The State of New Jersey has enacted numerous changes to tax definitions and rates as part of its 2025-26 budget. The following are a selection of highlights that may impact you and your business.

Small business stock gain exemption

Effective starting with the 2026 tax year, capital gains from the sale of qualified small business stock (QSBS) will be excluded from the definition of New Jersey gross income to the extent such amounts are exempt from federal taxation under IRC Section 1202.

Mansion tax and gaming taxation

Included in the budget was a new “mansion tax,” which imposes additional transfer fees on certain transfers of property. The state already has a transfer fee equal to 1% of the transferred property or interest price paid. The budget has added the following additional fees on qualifying transfers:

1. 2% transfer fee for transfers over $2 million but not over $2.5 million;
2. 2.5% transfer fee for transfers over $2.5 million but not more than $3 million;
3. 3% transfer fee for transfers over $3 million but not more than $3.5 million; or
4. 3.5% transfer fee for transfers over $3.5 million.

In addition to this “mansion tax,” New Jersey also increased the internet casino gaming tax, the internet sports wagering tax, and the daily fantasy sports operating fee to 19.75% each.

Corporate business tax

Alongside the fiscal year budget, New Jersey has also finalized and adopted without changes proposed regulations that amend and update the existing corporate business tax (CBT) regulations. These finalized regulations are effective as of June 16, 2025.

In adopting these regulations, the New Jersey Division of Taxation has rejected comments specifically relating to provisions adopted by New Jersey that mirror the latest guidance on Public Law 86-272 provided by the Multistate Tax Commission’ (MTC). As a result, the state has adopted the MTC’s latest guidance as it relates to internet activities and Public Law 86-272. Certain business activities conducted by a foreign corporation within New Jersey through the internet in whole or in part exceed the protections of P.L. 86-272 and may subject a corporation to the State’s CBT. New Jersey has provided a list of activities that are not protected by Public Law 86-272, including placing internet cookies on computers of in-state customers, providing or offering targeted internet advertising services, and providing post-sale chat through the business’s website.

New Jersey is one of many states that have adopted or are seeking to adopt the MTC’s interpretation of Public Law 86-272 as it relates to internet activities. 

Other CBT changes and updates included within the adoption of these regulations include but are not limited to:

1. Providing clarity on IRC Section 959 dividends.
2. Providing clarity on NOL carryovers as they related to IRC Section 172, including a pooling methodology for combined group members, thus closely aligning the state’s provisions with IRC Section 172.
3. Providing clarity on nexus-creating activities for unitary partnerships for nexus determinations at the corporate owner level.
4. Establishing that having a remote employee who routinely works from home within New Jersey constitutes having a place of business within New Jersey for purposes of entity nexus and unitary relationships.
5. Clarifying that financial products, instruments, and services are not considered tangible personal property.
6. Clarifying that capital gains from the sale of bonds, digital assets, or other financial products or instruments sold for trading purpose are not treated as capital gains and includable in the receipts fraction.

What does CohnReznick think? 

Taxpayers should be mindful of the various changes made through the New Jersey 2025-26 fiscal year budget or accompanying provisions, particularly the expansion and adoption of the MTC Public Law 86-272 limitations as it relates to internet activities for foreign companies, and the changes for QSBS sales.

Contact your tax advisor with questions or to discuss how changes might apply to you.