A New Jersey lawmaker has introduced a proposal that would allow farmers to claim accelerated deductions for qualified business expenses.
S. 2955 was filed August 8 by Sen. Edward Durr (R). The bill would conform to IRC sections 168 and 179 to allow taxpayers who operate a farming enterprise to claim accelerated depreciation deductions for related business expenses under the state’s corporate business tax and gross income tax.
Section 179 allows businesses to expense the cost of eligible equipment and deduct it in the year the property is placed in service. The federal Tax Cuts and Jobs Act increased the maximum deduction from $500,000 to $1 million and increased the phaseout threshold from $2 million to $2.5 million of a company’s total assets — both adjusted for inflation. The maximum deduction this year is $1.08 million.
Section 168 allows an additional deduction for depreciation in the property’s first year of use, which the TCJA increased from 50 percent to 100 percent of the cost qualified property placed in service after September 27, 2017, but before January 1, 2023. After that date, the percentage will drop by 20 points each year until reaching 0 percent for calendar year 2027.
According to the bill, New Jersey decoupled from sections 168 and 179 in the early 2000s and is currently aligned to federal law as it was in 2002 for section 179 and in 2001 for sections 167 and 168.
Under S. 2955, a farming enterprise is defined as “a business or part of a business that, using land and improvements to the land, is engaged primarily in producing agricultural or horticultural commodities for sale.”
S. 2955 would take effect immediately and apply to privilege periods and tax years beginning after its effective date. The bill was referred to the Senate Economic Growth Committee. An identical version was introduced in June by Assembly member Michael Torrissi Jr. (R), and that bill resides in the Assembly Agriculture and Food Security Committee.
In a statement provided to Tax Notes August 10, Torrissi said the bills aim to help farmers pay smaller tax bills "in the earlier years of a crucial investment" in farm equipment.
"With the combination of increasing labor costs and recent heat waves, these investments to increase farm efficiency and output should be looked on favorably by the state, which continues to post a record budget surplus and can afford to pitch it out in the form of tax relief for farmers," Torrissi said.
Gov. Phil Murphy (D) signed fiscal 2023 budget legislation that capitalized on an estimated $6.8 billion surplus to expand the property tax relief program. The budget received criticism from Republican lawmakers who sought more forms of tax relief.
Torrissi conceded that the proposal won't fix all of the problems farmers face, including inflation. "This bill, and other bills offered by my colleagues to support farms, raise the same crucial question, which needs to be answered: Who will feed New Jersey families and communities when New Jersey farmers can no longer afford to do it?” he said.