In Tax Notes State, authors Christopher A. Karachale, Jonathan Fish, and Mason Dorman explore New Jersey’s newly enacted legislation aligning the state with federal Qualified Small Business Stock (QSBS) rules. The article reviews the economic motivations behind the law, examines criticisms and potential revenue impacts, and considers whether New Jersey may face constitutional challenges similar to those that invalidated California’s QSBS statute.

View the PDF of the Article Here

Topics Include

• New Jersey QSBS Legislation (2025) – overview of Gov. Phil Murphy’s adoption of state-level conformity with federal QSBS rules.
• Capital Gains Tax Exclusion – details on benefits for founders, investors, and venture capitalists under IRC §1202.
• Economic Growth & Start-Up Investment – discussion of how QSBS could attract entrepreneurs, create jobs, and strengthen New Jersey’s innovation economy.
• Criticism of QSBS Policy – concerns over lost state revenue, inequity, and whether subsidies or other incentives may be more effective.
• Constitutional Issues & Dormant Commerce Clause – comparison with California’s Cutler case and potential legal challenges for New Jersey.
• Federal vs. State QSBS Conformity – implications for interstate competitiveness and the broader start-up ecosystem.