—Overview—
On October 14, 2016, Governor Christie signed P.L.2016, c.57 into law, which provided comprehensive tax reform and reauthorization of the Transportation Trust Fund (TTF). The Governor and the Legislature worked together in a bipartisan manner to craft legislation that addressed New Jersey’s tax climate, while also providing substantial investment in the state’s infrastructure.
The package provides important tax relief while increasing the state’s gas tax. These reforms include a full elimination of the estate tax, an increase in the income tax exclusion for pension and retirement income, a reduction in the state sales tax, an increase in the earned income tax credit and an income tax deduction for veterans.
—Background—
NJBIA’s 2016 Business Outlook Survey indicated that two-thirds of members took the estate and inheritance taxes into account when making business decisions and a similar percentage would not make New Jersey their domicile in retirement.
Additionally, NJBIA’s 2016 outmigration report found that more than $18 billion in adjusted gross income left the state during the last decade. If just 20 percent of those ages 45 and over who left the state in 2013 had stayed, more than half a billion dollars in adjusted gross income would have stayed here with them, along with 2,279 jobs and $349 million in economic activity.
With the full elimination of the estate tax by January 1, 2018 and a substantial increase in the income tax exclusion for retirement income, New Jersey will now be more competitive with our neighboring states, such as New York and Pennsylvania.
Estate Tax Elimination
Under this legislation, New Jersey’s current estate tax exemption amount of $675,000 will be increased to
$2.0 million on January 1, 2017. The estate tax will be completely eliminated on resident decedents dying on or after January 1, 2018. Please note that this legislation has no impact on New Jersey’s transfer inheritance tax.
Additional information can be found on the New Jersey Division of Taxation’s website, by clicking here.
Increase in New Jersey’s Pension and Retirement Income Exclusion
The law increases the New Jersey gross income tax pension and retirement income exclusion five-fold over four years. Ultimately, this will increase the gross income tax pension and retirement income exclusion to $100,000 for joint filers, $75,000 for individuals, and $50,000 for married but filing separately. The law phases in the exclusion increase over four years as follows:
Filer Type Present 2017 2018 2019 2020
Joint $20,000 $40,000 $60,000 $80,000 $100,000
Individual $15,000 $30,000 $45,000 $60,000 $75,000
Separate $10,000 $20,000 $30,000 $40,000 $50,000
Please note that the law retains the current provision that excludes taxpayers that have gross income of more than $100,000 from receiving the benefit of the pension and retirement income exclusion.
Sales Tax Reduction
Under the new law, New Jersey’s sales tax rate will be reduced from 7 percent to 6.875 percent on January 1, 2017. It will then be further reduced to 6.625 percent on January 1, 2018.
Earned Income Tax Credit (EITC)
This law increases the New Jersey Earned Income Tax Credit to 35 percent of the federal benefit amount beginning in Tax Year 2016. New Jersey’s EITC program currently provides a refundable earned income tax credit under the state gross income tax equal to 30 percent of the federal benefit amount.
Veterans Personal Exemption
The law provides an annual personal exemption against the New Jersey gross income tax of $3,000 for veterans who are honorably discharged from active duty in the Armed Forces of the United States, a reserve component thereof, or the National Guard of New Jersey in a federal active duty status. This applies to tax years beginning on or after January 1, 2017.
Gas Tax Increase
In order to pay for infrastructure improvements, an additional 23 cents is added onto the existing 14.5 cent gas tax, for a total of 37.5 cents per gallon. The new tax rate is effective for purchases on or after November 1, 2016, and will contribute to the 8-year, $16 billion reauthorization of the TTF.
The $2 billion per year investment in highway and bridge construction will help spur economic growth in New Jersey and benefit the entire state’s economy. Specifically, the investment is projected to create $4.7 billion in economic output, while creating and sustaining 34,165 jobs. The investment will account for total annual payroll of $1.4 billion, and generate $258.9 million in state tax revenues.
The increase in taxes imposed under the Petroleum Products Gross Receipts Tax (PPGRT) consists of three major components: (1) an increase in the tax rate on motor fuels by 12.85 percent with a phase-in of the diesel component; (2) increasing the tax on non-motor fuels subject to the PPGRT from 2.75 percent to 7 percent; and (3) an increase in the tax on diesel fuels by 4 cents per gallon in in FY 2018 and beyond. For more information, please click here.
Additionally, on November 8, 2016 voters approved a ballot question constitutionally dedicating gas tax revenues to transportation infrastructure, including roads, bridges and trains. NJBIA supported dedicating the gas tax revenues to ensure the money is spent for its original purpose, as past Governors and Legislatures had diverted gas tax revenues for other purposes, contributing to the insolvency of the Transportation Trust Fund earlier this year.
Poison Pill
The legislation contains an elaborate “poison pill” provision that would kill the tax increases if any future legislative action is taken to halt, delay, or reverse the legislation’s tax cuts.
—For More Information—
For a copy of P.L.2016, c.57, please click here.
If you need additional information, please contact Andrew Musick at amusick@njbia.org or 609-393-7707, ext. 9512.
Updated: December 18, 2017
This information should not be construed as constituting specific legal advice. It is intended to provide general information about this subject and general compliance strategies. For specific legal advice, NJBIA strongly recommends members consult with their attorney.
