FISCAL NOTE

[First Reprint]

ASSEMBLY, No. 5322

STATE OF NEW JERSEY

222nd LEGISLATURE

 

DATED: JULY 6, 2026

 

 

SUMMARY

 

Synopsis:

Imposes temporary $1 million cap on use of net operating loss deductions under corporation business tax for certain privilege periods.

Type of Impact:

Temporally limited deferral of State revenue losses to the General Fund

Agency Affected:

Department of the Treasury

 

 

Executive Estimate

Fiscal Impact

Fiscal Year 2027 

 

State Revenue Gain

$485.0 million

 

 

Office of Legislative Services Estimate

Fiscal Impact

FY 2027 

FY 2028

FY 2029

FY 2030

FY 2031

FY 2032

State Revenue Gain

$456.0 million

$437.1 million

$418.4 million

$400.1 million

$0

$0

State Revenue Loss

$0

$0

$0

$0

$855.8 million

$855.8 million

 

·         The Office of Legislative Services (OLS) generally agrees with the Executive estimate that the $1.0 million cap on the use of net operating losses under the corporation business tax will increase State revenue collections by $485.0 million in FY 2027.  The OLS only projects a moderately smaller impact in FY 2027 and extends its forecast to additional fiscal years.

·         The bill is structurally revenue-neutral in the long-run:  it will cap the deductibility of net operating losses for the next four tax years and then allow affected taxpayers to claim the disallowed deduction amounts in the next two tax years.  Accordingly, the OLS projects that the bill will temporarily disallow $1.7 billion in net operating loss deductions in the next four tax years combined, resulting in State revenue gains in those years.  In the two years thereafter, taxpayers will claim the deferred $1.7 billion, yielding a cumulative two-year State revenue loss of $1.7 billion, assuming taxpayer liabilities can fully absorb the accrued deductions. 

BILL DESCRIPTION

 

      For tax years ending on or after July 31, 2026 and before July 31, 2030, this bill caps at $1 million the currently unrestricted net operating loss deduction under the corporation business tax.  A taxpayer that is disallowed any portion of a net operating loss deduction due to the temporary cap may claim the disallowed amount in tax years ending on or after July 31, 2030 but before July 31, 2032, except that the deduction may not reduce the taxpayer's net income by more than 75 percent.  In addition, a taxpayer with a disallowed deduction amount may also carry over any unused deduction amount for an additional five tax years beyond the tax year in which the deduction would have otherwise expired.  The cap does not apply to public utilities.

 

 

FISCAL ANALYSIS

 

EXECUTIVE BRANCH

 

      The Department of the Treasury estimates that this bill will generate $485 million in State revenue in FY 2027 and affect about 600 taxpayers.

 

OFFICE OF LEGISLATIVE SERVICES

 

      The OLS generally agrees with the Executive estimate that the $1.0 million cap on the use of net operating losses under the corporation business tax will increase State revenue collections by $485.0 million in FY 2027.  The OLS only projects a moderately smaller impact in FY 2027 and extends its forecast to additional fiscal years.

      The bill is structurally revenue-neutral in the long-run:  it will cap the deductibility of net operating losses for the next four tax years and then allow affected taxpayers to claim the disallowed deduction amounts in the next two tax years.  Accordingly, the OLS projects that the bill will temporarily disallow $1.7 billion in net operating loss deductions in the next four tax years combined, resulting in State revenue gains in those years.  In the two years thereafter, taxpayers will claim the deferred $1.7 billion, resulting in a cumulative two-year State revenue loss of $1.7 billion, assuming taxpayers will have sufficient tax liabilities to use the banked deductions.  This analysis rests on the simplifying assumption that taxpayers will have sufficient tax liabilities in the two concerned years to claim their deferred deductions so that none of the deferred deduction amounts will be carried forward to future tax years.   

      The OLS bases its estimate on Department of the Treasury data indicating that the tax year 2022 revenue loss from the net operating loss deduction totaled $748.5 million.  The amount then jumped to nearly $1.2 billion in tax year 2023 subsequent to the enactment of P.L.2023, c.96, which facilitated the use of previously accumulated unused net operating losses.  The effects of P.L.2023, c.96 are likely to moderate as accumulated net operating losses are claimed. 

 

Section:

Legislative Budget and Finance Office

Analyst:

Oscar Mendez

Revenue and Economic Policy Analyst

Approved:

Thomas Koenig

Legislative Budget and Finance Officer

 

This fiscal note has been prepared pursuant to P.L.1980, c.67 (C.52:13B-6 et seq.).