New Jersey Enacts Numerous Corporate and Individual Income Tax Changes

New Jersey Governor Phil Murphy recently signed legislation that enacted numerous, and significant, income tax changes for both corporate and individual taxpayers.  Following are some key takeaways:

Corporation Business Tax

• Combined reporting - For tax years beginning on or after January 1, 2019, taxpayers under common ownership that are engaged in a unitary business will be subject to mandatory combined reporting. 
• Sourcing for sales of services - For tax years beginning on or after January 1, 2019, service providers will be required to source income to New Jersey under the market-based sourcing approach.
• Surtax - Taxpayers with allocated net income greater than $1 million will be subject to a surtax of 2.5% for tax years beginning on or after January 1, 2018 through December 31, 2019, and 1.5% for tax years beginning on or after January 1, 2020 through December 31, 2021.  The surtax is in addition to the 9% corporate income tax rate.
• Dividend received deduction - For tax years beginning after December 31, 2016, the dividend received deduction for dividends from 80% or more subsidiaries will be decreased from 100% to 95%.

 Individual Income Tax

• New tax bracket - For tax years beginning on or after January 1, 2018, taxable income in excess of $5 million will be taxed at 10.75%.  Previously, the top individual income tax rate was 8.97% and was imposed on taxable income in excess of $500,000.

In addition, the legislation also calls for the Division of Taxation to offer an amnesty program for unpaid taxes originally due on or before February 1, 2009 through September 1, 2017.  The Division will provide participants with 50% relief on interest and 100% relief on penalties, collection costs and recovery fees.  The actual dates are to be determined, but the program will run for 90 days, and end on or before January 15, 2019. 

If your business operates in New Jersey, or you otherwise derive income from New Jersey sources, and have questions about how the new laws may affect your New Jersey income tax liability, please contact a member of our State and Local Tax group.