Tax Changes Funding New Jersey’s New 2019 Budget

This past weekend, Governor Phil Murphy and the New Jersey legislature avoided a government shutdown by agreeing to a $37.4 billion compromise budget deal, which included significant changes to New Jersey’s business and individual taxes, including:

• A new “millionaire’s tax” on individuals earning $5 million or more increasing the top marginal Gross Income Tax (“GIT”) rate from 8.97% to 10.75%
• Business taxpayers with NJ allocated income in excess of $1 million will be liable for a 2.5% surtax (on top of the current 9% rate) for the next two years, with the surtax reduced to 1.5% for the following two years
• The new federal pass-through business income deduction (IRC Section 199A) will be unavailable for Corporation Business Tax (“CBT”) or GIT purposes; other decoupling provisions were adopted
• For CBT apportionment purposes, sales of services will be sourced to New Jersey if, or to the extent that, the benefit of the service is received at a location in New Jersey
• Additional legislation to expand the reach of the sales and use tax to remote sellers in light of the recent Supreme Court ruling in Wayfair v. South Dakota is awaiting the Governor’s signature
• Mandatory unitary combined reporting under the CBT is now required, effective for tax years beginning on or after January 1, 2019; these rules may be subject to corrective legislation later this summer

Numerous additional tax increases and clarifications, as well as new taxes such as an “Uber” tax and an “Air BNB” tax, were adopted as part of the budget negotiations. For a more detailed analysis, click here.