New Jersey Administrative Code › Title 18 - TREASURY - TAXATION › Chapter 35 - NEW JERSEY GROSS INCOME TAX › Subchapter 1 - GROSS INCOME-CATEGORIES AND CALCULATION › Section 18:35-1.1 - Net profits from business

Current through Register Vol. 56, No. 14, July 15, 2024
(a) Each taxpayer is
				subject to gross income tax on the taxpayer's net profits from business within the
				meaning of 54A:5-1.b, which shall be determined
				as provided in this subchapter.
(b) For
				purposes of the Gross Income Tax Act, a sole proprietorship, which shall include
				self-employed individuals and independent contractors, is a form of business in
				which one taxpayer owns all the assets of a business and which is not a partnership
				or corporation. A single member limited liability company whose member is an
				individual, estate, or trust shall be treated as a sole proprietorship, unless
				classified otherwise for Federal tax purposes. Sole proprietors shall report their
				income or loss as net profits from business.
(c) A taxpayer's net profits from business shall
				be determined by taking into account all income the taxpayer derived from the
				conduct of a business, profession, or any other activity intended to produce income,
				provided such activity qualifies and reports as a trade or business for Federal
				income tax purposes. All income attributable to the taxpayer's conduct of a trade or
				business, reduced by costs and expenses as provided in (d) below, shall be taken
				into account in determining the taxpayer's net profits from business. All other
				income of the taxpayer subject to gross income tax that is not attributable to the
				conduct of a trade or business shall be included in one or more of the other
				categories of gross income specified in
				54A:5-1 according to its character and
				shall not be includable in the category of income net profits from business. The
				determination of whether income is derived from the conduct of a trade, business, or
				profession shall be based on an examination of facts and circumstances of the
				taxpayer's activities.
1. Income derived as
				remuneration for services rendered in the sole proprietorship's conduct of a trade
				or business shall be taken into account in determining a self-employed taxpayer's
				net profits from business. Income derived by a taxpayer in the taxpayer's capacity
				as an employee, as defined in
				18:35-7.1, shall not be taken into
				account in determining the taxpayer's net profits from business, but rather shall be
				taxed under 54A:5-1.a (salaries, wages,
				etc.).
2. Interest and dividend income
				derived by a taxpayer in the conduct of a trade or business shall be taken into
				account in determining a taxpayer's net profits from business. The taxpayer shall
				annex to the taxpayer's return a statement demonstrating that the interest or
				dividends were realized in the conduct of the trade or business. Interest and
				dividends from investment activities or other income-producing activities which do
				not constitute the conduct of a trade or business shall be separately stated on the
				taxpayer's return and taxed either as interest described in
				54A:5-1.e or dividends described in
				54A:5-1.f.
3. Rental income derived by a taxpayer in the
				conduct of a trade or business shall be taken into account in determining a
				taxpayer's net profits from business. Rental income of a taxpayer that is not
				received in the conduct of a trade or business shall be taken into account in
				determining the taxpayer's net gains or net income from rents, royalties, patents,
				and copyrights described in
				54A:5-1.d.
4. Royalty, patent, or copyright income derived by
				a taxpayer in the conduct of a trade or business that licenses intangible property
				shall be taken into account in determining the taxpayer's net profits from business.
				Income derived from royalties, patents, or copyrights of a taxpayer that is not
				derived from a trade or business shall be taken into account in determining the
				taxpayer's net gains or net income from, or in the form of, rents, royalties,
				patents, and copyrights described in
				54A:5-1.d.
5. Gains from the sale, exchange, or other
				disposition of trade or business property shall be taken into account in determining
				a taxpayer's net profits from business. The taxpayer shall annex to the taxpayer's
				return a statement that demonstrates that gains and losses from the sale, exchange,
				or other disposition of property were realized in the conduct of a trade or
				business. The sale, exchange, or other disposition of property that is not directly
				related to or employed in the conduct of a trade or business must be reported as
				described in 54A:5-1.c, net gains or income from
				the disposition of property. Gain or loss from the sale or disposition of assets
				employed in a trade or business as a result of a complete liquidation of the
				business must be reported as described in
				54A:5-1.c, net gains or income from
				the disposition of property.
i. A complete
				liquidation of a business is deemed to occur in the tax year when the business
				discontinues all business activities and all its assets have been
				distributed.
6. A taxpayer's
				distributive share of income or loss from a partnership, S corporation, or estate or
				trust shall not be taken into account in determining a taxpayer's net profits from
				business, regardless of the character of the income or nature of the activities of
				the partnership, S corporation, or estate or trust. Reporting of such income or loss
				shall be as follows:
i. Income or loss from a
				partnership shall be taken into account in determining the taxpayer's distributive
				share of partnership income described in
				54A:5-1.k. For rules governing the
				taxation of income derived by a taxpayer from a partnership see
				18:35-1.3.
ii. Income or loss from an S corporation shall be
				taken into account in determining the taxpayer's pro rata share of S corporation
				income described in
				54A:5-1.p.
iii. Income from an estate or trust shall be taken
				into account in determining the taxpayer's net gains or income from estates or
				trusts described in
				54A:5-1.h.
7. A taxpayer's net profits from business shall be
				determined in accordance with the method of accounting utilized for Federal income
				tax purposes. A taxpayer's net profits from business shall be determined by
				including any income which is subject to tax under the Gross Income Tax Act but
				which is exempt from Federal income taxation (for example, interest on non-New
				Jersey municipal obligations) and by excluding any income which is exempt from tax
				under the Gross Income Tax Act but which is subject to Federal income taxation (for
				example, interest or gains attributable to obligations described in
				54A:6-14 ).