State and Local Tax Update: New Jersey Budget Bill
In early July, Governor Murphy signed a compromise 2018/2019 New Jersey Budget Bill. Below is a summary of these changes which affect income, corporate, and sales tax.
Personal Income Tax
- The top tax rate increases from 8.97% to 10.75% for NJ taxpayers with taxable income of $5 million and higher.
- Increase in the property tax deduction from $10,000 to $15,000.
- The Homestead Rebate Program has been reinstated.
- Effective for tax years beginning after 2017, a taxpayer who is allowed a Federal Child and Dependent Care Credit may also be permitted to claim a state tax credit.
Corporation Business Tax
- A surtax of 2.5% for corporations with more than $1,000,000 of allocated profits effective January 1, 2018 (drops to 1.5% effective January 1, 2020).
- Mandatory unitary combined reporting on a water’s edge basis beginning January 1, 2019. (NJ S Corporations can elect to be included).
- The law reduces the dividend exclusion amount for taxpayers receiving dividends from an 80% or greater owned subsidiary. The exclusion is reduced from 100% to 95% of the dividends included in federal taxable income.
- The removal of the statutory requirement that there be an express exemption from state tax in a treaty to qualify for an exemption from the interest and intangible add-back requirements. However, the treaty exemption now requires that the member’s income be taxable in the foreign country at an effective rate greater than or equal to 3% less than the tax applied to taxable interest.
Sales and Use Tax
- Effective October 1, 2018, new economic nexus standard for sales and use tax purposes for remote and internet sellers.
- Sales tax is expanded to tax Airbnb types of rentals. Short term or home share rentals in the Jersey Shore area will be exempt.
Various Types of Taxes
- Decoupling from the Federal Section 199A qualified business income deduction passed under the TCJA.
- Decoupling from any deductions allowed for Federal tax purposes in determining repatriation income effective January 1, 2017.
- The computation of net operating losses changes from a pre-apportionment to a post apportionment basis for losses beginning prior to January 1, 2019.
- Effective January 1, 2019 sales of services are sourced to New Jersey if the benefit of the service is received in New Jersey (i.e. market based sourcing).
- Enactment of a tax amnesty program which will be open for 90 days ending no later than January 15, 2019. Qualifying taxpayers will be required to pay the tax due plus 50% of interest accrued with no penalties assessed. The amnesty will apply to state tax liabilities for tax returns due from February 1, 2009, through September 1, 2017.
If you would like additional information regarding the New Jersey Budget Bill or any other SALT matters, please contact Steven J. Eller.