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New Jersey lawmakers have moved one step closer to allowing successful plaintiffs in fee-shifting discrimination and qui tam cases to claim a gross income tax exclusion for counsel fees and costs.

The Assembly Judiciary Committee on Monday voted unanimously to recommend final passage of the bill, S-784, which passed the full Senate without opposition last April. If the bill passes the Assembly, it would go to Gov. Phil Murphy for his consideration.

The bill is sponsored by Sen. Paul Sarlo, D-Bergen, the chairman of the Senate Budget and Appropriations Committee. He was not immediately available for comment.

The bill would provide a “victim of certain unlawful discrimination or unlawful retaliation with a gross income tax exclusion for attorney’s fees and costs received in connection with claims or actions for that discrimination or retaliation,” according the accompanying statement.

The measure was introduced in response to the 2004 federal Civil Rights Tax Relief Act, which was part of the American Jobs Creation Act. The CRTRA was designed to eliminate the double taxation of attorney fees and costs at the federal level to both the attorney who is ultimately paid the fees and to the litigant who is awarded the fees.

The act accomplished that goal by allowing the litigant to take a deduction for the recovery of or payment of fees and costs in connection with any action or claim of unlawful discrimination or retaliation.

However, New Jersey’s tax laws were not amended when Congress enacted the CRTRA that year, according to the measure.

As a result, the statement said, counsel fees and costs incurred in connection with such claims are still taxable to both firm and client at the state level, even though the client never actually receives the fees.

Under the bill, “attorney’s fees” and “costs” would be liberally construed to include all compensation for expenditures for the victim, including counsel fees, paralegal fees, court costs, litigation expenses, and expenses for experts and consultants.

Attorneys who receive counsel fees and are reimbursed for costs would still be subject to taxation.

The Office of Legislative Services said it could not estimate what the cost to the state would be in terms of lost tax revenues.