Pub. 17 2018-2019 Issue 2

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S 21 new jersey auto retailer W W W . N J C A R . O R G some legislators feared that imposing a second round of new taxes could force millionaires to leave the State. Ultimately, the New Jersey tax increase on wealthy taxpayers was enacted by the Legislature. The New Jersey “millionaire’s tax” will certainly impact some auto dealers, many of whom were already paying among the highest state income and property taxes in the country. Even without considering the “millionaire’s tax,” the provisions of TCJA make New Jersey a less attractive place to live and operate a business as the high taxes are largely no longer deductible for federal income tax purposes. Disallowance of Federal 20% Pass-through Deduction New Jersey will not allow the new 20% Federal tax deduction, also known as the Qualified Business Income deduction, for income from pass-through business entities. Property Tax Maximum Deduction Increased The maximum property tax deduction for a resident taxpayer has been increased from $10,000 to $15,000 for 2018, while the deduc- tion for property and state and local income taxes on the federal return is limited to $10,000. NJ Corporate Business Tax Rate Increase The top marginal corporate tax rate will increase from 9% to 11.5% during the 2018 and 2019 tax years on New Jersey taxable income in excess of $1 million. In the 2020 and 2021 tax years the rate will be reduced to 10.5%. Dealers viewing these mostly unfavorable New Jersey tax law changes as a reason to change their residencies to lower income tax states should be aware that income earned in New Jersey is considered New Jersey source income subject to New Jersey gross income tax. This would include income from pass-through business entities such as an auto dealership located in the State. New Jersey would also tax rental income earned from real estate properties located here. However, other types of income, such as interest, dividends and pensions received by nonresidents, would not be subject to New Jersey Gross Income Tax. Taxpayers who wish to change their state of residency, while still maintaining businesses or property in New Jersey, should consult a tax advisor to carefully plan their exit strategy and avoid pitfalls that could sabotage tax planning. Rochelle Kimmins, CPA, CFP is Tax Director at WithumSmith+Brown, PC in Edison, New Jersey. She can be reached at 732.379.5200 or rkimmins@ withum.com. The New Jersey “millionaire’s tax” will certainly impact some auto dealers, many of whom were already paying among the highest state income and property taxes in the country.