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NEW JERSEY ENACTS MULTIPLE TAX INCREASES
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On July 8, 2006, New Jersey Governor Jon Corzine signed New Jersey’s fiscal 2007 budget as well as the tax legislation necessary to implement that budget. The enacted tax legislation contains a sales and use tax rate increase, an expansion of the sales and use tax base, a corporate business tax surcharge, a 1% tax on transfers of commercial real property, changes to the urban enterprise zone exemption and a number of miscellaneous tax increases.
Sales and Use Tax Rate Increase
New Jersey’s sales and use tax rate will increase by 1% from 6% to 7% as of July 15, 2006. There are specific transition provisions provided for service and maintenance agreements, occupancy charges, sales to contractors and for contracts entered into prior to July 15, 2006 that were accompanied by a deposit or partial payment. (A4901/S1996).
Expansion of Sales and Use Tax Base
New Jersey’s sales and use tax base will be expanded as of October 1, 2006 to include receipts from electronically delivered software, digital property and certain specified services. Electronically delivered computer software will be subject to sales and use tax as a result of the inclusion of electronically delivered software in the definition of tangible personal property. However, receipts from sales of electronically delivered software that are used directly and exclusively in the conduct of the purchaser’s business, trade or occupation will be exempt from sales and use tax. The sales and use tax base will also be expanded to include digital property. Digital property is defined as electronically delivered music, ringtones, movies, books, and audio and video works where the customer is granted a right or license to use, retain or make a copy of such item. Video programming services, including video on demand television services, and broadcasting services, including the content to provide such services, are not included in the definition of digital products and thus are not subject to sales and use tax. The sales and use tax base will also be expanded to include the following services:• Self storage services which are defined as the furnishing of space for storage of tangible personal property. However, the lease or rental of an entire building, such as a warehouse or airplane hanger is not subject to tax.
• Tanning services, including the application of a temporary tan.
• Massage, bodywork or somatic services, except such services provided pursuant to a doctor'sprescription.
• Tattooing services, including all permanent body art and permanent cosmetic make-up applications.
• Investigation and security services which include investigation and detective services, security guard and patrol services, armored car services and security systems services. The definition of security systems services includes security, burglar and fire alarm installation, repair or monitoring services.
• Information services which are defined as the furnishing of information of any kind, which has been collected, compiled, or analyzed by the seller, and provided through any means or method, other than personal or individual information which is not incorporated into reports furnished to other people.
• Transportation services originating in this state and provided by a limousine operator, except such services provided in connection with funeral services.
• Delivery services, even if the delivery charge is separately stated on the invoice or purchase order.
• Landscaping services such as seeding, sodding or grass plugging of new lawns, planting trees, shrubs, hedges, plants and clearing or filling land.
• Installation services for carpeting and other flooring.
• Initiation fees, membership fees or dues for a health and fitness, athletic, sporting or shopping club or organization in New Jersey. However, membership fees for a club or organization whose members are predominantly age 18 or under are exempt from tax.
• Parking services, including any charges for parking, storing or garaging a motor vehicle. However, charges for residential parking, employee parking and municipal metered parking are not subject to tax. Generally, the enumerated services will be subject to sales tax if the service is performed within New Jersey and subject to use tax if a direct or indirect benefit of the service is received within New Jersey. However, services to tangible personal property or digital property are not subject to tax if the property upon which the services are performed is delivered to the purchaser at a location outside of New Jersey. (A4901/S1996).
Agency and Affiliate Sales Tax Nexus Provisions
In a purported technical change, New Jersey expanded its sales and use tax nexus provisions to include agency and affiliate nexus concepts. That is, a seller would be required to collect New Jersey sales tax based on merely having an agent or affiliate that maintains a place of business within the state. (A4901/S1006).
Miscellaneous Sales and Use Tax Provisions
The existing sales and use tax exemption for magazines and periodicals will be limited to magazines and periodicals that are sold by subscription and to membership periodicals distributed by a nonprofit organization to its members as a benefit of membership in the organization. The exemption for newspapers, magazines and periodicals also is expanded to cover periodicals that are accessed by electronic means.
Additionally, the exemptions from tax for laundering, dry cleaning, tailoring, weaving, and pressing tangible personal property will be limited so as to only apply to clothing. Administrative interpretations of the prior statute broadly interpreted those exemptions to apply to the cleaning of items other than clothing such as drapery and carpets. (A4901/S1996).
Corporation Business Tax Surcharge and Increased Minimum Tax
New Jersey enacted a 4% corporation business tax surcharge. The surcharge is 4% of the corporation’s tax liability determined after the application of all credits, other than credits for installment or estimated payments. Thus, if a corporation’s corporation business tax liability is $100,000, the amount of the surcharge is $4,000. Although the alternative minimum assessment (“AMA”) was permitted to sunset for periods after June 30, 2006 for in-state taxpayers, the corporation business tax surcharge will apply to the AMA liability of out-of-state companies that are otherwise protected from an income-based tax by Public Law 86-272. The corporation business tax surcharge is applicable for privilege periods ending on or after July 1, 2006 but before July 1, 2009. Thus, for a calendar year taxpayer, the surcharge would apply to the 2006, 2007 and 2008 tax years.
Additionally, the $500 minimum corporation business tax was increased for taxpayers with gross receipts over $100,000 based on the following schedule:
New Jersey Gross Receipts Minimum Tax
Less than $100,000 $500
$100,000 or more but less than $250,000 $750
$250,000 or more but less than $500,000 $1,000
$500,000 or more but less than $1,000,000 $1,500
$1,000,000 or more $2,000
The $2,000 minimum tax still applies to corporations that are members of an affiliated or controlled group with total payroll exceeding $5,000,000.(A4706/S1988).
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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% entity level 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.
continue NJ Tax July 2006
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