PwC alternatives alert, June 20, 2009

New Jersey budget passed


On June 30, 2009, Governor Corzine signed into law the Fiscal Year 2010 Budget for New Jersey. The major provisions of the Budget include an increase of the personal income tax rate for high-wage earners; the extension of the corporate business tax surcharge for another year; and the decoupling of the federal deferral provisions under IRC Sec. 108(i) for cancellation of indebtedness income ("COD").

Increased personal income tax rates
Similar to New York State and California, New Jersey joined the charge of increasing personal income tax rates on high wage earners. Previously, the highest effective tax rate in New Jersey was 8.97% for all taxpayers earning over $500,000. The rates below remove the 8.97% rate and add three new rate classes. The highest rate for taxpayers earning over $1,000,000 will be 10.75%. Please note, that these rates are only effective for the 2009 tax year and the 8.97% rate becomes effective again on 1/1/2010.

NJ budget passed

Extension of corporate business tax surcharge
Previously, the 4% business tax surcharge was effective for the privilege periods ending on or after July 1, 2006 but before July 1, 2009 (2007 and 2008 calendar tax years). Assembly Bill 4105, extends the surcharge 1 more year for the 2009 calendar year (tax years beginning before July 1, 2010).

Decoupling from federal COD deferral provisions
Assembly Bill 4105 decouples New Jersey's corporate business tax from I.R.C. Sec. 108(i) by requiring:
  • For privilege periods beginning after December 31, 2008, and before January 1, 2011, taxpayers to add back the amount of federally-excluded discharge of indebtedness income; and
  • For privilege periods beginning on or after January 1, 2014 and before January 1, 2019, taxpayers to subtract the amount of discharge of indebtedness income included for federal income tax purposes pursuant to Sec. 108(i).
For additional information, please contact your PwC engagement team or any of the partners in our practice.