On June 30, 2025, Governor Phil Murphy signed into law the FY 2026 state budget (the “FY 2026 budget”), totaling $58.8 billion (see our prior alert New Jersey Enacts FY 2026 Budget: Key Takeaways).
The FY 2026 budget includes increases in the rates of various “sin” taxes and the mansion and controlling interest transfer taxes (see our prior alert “Mansion and Controlling Interest Transfer Tax Amendments Signed Into Law: Buyers and Sellers Must Move Fast to Avoid Rate Increase” (July 2, 2025)), along with the inclusion and expansion of certain tax incentives. Below is a summary of certain of the key provisions.
Revenue Raisers:
- Cigarette Tax – per pack tax raised from $2.70 to $3.00
- Liquid Nicotine Tax – per fluid milliliter tax raised from $0.10 to $0.30
- Container E-liquid (Nicotine) Tax – raised from 10 percent of the listed retail sales price to 30 percent
- Internet Gaming Tax – raised from 15 percent of gross revenue to 19.75 percent
- Fantasy Sports Operator Quarterly Tax – raised from 10.5 percent of gross revenue to 19.75 percent
- Internet Wagering on Sports and Horse Racing Events Tax – raised from 13 percent of gross revenue less winnings to 19.75 percent
Incentives:
- Gross Income Tax – exempts capital gains and income from the sale or exchange of qualified small business stock (QSBS) if such gains and income are also exempt under federal law (Internal Revenue Code Section 1202).
- Evergreen Tax Credits – increases the size of eligible investments from $5 million to $10 million (and from $6.25 million to $12.5 million for certain New Jersey college or university-developed intellectual property, university spin-offs, and minority- or women-owned businesses) and gives the state the ability to conduct additional tax credit auctions.
- Film and Digital Media Content Production Tax Credits – increases the tax credit for New Jersey film studio partners from 35 percent to 40 percent plus an additional in-state hiring/promotion credit of 5 percent, for a total of up to 45 percent. The law change also makes it easier for reality TV shows to qualify for the credit by requiring them to only have at least 60 percent of total expenses from New Jersey-authorized vendors, or $1 million in per-production expense from such vendors, but not both.
- Angel Investor Tax Credit – increases the tax credit for emerging technology qualified investments from 20 percent to 35 percent plus an additional opportunity zone/low-income community/minority- or women-owned business credit of 5 percent, for a total of up to 40 percent. The maximum amount of credit to be awarded is reduced from $35 million to $25 million. This law also repeals the New Jersey Ignite Act (grants to early-stage innovation businesses).
In addition to legislation signed into law by Governor Murphy, the New Jersey Legislature passed Assembly Bill 5170, which requires the director of the Division of Taxation to purchase unused tax credits from the Aspire Program and Cultural Arts Incentives Program at 85 percent of their face value (estimated at up to $6.7 billion total). This bill has not yet been signed by Governor Murphy, but becomes law 45 days from June 30 if not vetoed.
Not included in the FY 2026 budget are a number of revenue-raising provisions proposed by the governor’s office, including a sales tax on digital services, an increase in the Social Equity Excise Fee (“SEEF”) on recreational cannabis from $2.50 to $30 per ounce, a new SEEF of $30-per-ounce on intoxicating hemp products, a 30 percent tax rate on online wagering, and the application of increased mansion and controlling interest transfer tax rates to sales of between $1 million and $2 million.
These changes impact a wide variety of industries, most notably gambling, tobacco and e-cigarettes, and the film industry, and are largely a combination of tax and credit increases. Additionally, the QSBS exemption is an important planning item for small businesses.
Governor Murphy signed the FY 2026 budget into law only four days prior to the enactment of federal budget legislation (i.e., the One Big Beautiful Bill (the OBBB)). The OBBB’s tax provisions, which will be addressed in several upcoming client alerts, will impact New Jersey’s revenues and will likely need to be addressed in future legislation.
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