Modernizes Business Filing Statutes to Include Entity Conversion and Domestication
The law modifies applicable business filing statutes in the “New Jersey Business Corporation Act.” It establishes domestication provisions for foreign corporations and conversion provisions for New Jersey corporations.
It establishes domestication requirements for a foreign corporation to file an application to convert to a domestic corporation to be domiciled in New Jersey. The application will be reviewed by the Division of Revenue and Enterprise Services (DORES).
The law also provides domestic corporations the ability to file an application with DORES to convert to “other entities.” Other entities are classified as partnerships, limited liability companies, statutory trusts, business trusts or associations, real estate investment trusts, common law trusts, national associations, or any other unincorporated businesses.
Conversions are not deemed to constitute a dissolution of the other entity and conversions may not take place without the entity’s board of directors adopting and approving a plan of conversion under the provided provisions.
Additionally, if the entity is organized, formed, or created under laws of a jurisdiction other than New Jersey, but does business in New Jersey, DORES will notify the corporation that converted out of the State to comply within the provisions of the New Jersey Business Corporation Act.
Convenience of the Employer Sourcing Rule Enacted for Gross Income Tax
P.L.2023, c.125 was enacted on July 21, 2023 and establishes a “convenience of the employer test” (convenience rule) for nonresident income sourcing.
The new law only applies to employees who are residents of states that also impose a similar test, such as Alabama, Delaware, Nebraska, and New York. Note that this list may change accordingly based on the laws of different states.
This legislation does not apply to Pennsylvania residents who work in New Jersey, since there is a Reciprocal Agreement in place with that state. Further, the convenience of employer sourcing rule also does not apply to Connecticut residents who work in New Jersey, based on New Jersey’s understanding that the similar Connecticut convenience rule does not apply to New Jersey residents who work in Connecticut. The Division intends to coordinate with the Connecticut Department of Revenue Services and issue further guidance for clarification.
Under the convenience rule, a nonresident taxpayer’s employee compensation from a New Jersey employer for the performance of personal services is sourced to the employer’s location (New Jersey) if the employee is working from an out-of-state location (e.g. at home in their resident state) for their own convenience rather than for the necessity of their employer.
In determining whether compensation earned by a nonresident telecommuting for a New Jersey employer will be deemed New Jersey sourced income, New Jersey will apply a similar rule which would be the same as the triggering state’s rule. For example, compensation earned by a New York resident telecommuting for a New Jersey employer will be deemed New Jersey sourced income by applying the New York “convenience of the employer” test.
The new law is retroactive to January 1, 2023. Affected taxpayers must begin withholdings and/or making estimated payments for tax year 2023 as soon as possible and are required to have proper tax paid by April 15, 2024. Employers should consider making adjustments to withholdings as an accommodation to employees, so that they are not underpaid. The Division will not impose penalty and interest, as long as the taxpayer begins complying with the new law as of September 15, 2023.
Revisions to New Jersey Aspire Program
The law revises provisions of the “New Jersey Economic Recovery Act of 2020,” specifically the New Jersey Aspire Program. It amends both the definitions and eligibility requirements that the New Jersey Economic Development Authority uses to award Aspire Credits. The law allows New Jersey Aspire Program tax certificate holders to transfer the tax credit to another recipient. The new recipient must use the tax credit within the period for which it was originally issued. The new certificate holder may also carry forward the tax credit amount over five successive tax periods.
Property Tax Relief
Establishes Stay NJ program; increases ANCHOR by $250 for senior citizens, increases Senior Freeze income eligibility to $150,000.
The law revises provisions of the Garden State Film and Digital Media Jobs Act. This legislation amends:
Retaining Senior Freeze Eligibility if Claimant Exceeds Income Limit
The law allows a taxpayer to retain their base year when their income exceeds the limit for the application year on a one-time-basis. As long as the claimant's income in the succeeding tax year, and any other subsequent year, does not exceed the income limit again, they will not have to establish a new base year. Although the claimant may retain their base year, they will be ineligible for reimbursement in the year that their income exceeds the limit.
Child Tax Credit Increase
This law doubles the amount of the child tax credit currently provided to certain resident taxpayers with children age 5 years and younger at the end of the taxable year. The credit is determined as follows for each qualifying dependent child:
|If the taxable income is:||The credit per child is:|
|$30,000 or less||$1,000|
|Over $30,000 but not over $40,000||$800|
|Over $40,000 but not over $50,000||$600|
|Over $50,000 but not over $60,000||$400|
|Over $60,000 but not over $80,000||$200|
Cannabis Licensee Business Deductions
This law allows New Jersey cannabis licensees, including S corporations, to deduct from their New Jersey gross income an amount equal to any expenditure that is eligible to be claimed as a federal income tax deduction, without regard to section 280E of the Internal Revenue Code (26 U.S.C. s.280E). Net profits and distributive share of partnership income calculated for New Jersey gross income purposes also shall be determined without regard to section 280E. The decoupling of New Jersey tax provisions from section 280E applies only to cannabis licensees.
The law also allows cannabis licensees to deduct an amount equal to any expenditure that would qualify as a specified research or experimental expenditure pursuant to section 174 of the Internal Revenue Code but is disallowed as a deduction for federal tax purposes because cannabis is a controlled substance under federal law. These expenditures also may be claimed as a qualified research expense for purposes of the credit allowed pursuant to section 1 of P.L. 1993, c.175 (C.54:10A-5.24).
Two New Tax Credits for Gross Income Tax (GIT) and Corporation Business Tax (CBT)
This law provides two new tax credits for Gross Income Tax (GIT) and Corporation Business Tax (CBT) for certain deliveries of low carbon concrete in a contract with a State agency, and for costs of conducting environmental product declaration analyses of low carbon concrete.
One tax credit is for concrete producers that deliver the specified concrete for use by a construction or improvement project requiring a purchase of 50 cubic yards of concrete or more. The delivery must be pursuant to a contract with a State procuring agency or a private contracting firm that has contracted with the State. The State agency using the concrete will determine the taxpayer's eligibility and credit amount, and will notify the Division of such.
The other tax credit is for concrete producers/producers of a major component of concrete or aggregate for completing an environmental product declaration analysis of the global warming potential of the concrete product at a production facility owned by the taxpayer. The Department of Environmental Protection (DEP) will determine the taxpayer's eligibility and credit amount, and will notify the Division of such.
Credits cannot reduce the amount of tax below the statutory minimum (CBT) or the taxpayer's liability below zero (GIT). Unused credits for either tax may be carried forward for up to seven tax years.
The Division will issue the tax credit certificate on a first-come, first-served basis. The Division cannot issue more than $10 million in credits per year or allow more than $1 million to any taxpayer per privilege period.