May 04, 2011
On April 28, 2011, Governor Chris Christie signed two bills, S2753 and S2754, into New Jersey law. The bills are designed to provide targeted tax relief and spur economic growth as part of the state’s Fiscal Year 2012 Budget.
The first of the bills, S2753, will phase in a single sales factor allocation formula for New Jersey businesses over three years. New Jersey currently determines the portion of a company's income that is subject to state corporate business tax by considering the company's property, payroll and sales in New Jersey. The presence of property and payroll as factors discourages capital investment and job creation in New Jersey. The new law will eliminate property and payroll as factors, and base the corporate business tax solely on sales. Generally, single sales may benefit in-state (NJ) businesses and could negatively impact out-of-state (non-NJ) businesses. The provisions of this bill will be phased in over a five year period, beginning on or after January 1, 2012. These changes will impact income tax provisions commencing in 2012 and the value of tax attribute carry-over amounts (NJ NOLs) immediately. Impact on quarterly filers, should be evaluated immediately.
The second bill, S2754, will give small businesses whose business owners pay their taxes through the personal income tax (S Corps, LLCs, LLPs, sole proprietorships or partnerships) the same benefits as taxpayers who pay the corporate business tax. The bill will allow selected pass-through entities to carry forward net operating losses for 20 years. Additionally, the bill also phases in a change allowing businesses to offset gains and losses from one category of income to another. Unfortunately, the bill does not include wages as one of the categories so there may be planning opportunities when a NJ individual filer earns wages from an S Corporation that is generating losses.
As a reminder, NJ also phased out the throw-out rule for sales apportionment and the “regular place of business” requirement for tax periods beginning on or after July 1, 2010.
Further details are available at: