State of New Jersey Tax Legislative Update For 2017March 8, 2017
On October 14, 2016, New Jersey Governor Chris Christie signed into law P.L. 2016, Chapter 57 which included a number of New Jersey tax law changes. In addition to raising the state’s petroleum products gross receipts tax, the tax law changes included a reduction in the state’s sales tax rate, a phase out of the state’s estate tax, and other tax benefits for pension recipients and veterans. The following summarizes the key tax law changes enacted in the October 2016 legislation which impacts New Jersey taxpayers for 2017.
SALES AND USE TAX RATE REDUCTION
New Jersey imposes a state sales tax on retail sales of tangible personal property as well as certain services. The state also imposes a corresponding use tax that applies when a purchaser is not otherwise charged sales tax on taxable products or services (for example, an out of state vendor who sells tangible property to a New Jersey customer and such vendor is not required to register as a sales tax vendor in
New Jersey due to lack of business presence or “nexus” in the state). Effective on January 1, 2017, the New Jersey Statute Section 54:32B-3 is amended to reduce the sales (and use tax) tax rate from 7 percent to 6.875 percent. On and after January 1, 2018, the sales tax rate is further reduced to 6.625 percent. The New Jersey Division of Taxation has issued a notice for taxpayers regarding the reduction in the sales tax rates and has updated Form ST-75 Sales Tax Collection Schedule accordingly for the reduced rates. Taxpayers who have been overcharged (retailers using the incorrect higher rate of 7 percent) sales tax may submit a refund claim using Form A-3730.
PHASE OUT OF ESTATE TAX
The New Jersey tax legislative changes increased New Jersey’s estate tax exemption from $675,000 to $2 million for the estates of decedents dying on or after January 1, 2017, but before January 1, 2018. The New Jersey estate tax will not be imposed on estates of decedents dying on or after January 1, 2018. The New Jersey estate tax is imposed on resident decedents and is not imposed on nonresidents of the state. In addition to the state’s estate tax, New Jersey imposes an inheritance tax on the estates of certain resident and nonresident decedents. The law change affected the estate tax only and did not make any changes to the inheritance tax. The inheritance tax is applied to transfers at death of real property and tangible personal property located in New Jersey that was owned by the decedent to certain categories of beneficiaries. Certain categories of beneficiaries such as transfers to a spouse, parent or children are exempt from the tax. Transfers at death to other beneficiaries such as a brother or sister may be subject to the inheritance tax. For resident decedents, the inheritance tax is also imposed on transfers of intangible property such as corporate stocks and other securities. For resident decedents dying before January 1, 2018, the estate tax would only apply to the extent it exceeded any inheritance tax.
PENSION AND RETIREMENT INCOME EXCLUSION
Current New Jersey gross income tax law allows taxpayers age 62 or older, or disabled, to exclude up to $20,000 of pension income if joint filers, $15,000 for single taxpayers, if the taxpayer has gross income for the taxable year of $100,000 or less. The tax legislative change increases the pension exclusion over a four year period beginning with the 2017 tax year. For 2017, the exclusion amounts are $40,000 for joint filers, $30,000 for individual filers, and $20,000 for married taxpayers filing separately. For 2018, the exclusion amounts are further increased to $60,000 for joint filers, $50,000 for individual filers and $30,000 for married taxpayers filing separately. For 2020, the exclusion amount increases to $100,000 for married taxpayers filing jointly.
INCREASE TO NEW JERSEY’S EARNED INCOME TAX CREDIT
The New Jersey Earned Income Tax Credit is determined based on the federal earned income tax credit. Prior to 2016, the state provided a refundable earned income tax credit equal to 30 percent of the federal credit amount. The tax law change for New Jersey increases the credit to 35 percent of the federal credit beginning with the 2016 tax year. In general, the federal earned income credit is based on a taxpayer’s adjusted gross income (AGI) and earned income.
The exemption is available for all veterans who received honorable discharges or who were released under honorable circumstances from active duty in the Armed Forces of the U.S., a reserve component thereof, or the National Guard of New Jersey in a federal active duty status.
INCREASE IN PETROLEUM PRODUCTS GROSS RECEIPTS TAX
P.L. 2016, Chapter 57 amended the Petroleum Products Gross Receipts Tax Act as part of legislation to support the state’s transportation fund. The amendments are effective November 1, 2016. A company that refines and/or distributes highway fuels pays a tax of 12.85percent on the gross receipts from the first sale of gasoline in New Jersey. The 12.85 percent rate on highway fuel will be converted to a cents-per-gallon rate based on the average retail price per gallon of unleaded regular gasoline in the state and will be adjusted quarterly on July 1, October 1, January 1, and April 1 (the adjusted rates will be reported by the New Jersey Division of Taxation). On November 1, 2016, the tax on gasoline will be 22.6 cents per gallon, plus the additional tax of four cents per gallon. The tax paid by the service station who purchases the gas from the distributor, is passed along as an additional cost to the consumer who purchases gas at the service station. In the case of motor fuels, aviation fuels, and heating fuels (home heating fuels are exempt), the converted tax rate is $0.04 per gallon. Effective November 1, 2016, companies that refine and/or distribute petroleum products (other than highway fuel and aviation fuel) pay a tax of 7 percent on their gross receipts from the first sale of those products in New Jersey.
Although the state’s increase in the petroleum products tax has attracted a great deal of media attention and certainly adds to the cost of transportation for businesses and individual taxpayers, the state’s phase out of the estate tax will help the state increase the attractiveness of doing business in New Jersey for business owners. Before the law change, New Jersey’s decoupling with the federal estate tax (i.e., the state’s conformity with the federal estate tax in effect on December 31, 2001) made New Jersey less competitive from a tax standpoint for attracting business to New Jersey. The phase out of the New Jersey estate tax (but the inheritance tax continues to apply) should help the state in attracting and retaining businesses.
If you have any questions regarding the information discussed in this article, please contact the author, Edward P. Rigby, CPA, The Curchin Group, LLC (732) 747-0500. Ed is a Senior Tax Manager at the firm and has extensive experience advising privately owned companies and business owners on complex business tax matters including mergers and acquisitions of corporations, structuring joint business ventures, and business expansion into new markets, both domestic and international. Also, Ed delivers sophisticated tax planning for companies on day to day operational issues such as capital investment in new business property, manufacturing and construction activities, and investment in research and development.