Category: State Legislative and Budget Matters
Against the backdrop of the COVID-19 pandemic and an upcoming election in which the governorship and all 120 seats of the Legislature are on the line, Governor Murphy presented his Fiscal Year 2022 Proposed Budget through a virtual address. Unveiling a $44.8 billion spending plan, the Governor proposed no tax increases, a full payment to the pension system, new initiatives, and a significant surplus. Projected Revenues The Governor estimates total revenue in FY 2022 of $47.2 billion, due in large part to the FY 2021 revenues exceeding projections, which provides an opening balance for FY 2022 of $4.9 billion. The Administration also estimates a 2.4 percent growth in total revenue during FY 2022. Revenues are not based on any increases in tax rates or new taxes and do not account for any additional federal assistance to the State from a new stimulus package. Proposed Appropriations Total appropriations of $44.8 billion are $3.6 billion more than the prior fiscal year’s, an increase of 8.8 percent. The two largest expenses in the Proposed Budget are pre-K – 12 education ($18.1 billion) and the full Actuarially Determined Contribution (ADC) pension payment ($6.4 billion). These two items by themselves account for 55 percent of the State’s total spending. Other significant appropriations include: $2.6 billion to the State’s higher education...
Governor Murphy presented a nine-month budget on August 25, 2020, for the abbreviated State Fiscal Year starting October 1, 2020. Relying on a mix of borrowing, tax increase, and budget cuts, the Governor’s proposal for the nine-month fiscal year proposes $32.4 billion in spending, with a proposed budget surplus of $2.2 billion. Coupled with the temporary three-month budget effective July 1 to September 30, 2020, total spending over the twelve-month period would total slightly more than $40 billion. The Governor’s Budget Proposal estimates that roughly $6.2 billion of funding is required to offset anticipated lost revenues from COVID-19. To make up for that shortfall, the Governor is proposing to borrow $4.0 billion as authorized by the “COVID-19 Emergency Bond Act.” The New Jersey Supreme Court recently upheld the Act as constitutionally permissible under the Emergency Exception of the Debt Limitation Clause. An additional $1.0 billion in tax increases and $1.2 billion in programmatic cuts are also proposed. The two main tax increases proposed include a tax of 10.75 percent on income over $1.0 million and an extension of the Corporate Business Tax surcharge of 2.5 percent. The Budget Proposal does maintain some programmatic spending at levels equal to that of the prior fiscal year and proposes new spending. For example, there are no cuts to...
Governor Phil Murphy presented the outline of his spending plan for Fiscal Year (FY) 2021 to the State Legislature on February 25, 2020. The FY 2021 Budget proposes total revenues exceeding $42.7 billion (a 4.3 percent increase from FY 2020), and $40.8 billion in total appropriations (a 2.2 percent increase from FY 2020). An additional $1.6 billion is dedicated for surplus and $300 million is directed into the State’s “rainy day” fund. If enacted as proposed, this would be the largest budget in New Jersey history. One of the biggest expenses is the annual payment to the State’s pension system; a proposed total of $4.9 billion for FY 2021. If funded at this level by the Legislature, the contribution to state pension system would consume 12 percent of all state appropriations. This contribution is still only about 80 percent of what is actuarially required. Additional priorities for the Governor include increases to the state education funding formula by $336 million; another $132 million for NJ Transit; creating the Garden State Guarantee to provide two years of tuition free higher education; funding for lead service line replacements; and expanding eligibility for the Earned Income Tax Credit Program and the Pharmaceutical Assistance for the Aged and Disabled and Senior Gold programs. The Governor proposes to pay for...
On April 17, 2019, the Internal Revenue Service released the second set of Qualified Opportunity Zone (“QOZ”) proposed regulations (the “New Regulations”). The New Regulations address multiple issues relating to the structuring and operation of qualified opportunity zone funds (“QOFs”) and provide clarity on areas that include: Meeting the original use test for purchased tangible property Safe harbors for leased tangible property to qualify as QOZ business property Related party rules for leased tangible property and tangible personal property Investment vs. active business use of QOZ land Safe harbors to meet the 50% gross income test for the active conduct of a QOZ business Inclusion events for otherwise deferred capital gains Definitions for the term “substantially all” used in several statutory provisions Special elections when QOF partnerships and S corporations dispose of property after 10 years QOF reinvestment of the proceeds from the distribution, sale, or disposition of QOZ property Application of the 90% asset test to newly contributed QOF assets The New Regulations provide answers to many unresolved questions and present needed definitions where uncertainties were impeding investment into QOZs, particularly with respect to QOZ businesses. Our new article discusses many of the details.
Governor Murphy presented his proposed Fiscal Year (FY) 2020 Budget to a joint session of the New Jersey Legislature on March 5, 2019. His spending plan for the upcoming fiscal year totals $38.6 billion, which is a $1.3 billion increase from last year’s appropriations bill. The Governor’s budget message continued his theme of a “fairer and stronger economy” to make the middle class more secure. He highlighted the recent enactment of a $15 minimum wage, expansion of paid family leave, and the implementation of the state’s paid sick leave law. The Governor also continued his call for greater K-12 education funding and making community college tuition free. The Governor’s proposal for FY 2020, which he described as a “blueprint for the middle class,” is built upon four pillars: Realizing sustainable savings; Stabilizing revenues and increasing creditworthiness; Maintaining and growing investment in education, infrastructure, and innovation; and Addressing affordability. To accomplish these goals, the Governor proposed: Achieving $1.1 billion in savings from public employee health benefit reforms and other departmental savings identified by the Treasury; Increasing the State’s surplus to $1.2 billion; Funding the State’s pension system at $3.8 billion; Reducing the diversion of funds from dedicated sources like the Affordable Housing Trust Fund and the Clean Energy Program; Increasing funding for K-12 education, increasing the...
On October 19, 2018, the IRS issued highly-anticipated proposed regulations regarding qualified opportunity funds (“QOFs”). As hoped, the proposed regulations provide taxpayers with sufficient initial guidance to start taking advantage of the outstanding tax benefits available to taxpayers making investments in QOFs investing in qualified opportunity zones. Under the new provisions, QOFs allow qualifying taxpayers to invest capital gain proceeds and achieve two significant and distinct tax benefits, (i) a deferral (and 10-15% reduction) of taxation on the original gains and (ii) essentially unlimited tax-free treatment of appreciation while invested in the QOF. The proposed regulations address several key issues relating to the establishment and qualification of a QOF, as well as the initial investments by taxpayers into such funds. Key sections provide that: only capital gains are eligible for deferral, QOFs may be structured as corporations or partnerships (or LLCs taxed as such), and gain proceeds may be split into one or more QOF investments. The proposed regulations also clarify rules relating to partnerships and create a new working capital 31-month safe harbor with respect to meeting the definition of a qualified opportunity zone business. Our new article on the significance and implications of the proposed regulations discusses many of the details. The experienced and dedicated attorneys at Gibbons are happy to discuss any...
As part of the comprehensive 2017 Tax Reform, Congress enacted a set of provisions originally introduced in the Investing in Opportunity Act. These provisions present investors with an entirely new taxpayer-friendly investment vehicle. Rolling over the gain proceeds from the sale of any property, presumably including stock or real estate (the “initial property”), into an investment in a qualified opportunity zone (“QOZ”) offers investors the chance to defer and reduce capital gains on that initial sale, and achieve a subsequent tax-free exit from the QOZ investment. Tax Benefits Again, the tax benefits start with a deferral of gain on the current sale of the initial property until December 31, 2026 if the gain proceeds from that initial sale are invested within 180 days in a Qualified Opportunity Zone Fund (“QOF”), or until the investor exits the QOF (if before December 31, 2026). If the proceeds remain in the QOF for at least five years, the basis of the investment is increased by 10% (which will reduce taxes by 10% on the gain from the sale of such initial property). If the proceeds are kept in a QOF for at least seven years, the basis is increased an additional 5%, providing an investor with a total tax savings of 15%. Critically, December 31, 2026 is a...
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...
Governor Phil Murphy delivered his first budget address to the New Jersey State Legislature on Tuesday, March 13th. The Governor’s proposed Fiscal Year (FY) 2019 Budget totals $37.4 billion, which is a $2.7 billion increase from the $34.7 billion spending plan enacted in Fiscal Year 2018. The Governor stated that the proposed FY 2019 Budget is “realistic and responsible,” affirms New Jersey’s values, and will begin the process of returning New Jersey to being a “good value for good money.” To accomplish this, Governor Murphy is proposing to: Increase public school spending by $341 million in FY 2019 with the goal of reaching full funding in four years; Invest an additional $83 million in pre-K this year and start a four-year expansion of a statewide program; Make community college tuition free for all in three years by investing an additional $50 million this fiscal year; Add 3,500 new Tuition Aid Grant awards; Triple funding for New Jersey Transit with an additional $242 million in investment; Increase the Earned Income Tax Credit from 35 percent to 40 percent over three years; Provide $3.2 billion in payments to the state pension system; Increase the minimum wage to $11 per hour for state employees; Raise the state property tax deduction to $15,000; and Create a new Child and...
The Legislature received testimony regarding State revenues earlier this week. In separate appearances before the Assembly Budget Committee and the Senate Budget and Appropriations Committee, the State Treasurer and the Office of Legislative Services (OLS) testified regarding the revenue picture for the current fiscal year (FY 2017), and the anticipated revenues for the upcoming fiscal year (FY 2018). The OLS reported to the Committees that incoming revenues for FY 2017 are currently forecasted to be $228 million less than expected. However, the 2016 financial market rally and estimated tax payments by high-income earners suggest that FY 2017 revenues could push closer to the originally forecasted amounts. A more accurate revenue forecast will be available in May, after the April tax filing deadline passes. For FY 2018, both the Executive Branch and the OLS have similar projections for growth in the upcoming fiscal year. The Executive Branch anticipating growth that is only 0.6 percent higher than the OLS. While a small percentage amount, this still results in a difference of $212.9 million between the Executive Branch and OLS revenue estimates. The OLS Tax and Revenue Outlook can be accessed here. The State Treasurer’s testimony to the Assembly and Senate Budget Committees can be found here. In all, the State of New Jersey faces another tight fiscal...