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Jersey Increases Taxes and Fees
By Mark H. Levin In the week before the July Fourth holiday, the New Jersey Legislature passed, and Gov. James E. McGreevey signed into law, several bills to fund his 2004–2005 budget. These bills increase various taxes and fees. Millionaire Tax Perhaps the most publicized of these bills increases the New Jersey gross income tax to 8.97 percent for taxpayers with taxable income of $500,000 or greater, effective retroactively to Jan. 1, 2004. The old 6.37 percent rate will continue to apply to taxable income up to $499,999, at which point the new top rate of 8.97 percent begins with taxable income of $500,000. This new $500,000 bracket applies to all taxpayers regardless of filing status. Along with this new tax rate, New Jersey has issued two new withholding tables to reflect the new 8.97 percent rate. The first of these tables takes effect on Sept. 1, 2004, through Dec. 31, 2004, and incorporates a top rate of 12 percent to catch up for the period prior to September 2004, when the top withholding rate reflected the then top rate of 6.37 percent. The second withholding table takes effect Jan. 1, 2005, and has a top rate of 9.9 percent. Withholding on the Sale of New Jersey Real Property by Nonresidents Another feature of the budget package is the withholding on the sale of New Jersey real property by nonresidents. Effective Aug. 1, 2004, estimated tax payments will be required (with certain exceptions) on the sale of New Jersey real estate by nonresident individuals, estates or trusts. The estimated tax will be based on the gain on the sale and will be at the highest personal income tax rate (8.97 percent). The following sales will be exempt from this withholding:
New Fee on the Transfer of Real Property Also, in addition to the basic fee on the sale of real property of $1.75 per $500 of consideration, effective for transfers of real property on or after Aug. 1, 2004, the legislation imposes a general fee on all transfers of real property where the consideration is in excess of $350,000, as follows: Over
$350,000 but not over $550,000: $0.90/$500 or fraction thereof;
New Fee Imposed on Buyers on Certain Realty Property Transfers Effective for transfers of real property on or after Aug. 1, 2004, the legislation imposes upon the buyer of real property zoned residential, whether improved or not, where the consideration is in excess of $1,000,000, a separate fee equal to 1 percent of the full amount of the consideration. Decoupling from 30 Percent and 50 Percent “Bonus” Depreciation Effective for assets placed in service on or after Jan. 1, 2004, in taxable years beginning on or after Jan.1, 2004, New Jersey will no longer allow any 30 percent or 50 percent “bonus” depreciation. § 280F (Luxury Auto) Decoupling Along with the decoupling of “bonus” depreciation, New Jersey will not allow any depreciation deduction based on the “bonus” depreciation under § 280F. § 179 Deductions Decoupling Effective for property placed in service on or after Jan. 1, 2004, the maximum amount allowed to be deducted under § 179 is limited to the maximum amount allowed under IRC § 179 as it existed on Dec. 31, 2002, $25,000. Net Operating Loss (NOL) Deduction Effective for taxable years 2004 and 2005, a corporation may utilize NOLs up to 50 percent of the corporation’s entire net income. (For taxable years 2002 and 2003, the NOL deduction was suspended.) Any NOL that is disallowed due to the suspension will have its life extended. Tire Management Program Fee Effective Aug. 1, 2004, a fee of $1.50 per tire will be imposed. This fee will be charged on the sale of all tires that are subject to the New Jersey sales tax, including new tires that are a component of a purchased or leased motor vehicle. Cigarette Tax Increase Effective July 1, 2004, the cigarette tax was increased to $2.40 per pack, from $2.05 per pack. Tax on Cosmetic Surgery Effective Sept. 1, 2004, a 6 percent tax will be charged on certain cosmetic medical procedures that are not reconstructive in nature, including, but not limited to, cosmetic surgery, hair transplants, cosmetic injections, cosmetic soft tissue fillers, dermabrasion and chemical peel, laser hair removal, laser skin resurfacing, laser treatment of leg veins, and cosmetic dentistry. Gross Receipts Tax on Certain Ambulatory Health-Care Facilities Effective July 1, 2004, a gross receipts tax of 3.5 percent was imposed on certain ambulatory health-care facilities with gross receipts of at least $300,000, and is due in four installments. The tax is capped at $200,000. The tax rate for 2006 will be recalculated so that it will produce the same amount of revenue as was collected in 2005, except that the $200,000 cap remains unchanged. The 2006 tax rate will remain in effect for 2007 and thereafter. Effective June 29, 2004, a special interim assessment of 1 percent on new written premiums was imposed on HMOs authorized to operate in New Jersey. The interim assessment is effective from July 1, 2004, through June 30, 2005 (fiscal year 2005). Billboard Advertising Fees The current 6 percent fee charged on the gross receipts from the retail sale of billboard advertising space is extended through June 30, 2006, after which it will be reduced to 4 percent for the period July 1, 2006, through June 30, 2007, and will be eliminated effective July 1, 2007. Property Tax Relief While the major thrust of the 2004–2005 budget package was on raising revenue, there was a bright spot. The budget package increases the rebates based on the real estate taxes paid on a taxpayer’s residence. Under the legislation, the current NJ SAVER rebate program is folded into the homestead property tax rebate program. Under the new combined homestead property tax rebate program, the maximum property tax rebate will increase to $800, from $250. For elderly, disabled and low-income taxpayers, the maximum property tax rebate will increase to $1,200, from $775. However, no taxpayer whose gross income used in computing his or her gross income tax exceeds $200,000 will be entitled to a rebate. Mark H. Levin, of H. J. Behrman & Company, LLP, in Manhattan, is a member of the NYSSCPA’s Tax Division Oversight Committee. |
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