1% Realty Transfer Tax on Commercial Property
For transfers of real property occurring on or after August 1, 2006, New Jersey will impose an additional 1% realty transfer fee on sellers of commercial property for over $1 million of consideration. The 1% tax is imposed on the seller and applies to the entire consideration, not just the amount of consideration over $1 million. The additional 1% tax previously applied only to residential sellers.Taxpayers can obtain a refund of the additional 1% tax for any transfer of commercial real property pursuant to a contract that was fully executed before July 1, 2006, provided that the deed is recorded on or before November 15, 2006.
Additionally, New Jersey will impose a 1% entitylevel tax for transfers of controlling interests (more than 50%) in entities that own a controlling interest (more than 50%) in commercial real estate with a value in excess of $1 million. That 1% entity-level tax also applies to transfers occurring on or after August 1, 2006. In determining whether there has been a transfer of a controlling interest, transactions which occur within six months of each other are presumed to constitute a single sale or transfer.
However, there is an exemption from tax for transfers of controlling interests in entities that are incidental to a corporate merger or acquisition if the equalized assessed value of the real property transferred is less than 20% of the total value of all assets transferred in the merger or acquisition.
Additionally, there is an exemption to the 1% entitylevel tax for transfers of controlling interests in entities completed prior to November 15, 2006 pursuant to a contract or other binding agreement that was fully executed before July 1, 2006. (A4701 /S1982).
Changes in Enterprise Zone Exemption
New Jersey changed the sales and use tax exemption for businesses located in an urban enterprise zone from an exemption taken at the point-of-sale to a refundable exemption. Businesses located in urban enterprise zones were previously permitted to make tax-free purchases for use in the enterprise zone without paying sales and use tax. Effective for sales made after July 15, 2006, businesses located in enterprise zones, with the exception of certain qualified small businesses with annual gross receipts of less than $1 million, would be required to pay tax on their purchases and apply for a refund of the tax paid. The final version of the enterprise zone legislation does not contain a previously proposed limitation of the exemption to purchases used in building or expanding a commercial structure and does not affect the reduced tax rates on retail sales made by vendors in the enterprise zone. (A4702/S1983).
Miscellaneous Tax Legislation
• Motor Vehicle Rental Surcharge – New Jersey increased the motor vehicle rental surcharge from $2 to $5 per day. That tax increase was effective upon enactment of the legislation. (A4715/S1999).• 1% Luxury Vehicle / Gas Guzzler Tax – New Jersey enacted a 1% “one-time supplemental titling fee” on new luxury vehicles priced over $45,000 and on vehicles with an average fuel efficiency (average of highway and city ratings) below 19 miles per gallon.The 1% tax applies to vehicles for which certificates of ownership are issued on or after July 15, 2006. (A4707/S1988).• HMO Premiums Tax Increase – New Jersey increased the annual assessment on net written premiums received by health maintenance organizations (HMOs), from one percent to two percent. That increase is effective for assessments made for the 2007 and subsequent fiscal years. (A4716/S2000).• Fur Tax – New Jersey enacted a 6% gross receipts tax and compensating use tax on retail sales of fur clothing effective July 15, 2006. Sales of fur clothing were excluded from sales and use tax as of October 1, 2005 as a result of New Jersey’s enactment of legislation adopting the Streamlined Sales Tax Agreement’s agreement of clothing. The fur tax is not part of the sales and use tax but is a separate gross receipts tax. (A4714/ S1997).• Transitional Energy Facility Assessment Extension – The transitional energy facility assessment (“TEFA”) phase-out has been extended by two years. The TEFA unit rate surcharges will remain at the 2006 calendar year rates for two years and the surcharges will then be reduced in calendar years 2009 and 2010. TEFA is now scheduled to be entirely phased-out by calendar year 2011.(A4709/S1991).• Tobacco Tax Increase – The cigarette tax rate is increased by 17.5 cents per pack to $2.575 per pack effective July 15, 2006. Additionally, moist snuff (e.g. chewing tobacco) will be taxed at $.75 per ounce effective August 1, 2006. Moist snuff was taxed with other tobacco products at a rate of 30% of the wholesale price. (A4705/S1999).
reproduced from newsletter of McCarter & English, LLP
