

      Deprecation is an annual deduction from income that allows a taxpayer to recover the cost or other basis of certain property over the time that they use the property.  To calculate the percentage of eligible property expenditures that may be depreciated, the taxpayer would be required to apply the following formula: 2 times (the number of affordable housing units in the development divided by the total number of housing units in the development).

      The bill defines an “affordable housing development” as a development: (1) for which construction commences on or after the effective date of the bill; (2) for which taxes are not abated or exempted pursuant to the “Long Term Tax Exemption Law,” P.L.1991, c.431 (C.40A:20-1 et seq.), or does not receive an affordable housing subsidy for the construction of low- and moderate-income housing; and (3) that includes one or more units of housing, at least 20 percent of which qualify as affordable housing, a defined in the bill.

      As amended, the bill allows a depreciation deduction to be claimed for affordable housing developments placed in service during any tax year or privilege period beginning January 1, 2025, or thereafter.

COMMITTEE AMENDMENTS:

      The committee amended the bill to:

      (1) revise the definition of “affordable housing development” to include developments for which taxes are not abated or exempted pursuant to the “Long Term Tax Exemption Law,” P.L.1991, c.431 (C.40A:20-1 et seq.) or that do not receive an affordable housing subsidy for the construction of low- and moderate-income housing.  Previously, this definition would have included developments that do not utilize funds obtained from any federal, State, or local subsidy toward, or is allowed a tax credit or payment in lieu of tax for, for the construction of low- and moderate-income housing;

      (2) define the term “affordable housing subsidy” to mean any financing that is intended to support the development of affordable housing and that is provided by the Department of Community Affairs, the New Jersey Housing and Mortgage Finance Agency, or a municipal affordable housing trust fund, except not including rebates or incentives to promote energy efficiency standards; and

      (3) provide that the bill allows a depreciation deduction to be claimed for affordable housing developments placed in service in tax years and privilege periods beginning January 1, 2025 and thereafter.

FISCAL IMPACT:

      The Office of Legislative Services (OLS) projects that the bill will result in annual State revenue losses incurred by the General Fund and Property Tax Relief Fund in the range of $1.2 million to $2.3 million in the first year of implementation.

      State revenue losses thereafter will be dependent on several factors that may influence the amount of depreciation that is deducted from income using the new method provided by the bill, including the pace of affordable housing construction, the value of new affordable housing developments, and whether an affordable housing development has received an affordable housing subsidy or a property tax abatement or exemption.

      The alternate method of depreciating the value of new housing construction under the bill would allow taxpayers to accelerate the depreciation of property sooner than is the case under current law, and potentially claim larger depreciation deductions, thereby lowering the amount of income that is subject to taxation.  This would, in turn, reduce State revenue collections from the corporation business tax and gross income tax.

      There are several factors, such as the percentage of affordable housing units in an affordable housing development, and differences in the methods of calculating depreciation under current law and the bill, that may cause State revenue losses to be higher or lower than anticipated in this estimate.