New Withholding Requirement - New Jersey Gross Income Tax

	Sax Macy Fromm & Co., PC Construction Services Group Alert

New Withholding Requirements

New Jersey Income Tax

Companies transacting business or maintaining an office in New Jersey have new withholding requirements under the Gross Income Tax. These businesses must deduct and withhold tax at the rate of 7% of amounts paid on or after January 1, 2007 for services provided by unincorporated construction contractors. Withholding will not be required if the business receives proof of the contractor’s registration with the New Jersey taxing authorities. The New Jersey Department of Treasury, Division of Taxation has indicated that a Business Registration Certificate with the Division of Revenue can be used for proof of registration.

Contractor is broadly defined to include persons entering into a contract for services to construct, improve, alter, or repair a building, structure or improvement to real property including subcontractors. There is a limited exception for professional services performed by a person who is licensed, whose practice is regulated, and who has acquired advanced knowledge from a formal prolonged course of specialized instruction. No formal guidance has been issued by New Jersey providing examples of this exception. The Regulatory Services Group, in a recent telephone conversation, indicated that the professional services exception would apply to architects and engineers.

Persons required to withhold tax will be liable for amounts not withheld from the unincorporated contractors as well as subcontractors on that contract unless that person obtains and retains proper proof of registration. Government entities, homeowners and tenants are excluded from the withholding requirement.

In January, your business will need to begin keeping track of payments and taxes withheld for each unregistered unincorporated contractor in order to comply with reporting requirements. In addition, monthly returns will need to be filed and payments made on or before the 15th day of the month following the withholding month (February 15th for January withholding). We will send you further guidance when it is issued.

In order to comply with this new law, we suggest that you compile a list of the unincorporated contractors that perform services for your business. This would include contractors organized as partnerships, limited liability companies (LLC’s), sole proprietorships, and businesses organized in any other form not taxable as a corporation for federal tax purposes. Inquire as to whether the contractors are registered with the New Jersey Division of Taxation. Unincorporated Construction Contractors without a Business Registration Certificate may obtain the certificate by registering with the Division of Revenue using Form REG-A or Form NJ-REG.

Please contact us with any questions.

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About Sax Macy Fromm & Co., PC

Founded in 1956, Sax Macy Fromm & Co., PC services small and medium-sized businesses in the New York/New Jersey metropolitan area. We are one of the largest single-office accounting and business consulting firms in the area, offering best-in-class resources on a national and international level. Our organization provides the expertise, experience, and focus needed to meet the growing needs of the closely held business owner and high net worth individual. We deliver many specialized services through an elite group of affiliated organizations. These organizations share our commitment to achieving the highest level of quality and service and work seamlessly with us to achieve a greater benefit for our clients. This approach allows us maximum flexibility to customize our services to meet our clients' unique situations, while maintaining our focus on our core competencies: accounting, auditing, tax, and consulting services.

Article distributed by Robert Paz, CPA, Director of Construction Services Group

All information contained in this e-mail was obtained from the State of New Jersey website. To learn more about Sax Macy Fromm & Co., PC or Robert Paz, CPA go to our website.

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