The New Jersey Division of Taxation has issued guidance pertaining to the state’s treatment of the federal Tax Cuts and Jobs Act’s one-time repatriation of certain foreign earnings and profits. Under the federal Act, U.S. shareholders of controlled foreign corporations or corporations owning 10 percent or more of another foreign corporation are deemed to receive a repatriated dividend of accumulated post-1986 deferred foreign income in the last tax year beginning before January 1, 2018.
On March 13th, New Jersey Governor Murphy delivered his administration’s first budget address. In the address and subsequent summary of the budget proposals, the Governor called for a number of different personal income tax, corporate tax and sales tax changes. The corporate tax changes are being labeled as a “modernization” of business taxes. Some of the key tax changes include the following:
- Increasing the Gross Income Tax (“GIT”) deduction for property taxes paid from $10,000 to $15,000.
- Closing the carried interest loophole in New Jersey tax. At this point, it is not clear exactly what form this proposal will take but there is currently pending legislation which would impose a special surtax on such income and eliminate the exclusion from GIT for nonresidents performing investment/intangible management activities in New Jersey.
April 1st is almost here…
Have you filed a tax appeal on your over-assessed properties in New Jersey?
Believe it or not, April 1st is right around the corner. And in New Jersey, that means it is time for filing real estate tax appeals for the current tax year.
New Jersey companies and property owners face some of the highest property tax burdens in the nation, thus driving up the cost of doing business in the Garden State. Making matters worse, the federal tax changes set to take effect in 2018 are expected to affect office, retail, industrial, hospitality and multi-family property values in a significant way.
Furthermore, as the economy continues to shift away from traditional brick and mortar retail and vast corporate campuses in suburban areas, many properties have decreased in value and may need to be repurposed and reassessed for property tax purposes. Of course, the converse is also true—in that many areas historically considered blighted or in need of redevelopment have welcomed new construction and development projects in recent years that will soon face increased property tax assessments. In light of these issues, it is incumbent upon property owners and business tenants to review their tax bills to identify potential savings as well as possible risks of future tax increases.
Do not forget the deadline to file a 2018 tax appeal in New Jersey is as follows:
April 2, 2018: Regular appeals
May 1, 2018: Revaluation appeals
In recent guidance issued by the Pennsylvania Department of Revenue in response to the passage of the Tax Cuts and Jobs Act, the Department indicates that the 100 percent depreciation deduction will not be available for property placed in service after September 27, 2017. This marks a stark departure from the previous policies of the Department.
Accordingly, while federal income tax law provides for a 100 percent depreciation or expensing deduction to be available for assets placed in service after September 27, 2017, no such deduction will be available for Pennsylvania corporate net income (CNI) tax purposes. The cost recovery for the property will only be available upon sale or disposition of the asset in question for CNI tax. This represents a change in policy for the Department which did allow for 100 percent bonus depreciation provided for in 2010 and 2011.
Taxpayers will have to track federal and state basis carefully and make sure to claim the appropriate deduction for federal income tax versus CNI tax. Proper record keeping will also ensure that the appropriate basis adjustment is made from federal basis in the year of sale or disposition to account for the state’s decoupling from federal law.
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.
Businesses that purchase or sell software, cloud computing resources or digital information services face a host of challenges when it comes to sales/use tax compliance. The potential for unforeseen tax liability will only increase over time as software products and services become even more intricate and prevalent in the business world.
Vendors and providers of consumer products and services know the basic rules for sales tax but in the case of software and related services, the rules can be trickier.
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.