We all know New Jersey has a lot to offer: Prime geographical location, good quality of life, nationally respected schools and universities, incredible talent and a strong and growing entrepreneurial community. However, the state’s current stance on Qualified Small Business Stock is a significant deterrent to entrepreneurs, angel and venture capital investors who are deeply invested in the future of entrepreneurship and innovation — not only discouraging new founders and investors from moving to New Jersey but actively driving current residents out of the state. To truly make New Jersey a leader in the global race to innovate, the state must reconsider its stance on QSBS.
QSBS refers to a federal tax incentive under Section 1202 of the Internal Revenue Code, designed to spur investment in small businesses. Those who hold qualified small business stock for more than five years can exclude up to 100% of their gains from federal income tax, subject to certain limits. This incentive is crucial for founding teams and investors, as it encourages taking huge risks in investing and leading early-stage companies with the potential for significant growth.
New Jersey is one of just five states that doesn’t recognize QSBS. New Jersey’s decision to tax QSBS gains at the full state income tax rate without offering the same exclusion provided at the federal level places the state at a major competitive disadvantage.
In the 45 other states that conform to federal QSBS rules, the early risk-takers benefit from the QSBS exclusion, making these states more attractive options to build and invest in new businesses. This also encourages investors to reinvest that capital into new, local ventures. Without the QSBS exclusion, we forfeit talent and capital that could have otherwise been reinvested into New Jersey’s economy, creating jobs, funding new businesses, and driving innovation.
It’s important to highlight that Pennsylvania is our only neighboring state that does not conform to this Federal policy. Massachusetts, New York, Connecticut, Delaware are among the 45 states that recognize the QSBS exemption.
The current QSBS policy thwarts growth by discouraging entrepreneurs and investors from making New Jersey their home. Investors participate where they live. As investors grow out of New York City, New Jersey is off the table for most because of this policy. Entrepreneurs with companies in New Jersey are incentivized to leave. Eighty percent of startups fail, and executive team equity is often diluted in the small cases in which an acquisition does occur. Current New Jersey tax policy costs these entrepreneurs much more than it would to be in most other states. For the many entrepreneurs who might live in New Jersey and whose companies are based in NYC, they leave or won’t consider New Jersey as a home because this policy is too much of a deterrent given the many risks that are already inherent to starting a new business.
Our current policy actively drives current investor and entrepreneur residents out of the state. Both are passing over or are leaving New Jersey for states like Florida and Texas. Florida, with its rapidly growing tech community and no state income tax, is particularly attractive. Texas, with no state income tax and a strong startup ecosystem, also has become a major hub for startups and investors alike.
Closer to New Jersey, Massachusetts has emerged as another attractive option for founders and investors. Massachusetts not only has a thriving biotech and technology sector, but recognizes the QSBS exclusion at the state level, making it an appealing option for investors seeking to maximize their returns. This state has successfully fostered an environment that supports innovation and investment, drawing both talent and capital from across the country.
And, of course, it’s important to highlight that New York, just across the river, is among the Top 3 most active startup and investor markets in the country. By maintaining its current QSBS policy, New Jersey is not only failing to attract entrepreneurs and investors, it is discouraging them from moving to the state. This is a missed opportunity, especially given the proximity and potential for these investors to contribute to New Jersey’s growing entrepreneurial ecosystem.
New Jersey is at a pivotal moment, with real momentum to create more startup activity and foster a vibrant entrepreneurial ecosystem. Gov. Phil Murphy’s administration has demonstrated its commitment to supporting innovation and the technologies of the future with the recent establishment of an Artificial Intelligence Hub in Princeton and a state Artificial Intelligence Task Force. New Jersey can continue to build on this progress by enacting policy changes that make it possible for the next generation of innovators to call New Jersey home.
We know from experience that investors often prefer to invest in their backyard. If New Jersey were to align its QSBS policies with federal standards, it could attract a wave of new residents — venture capitalists, angel investors and entrepreneurs — who are eager to live in a state with incredible talent and resources that values and supports their contributions. These individuals would bring not only their wealth but also their knowledge, experience and connections, which could be leveraged to foster local innovation and economic growth.
By aligning with federal standards, the state can create a more attractive environment for investors, drive new economic activity and position itself as a leader in the innovation economy. This change wouldn’t just benefit risk-taking founders and investors; it would benefit all New Jersey residents by fostering a more robust, diverse, and dynamic economy.
Signed by the following New Jersey innovators:
Chris Ackermann, Alidade Labs
Ryan Bednar, RankScience
Thatcher Bell, the Clean Fight
Vinit Bharara, MOJO
Karen Cahn, IFundWomen Inc.
Shawn Cantor, Certemy
Theodore Chestnut, BrightHire
Betty Chin, early stage startup investor
Brian Chin, early stage startup investor
Steven Cohn, Winware.ai
Marco DeMeireles, Ansa Capital
Toby Dingemans, BetterFutureLabs
Craig Dubitsky, We Are Happy LLC
Michael Dwyer, Prompt Therapy Solutions
Gil Eyal, Stardust Ventures
Aaron Fessler, TripWorks
Jeff Frommer, OWM
Ori Fruhauf, Agave Health
Gerald Gorman, World Media Group LLC
Elizabeth Groo, independent
Jim Gunton, Tech Council Ventures
Daniel Gura, Hugo Neu Corp.
Sam Gutmann, Own Co.
Shawn Hamilton, Conduit
Glenn Handler, Oceans Ventures
Ryan Hubbard, Updater
Thomas Janofsky, SpotHero
Michael Johnson, New Jersey Innovation Institute
Shaun Keegan, Solar Landscape
James Kocis, Hudson Street Ventures
Mark Kolb, Tech Council Ventures
Zoya Lehrer, Orgo
Marc Lore, Wonder
John Martinson, Martinson Ventures
Joe Maruschak, Aventurine Capital Group
Carl Mazzanti, eMazzanti Technologies
Meghan McKenna, FIF COLLECTIVE LLC
Gary Millin, World Media Group LLC
Tom Mizzone, Sweet
Michael Montero, Struck Studio
Bret Morgan, BMG Group
Harish Mukhami, GibsonAI
Jerry Neumann, Neu Venture Capital
Adem Ogunc, Well Woven Inc
Ari Rabban, Phone.com Inc.
Steven Rosenblatt, Oceans
Kunal Sarda, Arya for Work Inc.
Stephen Schum, Global Rewards
Evyatar Segal, Moonshot AI
Benjamin Sesser, BrightHire
Jason Shuman, Primary Venture Partners
Benjamin Sun, Primary Venture Partners
Brian Smiga, AlphaPartners.com
Sam Toole, Primary Venture Partners
Alfred Torres, ThinkDigital Labs LLC
Justin Trugman, BetterFutureLabs
Mark Yackanich, BetterFutureLabs
Cassie Young,, Primary Venture Partners
Alan Wink, EisnerAmper
Thomas Wisniewski, Newark Venture Partners
To add your signature, click here.
Aaron Price is the CEO of TechUnited: New Jersey.
