54:8A-36. Computation of gross income from federal adjusted gross income figure

(a) The Legislature hereby finds and determines that to permit taxpayers under this act to compute their gross income for tax purposes from the federal adjusted gross income figure used in their tax returns to the Federal Government will reduce the cost and simplify the administration of this act, and will simplify the preparation of State income tax returns by taxpayers. The Legislature further finds and determines that such method of computing gross income will not materially reduce and may increase the amount of revenue derived with respect to this act; and, therefore, directs that each taxpayer be permitted, as an alternative to the method prescribed by section 32 of this act, to compute his gross income as provided in subsection (b) of this section.

(b) A taxpayer computing his gross income under the provisions of this subsection shall:

(1) Determine the net amount of income, gain, loss and deduction entering into his federal adjusted gross income for the taxable year which is derived from sources within his source state, including:

(A) His distributive share of partnership income, gain, loss and deduction derived from sources within his source state, and

(B) His share of estate and trust income, gain, loss and deduction derived from sources within his source state.

(2) Add to such amount the following types of income and gain derived from the sources of income and gain listed below:

(A) Interest income from the obligations of any state or political subdivision thereof except where, by the laws of such state, its own taxpayers are exempted from taxation with respect to such interest income, subject to the provisions of section 33;

(B) Interest or dividend income from the obligations or securities of any authority, commission or instrumentality of the United States, which the laws of the United States exempt from federal income taxation, but not from State income taxation, subject to the provisions of section 33;

(C) Amounts deductible with respect to income taxes imposed by this State or any other taxing jurisdiction in determining federal adjusted gross income unless such amounts are credited against federal income tax; and

(D) Amounts deductible with respect to interest on indebtedness which is incurred or continued in order to purchase or retain securities or obligations the income from which is exempt from tax under this act, subject to the provisions of section 33;

(E) In the case of a taxpayer who has deducted 1/5 a percentage of a net capital gain pursuant to section 1202 of the Internal Revenue Code, the excess (if any) of the amount so deducted over 60% of such net capital gain.

(3) Subtract from such net amount the following types of income and gain derived from the sources of income and gain listed below:

(A) Interest income from obligations of the United States and its possessions to the extent that such interest is includible in gross income for federal income tax purposes;

(B) Interest or dividend income from the obligations or securities of any authority, commission or instrumentality of the United States, to the extent that such amounts of income are includible in gross income for federal income tax purposes, and exempt from State income taxation under the laws of the United States;

(C) Interest or dividend income from obligations or securities to the extent that such income is exempted from taxation by the laws of this State authorizing the issuance of the underlying obligations and securities and includible in gross income for federal income tax purposes;

(D) The amount of any refund or credit for overpayment of income taxes imposed by this State or any other taxing jurisdiction, to the extent that such refund is includible in gross income for federal income tax purposes.

(4) There may be provided by regulation such modifications as shall be necessary to insure that only that portion of the taxpayer's federal adjusted gross income which is derived from sources within his source state shall be included in his gross income for purposes of this act.

(c) A taxpayer who computes his gross income in accordance with the provisions of this section shall not be entitled to the deductions set forth by section 35(a) but, in lieu of the standard deduction, shall be permitted the deductions in sections 35(b) and 37 of this act.

(d) The amount of the gross income of a taxpayer computed in accordance with the provisions of this section shall be conclusively presumed by the Division of Taxation to be the same as such taxpayer's gross income would have been if computed in accordance with the provisions of section 32; except that if the amount of a taxpayer's federal adjusted gross income or federal items of tax preference is changed or corrected by the taxpayer or the United States Internal Revenue Service or other competent authority, or as the result of a renegotiation of a contract or subcontract with the United States, the taxpayer shall report such change or correction in federal taxable income or federal items of tax preference within 90 days after the final determination of such change, correction, or renegotiation, or as otherwise required by regulation, and shall concede the accuracy of such determination or state wherein it is erroneous. Any taxpayer filing an amended federal income tax return shall also file within 90 days thereafter an amended return under this act, and shall give such information as the Division of Taxation may require. There may be provided by regulation such exceptions to the requirements of this section as may be necessary to carry out the purposes of this section.

L.1961, c. 32, p. 144, s. 36, eff. May 29, 1961. Amended by L.1961, c. 129, p. 776, s. 22; L.1970, c. 304, s. 6; L.1972, c. 12, s. 5; L.1981, c. 374, s. 3, eff. Dec. 30, 1981.