Newsletter Article on State Capital Gains: Clarification

The summary chart accompanying the March-April 2017 Employee Ownership Report article on State Capital Gains Taxation in §1042 Transactions indicated that New Jersey does not follow the federal definition of taxable income. However, New Jersey's tax code does include a special rule providing that "'net gains or net income' shall not include gains or income from transactions to the extent to which nonrecognition is allowed for federal income tax purposes," so sellers to an ESOP could arguably defer New Jersey capital gains tax through a 1042 election. Those considering a sale to an ESOP in New Jersey should discuss with their tax advisors whether these circumstances apply to their sales.