With the enactment of federal tax reform, otherwise known as the Tax Cuts and Jobs Act, there are a number of New Jersey state tax ramifications to consider stemming from the changes, including:
- the deduction for state and local taxes (“SALT”) paid by individuals;
- the limitation on the net operating loss deduction as applied to corporations; and
- the dividends-received deduction.
There are also a number of policy and tax filing options New Jersey and its taxpayers can consider in response.
When it comes to New Jersey tax credits and incentives, many are familiar with the Grow New Jersey, Economic Redevelopment and Growth grant and Angel Investor Tax Credit programs. However, an area that is often over-looked is that of sales tax exemptions—specifically for manufacturing, processing, telecom and research and development activities. And these benefits can be substantial and taken advantage of while receiving other discretionary tax incentives offered by the New Jersey Economic Development Authority.
In general, sales tax is imposed on sales of tangible personal property and certain specified services that are not purchased for resale. If sales tax is not collected on an otherwise taxable sale because the seller is not based in New Jersey and there is no available exemption from tax, the purchaser must report and pay use tax to the state, which is equivalent to the state sales tax. The current sales/use tax rate in New Jersey is 6.625 percent.
Since Governor-Elect Murphy is set to take office later this month, we thought it would be instructive to offer up a brief primer and some additional thoughts on the new administration’s corporate tax plan for the Garden State. To be more specific, the Murphy team has repeatedly called for closing a “loophole” in the Corporation Business Tax (“CBT”) by adopting something called combined reporting.
On November 28, the New Jersey Tax Court issued an opinion in Infosys Limited of India, Inc. v. Director, Division of Taxation, Dck. No. 012060-2016, that denied the Division of Taxation’s attempt to tax foreign income subject to an income tax treaty between India and the U.S. and thus, not taxable for federal income tax purposes. In granting summary judgment and a significant refund in favor of the taxpayer, the Tax Court addressed New Jersey’s position on what is included in a taxpayer’s entire net income subject to the Corporation Business Tax (“CBT”). Entire net income with state-specific adjustments is the tax base for CBT purposes.