Single Sales Fraction for Corporation Business Tax Income Allocation Formula
The new law is effective for privilege periods beginning on or after January 1, 2012. The new law modifies the corporation business tax (CBT) formula used to determine the portion of the income of a corporation subject to tax by the State of New Jersey from a three-factor formula to a single sales factor formula.
Pursuant to the new law, this change is phased in over three years as follows:
For Privilege Sales Property Payroll
Period: Factor Factor Factor
Before January 1, 2012 (Old Law) 50% 25% 25%
Beginning January 1, 2012, but before January 1, 2013 70% 15% 15%
Beginning January 1, 2013, but before January 1, 2014 90% 5% 5%
Beginning on or after January 1, 2014 100% 0% 0%
Alternative Business Calculation under the Gross Income Tax
The new law applies to taxable years beginning on or after January 1, 2012. It establishes an alternative business calculation under the New Jersey gross income tax that permits taxpayers who generate income from different types of business entities to offset gains from one type of business with losses from another. The new law also permits taxpayers to carry forward business-related losses for a period of up to 20 taxable years.
Gains and losses derived from one or more of the following business-related categories of gross income may be netted: net profits from business; net gains or net income derived from or in the form of rents, royalties, patents, and copyrights; distributive share of partnership income; and net pro rata share of S corporation income. A taxpayer who sustains a loss from a sole proprietorship may apply that loss against income derived from a partnership, subchapter S corporation, or rents and royalties, but is prohibited from applying those losses from those categories of income that are not related to the taxpayer's conduct of the taxpayer's own business, including salaries and wages, the disposition of property, and interest and dividends.
The law provides that net losses from the business-related categories of income may be carried forward and applied against income in future taxable years. The law limits the application of net losses which are carried forward to gains and losses from the same business-related categories of income from which the net loss is derived, and allows the losses to be carried forward for a period of up to 20 taxable years following the year the net loss occurs.
This new law phases in the tax savings over five years beginning as follows:
For Tax Years % of Business
Beginning In: Increment:
2012 10%
2013 20%
2014 30%
2015 40%
2016 50%
Once fully implemented, a taxpayer's regular business income may not be reduced by more than 50% in determining taxable income.
Reduction of the Minimum Corporation Business Tax on New Jersey S Corporations
Beginning for privilege periods in calendar year 2012 the minimum tax for New Jersey S corporations is reduced by 25%. The minimum tax is based on New Jersey gross receipts. The minimum tax in 2012 for New Jersey S corporations is as follows:
New Jersey Gross Receipts Minimum Tax:
Less than $100,000 ....$375
$100,000 or more, but less than $250,000 ....$562.50
$250,000 or more, but less than $500,000 ....$750
$500,000 or more, but less than $1,000,000 ....$1,125
$1,000,000 or more ....$1,500
In order to be treated as a New Jersey S corporation, a corporation must elect and receive approval for New Jersey S corporation status by filing a completed Form CBT-2553.
If you have any questions about these or any tax developments, please contact Fred Schutz at 856-722-5300 ext. 201 or Dave Gill at ext. 210.
