New Jersey Establishes Click-Through Nexus, Clarifies Other Tax Issues
New Jersey adopted new legislation affecting various New Jersey taxes, including corporate income tax, partnership withholding taxes, and sales and use tax. The legislative changes are effective for tax years ending on or after July 1, 2014.
On June 30, New Jersey Governor Chris Christie signed legislation establishing “click-through nexus” and clarifying other tax rules for corporations and partnerships, including:
Sales and Use Tax Changes
New Jersey adopted a “click-through nexus” standard for sales and use taxes that utilizes “Amazon” nexus rules that are similar to those in New York. This rule applies for sales made on or after July 1, 2014. Under the new legislation, a seller of taxable goods or services is presumed to be subject to New Jersey’s sales and use tax rules if the seller enters into an agreement with an independent contractor who:
- Has physical presence in New Jersey;
- Refers potential customers to the seller, either directly or indirectly, by link or by website; and
- Has total gross receipts from sales under this agreement of more than $10,000 for the last four calendar quarters
If each the above requirements are met, the seller must collect sales tax in New Jersey. However, a seller may avoid this collection requirement by showing that the independent contractor did not solicit sales in New Jersey in a way that exceeds Constitutional nexus standards.
Corporate Business Tax Changes
The legislation expands the definition of “operational income” in New Jersey. Previously, operational income referred to income from property if the taxpayer was involved in the acquisition, management, and disposition of this property as an “integral” part of the taxpayer’s business. The definition of operational income has been modified to include income from property if the taxpayer is involved in “one or more” of the above actions as an integral part of its business. This rule applies to tax years ending on or after July 1, 2014.
For federal income tax purposes, if a taxpayer does not recognize “discharge of debt” income on its federal tax return, the taxpayer’s federal NOLs are reduced by that same amount. New Jersey now conforms to this federal income tax rule, requiring that taxpayers reduce their New Jersey NOLs, or NOL carryovers as of July 1, 2014, by the amount of “discharge of debt” income that was not included in federal taxable income.
Partnership Tax Changes
Generally, partnerships are required to pay a tax based on New Jersey source income allocable to its nonresident partners. This tax is due in quarterly installments throughout their tax year. Under the new legislation, a nonresident partner may claim a credit for the amount of tax paid by the partnership for that partner’s share of net income, provided the nonresident partner files a New Jersey tax return. The partner may then apply the tax paid by the partnership to the partner’s tax liability. In addition, a partnership is not permitted to file a refund claim for amounts paid by the partnership on account of its partners (even in situations where the partnership incorrectly withheld and remitted too much tax).
What Does CohnReznick Think?
Governor Christie’s large scale tax reform plans, including an across-the-board cut in the gross (personal) income tax rates and repeal of the state’s real property transfer taxes, fell by the wayside due to the sizable budget deficit that arose in the spring. The tax changes enacted in the budget on the whole are not significant to New Jersey taxpayers.
For more information, please contact Ernest Barbaris, Partner, at 973-403-6928 or Patrick Duffany, Partner and State and Local Tax Practice Leader, at 860-368-3607.
To learn more about CohnReznick’s State and Local Tax Practice, please visit our webpage.
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