New Jersey adopts significant changes affecting corporations and individual taxpayers

On July 1, 2018, New Jersey Governor Phil Murphy (D) signed three significant tax bills: A4202 (c.48), A3088 (c. 45), and A3438 (c. 46). The first bill makes a number of  corporate income tax changes, including imposing a temporary surtax, decoupling from certain federal tax reform provisions, creating mandatory combined reporting, revising net operating loss (NOL) rules, modifying addback exceptions, and moving to market sourcing for services. The second bill raises the gross income tax rate on taxpayers with income over $5 million to 10.75% and authorizes a carried interest fee at the rate of 17%. The third bill establishes a tax amnesty program for a 90-day period that must conclude by January 15, 2019.

The takeaway

The enacted legislation represents a comprehensive rewrite of many provisions of New Jersey tax law, and likely will result in a significant change in most taxpayers’ New Jersey tax position. Care should be exercised in reviewing and applying these new provisions pending further guidance issued by the Division of Taxation for the numerous changes made by the legislation.

Conspicuous in its absence from the legislation is the New Jersey treatment of Global Intangible Low-Taxes Income (GILTI). While some New Jersey officials have informally indicated that they deem GILTI to be taxable income sourced to New Jersey for New Jersey-based companies, this position was not specifically addressed in the new law.