New Jersey Tax Law and Incentive Update
by: Lawrence M. Gradzki, CPA, JD, LLM and
Chaim Kofinas, CPA

In an effort to stem the effect of the steep and sudden economic downturn, Governor Jon Corzine signed into law his own economic stimulus package in late 2008. The measures described below are designed to jumpstart businesses in New Jersey and attempt to reverse the current economic climate. Some provisions take effect immediately.

The Repeal of the "Throwout" Rule

The Business Tax Reform Act of 2002 instituted this highly contested provision. This rule requires that sales to States other than New Jersey where the entity does not file a return are excluded from New Jersey's apportionment calculation. The effect of this provision was to increase the New Jersey tax liability, particularly when operations were concentrated in "no tax" states.

The repeal of this rule makes it less onerous to conduct business in New Jersey, as it will have the effect of reducing the portion of income taxable to New Jersey. This provision takes effect for tax years beginning on or after July 1, 2010.

Repeal of Regular Place of Business Rule

Prior law required businesses without a fixed location outside of New Jersey to apportion 100% of their income to New Jersey. Although a credit mechanism was available, it did not fully compensate for the lost benefit that apportionment provides. This provision, like the Throwout rule described above, made the State of New Jersey a somewhat unfavorable place to be headquartered.

The repeal of the Regular Place of Business Rule will allow businesses to apportion their income and reduce their New Jersey tax liability to just that portion of the business conducted in New Jersey. This provision is effective for tax years beginning on or after July 1, 2010.

NOL Extension

Historically, New Jersey Statutes have allowed businesses to carryforward Net Operating Losses for 7 years after the loss year. The new law will extend the utility of Net Operating Losses from 7 years to 20 years for losses suffered in tax years ending after June 30, 2009. Losses suffered in tax years prior to 2009 retain their 7 year life.

InvestNJ Program

This is a grant program Governor Corzine promoted to jumpstart the NJ economy. This program has 2 components; one promoting employment in New Jersey, and one promoting capital investment in New Jersey. Businesses can apply for a grant of $3,000 for every employee hired between December 9, 2008 and January 1, 2011. The employment must be in New Jersey and the employee must be employed for at least 12 consecutive months. The employee must be covered by health insurance.

In addition, businesses that make capital investments in New Jersey can apply for a grant equaling 7% of their investment. The investments can be in construction or rehabilitation of a structure or the purchase and installation of fixtures and machinery and equipment. The machinery and equipment must remain in New Jersey for at least 1 year.

Senior Freeze Program

Many Seniors have been severely impacted by the economic downturn, especially those living on fixed income. To provide relief, the Homestead Property Tax Reimbursement Program, also known as the Senior Freeze Program, has been expanded by increasing the qualifying income limitation. The income limitation to qualify is being raised from the current $53,000 to $60,000 retroactive to 2007, $70,000 for 2008 and $80,000 for applicants in 2009.

Urban Enterprise Zone Exemption Expansion

Historically, businesses operating in any one of the more than 30 Urban Enterprise Zones located throughout the State could purchase goods and services for consumption within the zone without paying sales tax. To curb perceived abuses, this program was changed in July of 2006 requiring all businesses to pay tax and immediately file for a refund of the sales tax that was paid. This presented a great administrative burden for affected businesses. Many businesses chose to pay the tax and ignored the opportunity of filing a refund claim. Some relief from this provision was provided for small businesses. Small businesses, that earned annual gross revenue of $1,000,000 or less, were allowed to continue to purchase goods and services for consumption within the zone without paying sales tax.

In February 2008 the definition of a small business was expanded from $1,000,000 to $3,000,000. The new law provides additional relief by expanding the definition of small business to include annual revenue of up to $10,000,000. More businesses can now enjoy the benefit of purchasing goods and services for consumption within the zone without paying sales tax. This new law is effective as of February 1, 2009.