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New Jersey State Tax Updates

For the latest news and updates on New Jersey state and local tax

January 2020

New Jersey Law Circumvents the Fed Cap on State & Local Deductions

New Jersey business owners will be elated to learn that Governor Murphy signed legislation, similar to Connecticut, that allows for pass-through entities, S-corps and LLCs, to pay state income taxes at the entity level, as a business tax, rather than at the partner or individual level. The flow-through entity’s taxable income will be reduced by the amount of the tax, which will result in a lower amount of flow through income to be taxed at the owner’s federal level. In effect, this provides business owners a deduction for their New Jersey taxes without those taxes being subject to the $10,000 cap.

The new entity-level tax is referred to as a “pass-through business alternative income tax” that is effective as of January 1, 2020. Business owners should keep in mind that the option to pay the tax at the entity level is an annual election and must be made by either all the members of an entity or by an officer or member of the entity who is authorized to make the annual election. Since tax rates imposed at the entity level are not the same as those rates imposed on an individual level, business owners should determine the tax benefit prior to making an election.

The legislation provides that a tax rate of 5.525% would be levied on pass-through income totaling up to $250,000 in a given tax year; 6.37% on income totaling more than $250,000 but less than $1 million; 8.97% on income totaling more than $1 million but less than $3 million; and 10.75% on any income above $3 million. Businesses that make the election will receive a tax credit against their gross income tax liability to ensure that they are not double-taxed. The law is considered “revenue neutral” for the state because the design of the tax change is not expected to have an impact on the total amount of taxes that New Jersey will collect from pass-through entities. The Director will adopt regulations that are necessary for the administration of these new provisions in the upcoming weeks.

NJ Streamlined Business Reinstatement and Dissolution Program

On December 10, the New Jersey Department of Treasury announced a new program designed to help those that are in revoke status due to lack of compliance with State administrative reporting requirements. The program will allow certain revoked businesses to fully reinstate or dissolve.

The Department’s Division of Revenue and Enterprise Services will provide an online self-service reinstatement and dissolution process from March 1, 2020 through June 15, 2020. In order to participate, there will a one-time administrative fee of $500 plus a convenience or credit card processing fee. In addition, the taxpayer will need to attest that the business has satisfied any known State tax obligations, negating the need for a tax clearance certificates or full annual report details.

According to the Department, the benefits of the program include a fully automated filing process with no additional forms, one business day reinstatement or dissolution, definitive closure for entities dissolving, and lower costs for companies with significant outstanding back-year fees due.

November 2019

Technical Bulletins to Impact NJ Corporate Taxpayers

The New Jersey Division of Taxation recently issued several newsworthy technical bulletins. Now that we are upon year end, NJ corporate taxpayers should take note of the following:

  • Automatic Extension for 2019 Corporate Business Tax Returns: Taxpayers filing a CBT-100, CBT-100U, BFC-1, or CBT-100S, with an original due date of November 15, 2019 (for a fiscal tax year ending July 31, 2019), or December 15, 2019 (for a fiscal year filer with a tax year ending August 31, 2019), have been granted an automatic extension to file their tax returns by January 15, 2020. Taxpayers will not be charged a late penalty filing if the returns are filed by the extended due date. The extension only applies to the filing of the return and not to the related payments. (Automatic Extension for 2019 Corporation Business Tax Returns for Certain Fiscal Tax Year Filers, 10/04/2019)
  • The Unitary Business Principle and Combined Returns: The Division in TB-93 explains the unitary business principle and the definition of a unitary business for NJ Corporation Business Tax purposes. The Department provides examples and explains that a unitary business is characterized with “significant flows of value evidenced by functional integration, centralization of management, and economies of scale.” In addition, participants in an economic enterprise under common ownership may also be considered if there is unity of operation and use due to the existence of interdependence of functions. (TB-93, 10/17/2019)
  • Treatment of IRC Sec. 951A and IRC Sec. 250 under the NJ CBT Act: While FDII has been newly classified under the IRC for the purposes of qualifying for the export subsidy deduction, the income has always been in the tax base for both Federal and New Jersey tax purposes as part of Entire Net Income (“ENI”). Therefore, GILTI and FDII are included in ENI. GILTI and FDII are not treated as dividends or deemed dividend income for New Jersey CBT purposes, as they are separate categories of income and are not treated as distributions from earnings and profits. In addition, provisions were enacted allowing the Federal deductions under IRC Sec. 250(a) for NJ CBT purposes. However, such deductions are allowed only to the specific taxpayer that included the GILTII and FDII income on its Federal and NJ CBT returns and actually took the deduction for Federal tax purposes. Taxpayers can take the deduction for NJ CBT purposes if it was allowed for Federal tax purposes. The technical bulletin also discusses sourcing of GILTI and FDII under the NJ CBT Act, sourcing for combined groups, and filing instructions. (TB-92(R), Revised 10/31/19)

October 2019

30-Day Penalty Relief for Corporations

The New Jersey Division of Taxation will automatically waive the late filing penalty for corporation business taxpayers with a properly extended federal return due date of October 15, 2019, if the return is filed by November 15, 2019, for extended calendar-year corporations or filed within one month of the extended due date for 2018 returns for fiscal year corporations. The Division will consider elections made timely, if the elections are made on a 2018 New Jersey Corporation Business Tax Return filed by November 15th or within one month for an extended 2018 return for a fiscal year corporation. Interest and penalties for late payment of the tax may still apply but a failure to file by the November 15, 2019 date may result in the imposition of a late filing penalty based on the October 15, 2019 due date.

July 2019

Combined Reporting Methods

For tax years on and after July 31, 2019, combined reporting becomes mandatory in New Jersey. The taxpayer must use the water’s edge group method unless electing to use a world-wide group return or an affiliated group return.

Penalties Waiver

If the penalty for underpayment is less than $1,000 for an individual or corporate franchise tax in the tax year 2017 and 2018 the taxpayer can apply for a special waiver it was due to tax planning uncertainty due to the federal changes.

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