Summary of 2006 Tax Legislation
The following is a list of recently enacted tax laws. Most are administered by the Division of Taxation. However, P.L. 2006, c.39 is administered by the Motor Vehicle Commission; P.L. 2006, c. 43 is administered by the Department of Banking and Insurance ; P.L. 2006, c. 97 is administered at the municipal level.
L. 2006, c. 103, enacted December 21, 2006, and effective on the sixtieth day following enactment, i.e. February 19, 2007, establishes the legal relationship of “civil union” under the State’s marriage laws. A civil union is “the legally recognized union of two eligible individuals of the same sex established pursuant to this act.” Parties to a civil union will have the same legal benefits, protections, and responsibilities as parties to a marriage, including those based on tax laws, such as those governing local property tax, homestead rebates, realty transfer fees, gross income tax, and transfer inheritance taxes.
Medical Research Facilities Funded through Certain Cigarette Tax Bonds
L. 2006, c. 102, enacted on December 20, 2006, and effective immediately, authorizes the financing of certain state capital construction projects for facilities for stem cell, biomedical, and cancer research, through cigarette tax securitization bonds.
Cigarette Tax Technical Changes
L. 2006, c. 98, enacted December 11, 2006, and effective immediately, made technical changes in the fiscal year timing of various deposits of dedicated cigarette tax revenue.
Local Tax Collection by Certain Cities
L. 2006, c. 97, which was enacted on September 13, 2006, and effective on that date, authorizes cities of the first class to collect both local property tax and the hotel use or occupancy tax from hotels in their jurisdiction.
Withholding Income Tax From Payments to Unregistered Contractors
L. 2006, c. 85, enacted August 21, 2006, and applicable to payments made on or after January 1, 2007, makes changes in the requirements regarding withholding gross income tax. It imposes an additional withholding requirement on persons (other than governmental entities or homeowners or residential tenants) transacting business in New Jersey, when paying for services, under certain circumstances. When they are paying compensation or remuneration that is not otherwise subject to gross income tax withholding from wages, for services rendered by an unincorporated contractor, who does not provide evidence of registration with the Division of Revenue, they must withhold 7% gross income tax.
Sales and Use Tax Rate Increase and Expansion of Tax Base
L. 2006, c. 44, was enacted on July 8, 2006. It increased the sales and use tax rate from 6% to 7%, and it expanded the sales and use tax base by imposing tax on various transactions not previously taxed. The increase in the tax rate became operative July 15, 2006, and the expansion of the sales tax base became operative October 1, 2006.
The law extends the sales and use tax to sales and use of the following: “digital property”; prewritten software delivered electronically, except when used directly and exclusively in the conduct of the purchaser’s business, trade, or occupation; magazines and periodicals, except newspapers, membership periodicals, and magazines and periodicals sold by subscription.
The scope of the exemption for certain services has been limited by L. 2006, c.44. The exemption for laundry, dry cleaning, tailoring, weaving, and pressing services now applies only when those services are performed on clothing. Two exceptions have been carved out of the exemption for installation services that result in a capital improvement: landscaping services that result in a capital improvement and floor covering installations that result in a capital improvement are no longer exempt from sales tax.
“Delivery charges” (e.g., shipping, postage, packing, handling) imposed by a seller for preparation and delivery of goods to the purchaser are now taxable (if the sale of the goods is taxable).
Charges for space for storage of tangible personal property, by someone in the business of furnishing such space for storage, are now subject to sales tax. Charges for parking, garaging, or storing a motor vehicle are also taxable, with certain exceptions.
Initiation, membership fees, and dues for use of the property of a health and fitness, athletic, sporting, or shopping club are now taxable, except for membership in a club whose members are predominantly age 18 or under.
The following services, not previously taxed, are now subject to sales tax: tanning services; massage, bodywork, or somatic services, except when provided pursuant to a doctor’s prescription; tattooing and application of permanent body art and permanent cosmetic make up; investigation and security services; information services; limousine services originating in this State (except in connection with funeral services).
Annual Assessment on HMOs
L. 2006, c. 43, enacted on July 8, 2006, and applicable to assessments for fiscal year 2007 and following, increases the annual assessment on the net written premiums of health maintenance organizations authorized to operate in New Jersey.
Increase in Rental Vehicle Surcharge
L. 2006, c.42, enacted July 8, 2006, and effective on that date, increases the rental motor vehicle surcharge from $2 per day to $5 per day.
Fur Clothing Retail Gross Receipts Tax and Fur Clothing Use Tax
L. 2006, c. 41, enacted on July 8, 2006, and effective July 15, 2006, imposes a 6% tax, payable by retailers, on their gross receipts from the retail sale of fur clothing in New Jersey. “Fur clothing,” within the meaning of the act, means an item that is exempt from sales and use tax as “clothing” under the Sales and Use Tax Act, that is made of fur on the hide or pelt of an animal, and that has fur as “the component material of chief value of the article.”
The law also contains a use tax component. Although the gross receipts tax is imposed on the retail seller, the retail purchaser is liable for a fur clothing use tax on fur clothing received for use in New Jersey from a person who did not pay the fur clothing retail gross receipts tax.
Modification of TEFA Phase-Out
L. 2006, c. 40 enacted on July 8, 2006, and effective on that date, makes changes in the phase-out schedule for the transitional energy facility unit rate surcharges.
Titling Fee on Certain Luxury and Fuel-inefficient Cars
L. 2006, c. 39, enacted on July 8, 2006, and applicable to new passenger automobiles required to have a certificate of ownership issued and filed on or after July 15, 2006, imposes a one-time 0.4% fee on ownership of new passenger automobiles with a sales price or lease price of at least $45,000 or a fuel efficiency rating of less than 19 miles per gallon.
Increase in Minimum Corporation Business Tax and Surcharge on Liability
L. 2006, c. 38, enacted on July 8, 2006, and effective immediately, imposes a 4% surcharge on franchise tax (corporation business tax) liability for privilege periods ending on or after July 1, 2006, but before July 1, 2009, and raises the minimum tax as follows: $500 for corporations with New Jersey gross receipts less than $100,000; $750 for those with New Jersey gross receipts at least $100,000 but less than $250,000; $1,000 for those with New Jersey gross receipts of at least $250,000 but less than $500,000; $1,500 for those with New Jersey gross receipts of at least $500,000 but less than $1,000,000; and $2,000 for those with New Jersey gross receipts of $1,000,000 or more.
Cigarette Tax Increase and Change in Tobacco Products Wholesale Tax
L. 2006, c. 37, enacted on July 8, 2006, raises the cigarette tax to $0.12875 for each cigarette sold, effective July 15, 2006, and extends the Tobacco Products Wholesale Tax to sales, uses, or distributions of moist snuff by a distributor or wholesaler to a retail dealer or a consumer, on or after August 1, 2006.
Electronic Filing of Tax Returns
L. 2006, c. 36, enacted on July 8, 2006, and effective on that date, requires tax preparers to use electronic methods of filing gross income tax returns and of paying the tax for the returns prepared if the preparer prepared or filed at least 100 gross income tax returns the prior taxable year. The act authorizes the Director of the Division of Taxation to prescribe methods of filing returns and paying taxes, but specifies that it does not authorize the Director to require electronic filing or tax remittance by either individuals preparing their own gross income tax returns or preparers who prepare the returns pro bono. The act also allows the director to extend the electronic filing requirement, beginning in taxable year 2007, by regulation, to preparers who filed 50 or more gross income tax returns the prior year, and it allows the director to develop a procedure whereby a taxpayer might elect not to have the preparer file the taxpayer’s return electronically. In addition, the act imposes penalties on taxpayers and tax preparers who fail to use electronic methods when required to do so by law.
Nuclear Electric Generating Facility Fees
L. 2006, c. 35, enacted on July 8, 2006, and effective immediately, requires the State Treasurer to make an annual assessment against operators of nuclear generating facilities.
Purchases by Qualified UEZ Business
L. 2006, c. 34, enacted on July 8, 2006, and effective July 15, 2006, amended both the Urban Enterprise Zones Act and the Sales and Use Tax Act in order to change the way qualified urban enterprise zone businesses may claim their sales tax exemption on purchases of goods and services for their use within the urban enterprise zone. While under previous law, qualified urban enterprise zone businesses were entitled to an exemption from sales tax at the time of purchase, under the amended law, only “qualified small businesses,” i.e. those whose gross receipts for the prior tax year were less than $1,000,000, may continue to claim exemption at the point of purchase. Qualified urban enterprise businesses that are not “small” must instead pay the tax at the point of purchase and may then claim a refund within a year following the date of the transaction.
Fees on Certain Purchases of Commercial Property
L. 2006, c. 33, enacted July 8, 2006, and applicable to transfers of property on or after August 1, 2006, imposes a 1% fee on certain purchases of certain commercial property, or of a controlling interest in an entity possessing a controlling interest in certain commercial property, when the consideration for the purchase is more than $1,000,000.
Reciprocal Debt Collection Agreement with Federal Government
L. 2006, c. 32, was enacted on July 8, 2006, and becomes operative when the State Treasurer enters into a reciprocal debt collection and offset of indebtedness agreement with the federal government, which is authorized by this act. The reciprocal agreement would allow the State to offset non-tax debts owed to the federal government against state tax refunds and against payments otherwise due to vendors and contractors providing goods and services to state public entities. Similarly the agreement would allow debts owed to the State of New Jersey to be offset against federal payments otherwise due to vendors and contractors and to taxpayers. The law amends one of the confidentiality provisions of Title 54 in order to allow the Division of Taxation to release relevant taxpayer information to the United States Treasury for purposes of implementing a reciprocal debt collection and offset of indebtedness agreement.