S 4536 — Imposes temporary $1 million cap on use of net operating loss deductions under corporation business tax for certain privilege periods.

S4536 1R [First Reprint] SENATE, No.

  CURRENT VERSION OF TEXT      As introduced.reported by the Senate Budget and Appropriations Committee on June 28, 2026, with amendments.

            1.   1.   a.

     b.    Notwithstanding the provisions of paragraph (6) of subsection (k) or subsections (u) and (v) of section 4 of P.L.1945, c.162 (C.54:10A-4), section 18 of P.L.2018, c.48 (C.54:10A-4.6), or any other law to the contrary, for the purposes of computing taxable net income, as that term is defined in subsection (w) of section 4 of P.L.1945, c.162 (C.54:10A-4), the amount of any net operating loss deduction claimed by a taxpayertaxpayer1, except for a public utility,1 shall not, in the aggregate, exceed $1,000,000 for a privilege period ending on or after July 31, 2026 but before July 31, 2030.  For a taxpayer with a privilege period of less than twelve months, the limit set forth in this subsection shall be prorated by the number of months covered during the privilege period.

    STATEMENT        This bill imposes a temporary $1 million cap on the amount of net operating loss deductions that may be taken by a taxpayer under the corporation business tax for privilege periods ending on or after July 31, 2026 but before July 31, 2030.

     The bill defines a "net operating loss deduction" as the amount of any deduction taken by a taxpayer for a net operating loss carryover, prior net operating loss conversion carryover, post-allocation net operating loss, net operating loss carryover in a combined group context, or any combination thereof.

     Under the bill, a taxpayer that cannot claim a portion of any net operating loss deduction because of the temporary cap may carry forward and apply the unused deduction to future privilege periods.  This change is intended to delay, but not eliminate, a taxpayer’s ability to utilize excess net operating losses to reduce allocated entire net income, thereby smoothing the fiscal impact of State and federal tax law changes on State finances.  Specifically, for a privilege period ending on or after July 31, 2030 but before July 31, 2032, a taxpayer that is disallowed any portion of a net operating loss deduction due to the limitations imposed under the bill may claim the amount of the net operating loss deduction that remains unused due to the limitations of the bill, except that the deduction may not reduce the taxpayer's allocated entire net income by more than 75 percent.  A taxpayer with a deduction that is reduced or disallowed under the bill is also permitted to carry over the unused net operating loss deduction for an additional six privilege periods immediately following the privilege period during which the net operating loss deduction would have otherwise expired.

     This bill does not restrict the surrender or acquisition of corporation business tax benefit certificates under the New Jersey Emerging Technology and Biotechnology Financial Assistance Program or the application of a certificate that includes a net operating loss carryover deduction.

     Additionally, the bill provides that no interest or penalty may be assessed against a taxpayer for an underpayment of installment payments of its estimated tax, provided that:  (1) the installment payment is due and payable after December 31, 2025 but before January 1, 2027;

and (2) the underpayment of estimated tax results from the limitations on net operating loss deductions imposed under the bill.

     This bill implements the Governor's Fiscal Year 2027 budget recommendations to enact legislation to impose a temporary cap on the amount of net operating losses that may be deducted under the corporation business tax.  The Department of the Treasury estimates this bill will generate $485 million in additional State General Fund revenues in State Fiscal Year 2027.  This change is expected to affect about taxpayers, representing less than one percent of all corporation business tax filers in New Jersey.