NJ Legislature Enacts Multiple Business, Sales Tax and Realty Transfer Increases

Corporation Business Tax Surcharge and Increased Minimum Tax
ASSEMBLY Bill, No. 4706: Imposes 4% surcharge on liability and increases minimum tax under the Corporation Business Tax.

Effective immediately, a 4% surcharge is imposed on the corporation business tax liability for tax periods ending on or after July 1, 2006 but before July 1, 2009.

The corporation business tax "liability" is the greater of the Corporation Business Tax, the Alternative Minimum Assessment or the Minimum Tax.

The surcharge is imposed on the liability of corporations, determined after the allowance of the various business incentive credits. The bill bases the new minimum tax on the "New Jersey source gross receipts" of the taxpayer as follows:

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	$1000
$500,000 or more but less than 1,000,000	$1500
$1,000,000 or more	$2000

The Minimum Tax of corporations that are members of affiliated or controlled groups with total payrolls of $5 million or more will remain $2,000 annually.

Alternative Minimum Assessment
The sunset of the Alternative Minimum Assessment that applies to corporations not classified as S corporations was unaffected by the state budget bills.

The AMA applies to tax periods beginning on or after January 1, 2002, and the four succeeding tax periods (2003, 2004, 2005 & 2006).

The AMA will sunset for tax periods beginning on or after June 30, 2006. For calendar year taxpayers subject to the Corporation Business Tax (CBT), the AMA will no longer apply for tax years beginning January 1, 2007.

Similar to other CBT credit limitations, the AMA credit cannot reduce the CBT by more than 50% of the net CBT liability plus the 4% surcharge, or reduce the tax below the minimum tax.

Sales & Use Tax
ASSEMBLY Bill, No. 4901: Increases sales and use tax from 6% to 7% beginning on July 15, 2006 and expands base of sales and use tax beginning on October 1, 2006.

Effective July 15, 2006 the sales and use tax rate is increased from 6% to 7%. The rate increase applies to taxable sales or taxable purchases on or after July 15th. Effective October 1, 2006 the sales tax base has been expanded to include the following property and services:

• Digital Property:
  Digital property is electronically delivered ("downloaded" or delivered by e-mail) music, ringtones, movies, books, audio and video works and similar products.
• Prewritten Software (for personal use delivered electronically):
  The bill limits the current exemption for prewritten software delivered electronically, to electronically delivered software that is used directly and exclusively in the conduct of the purchaser's business, trade or occupation.
• Delivery Charges:
  The bill eliminates the blanket exemption for seller delivery charges that are separately stated from the purchase price of an item, except in cases where the item is exempt from tax. For tax exempt items (including sales for resale), delivery charges remain exempt.
• Information Services:
  The furnishing of information which has been collected, compiled or analyzed by the seller, including electronic delivery, with the exception of personal or individual information (such as a consultant's report). Typical information services include data bases widely utilized by insurance, health care, and law firms.
• Landscaping:
  The bill numerates all landscaping services as taxable services, including services that result in a capital improvement to land other than structures of any kind whatsoever, such as: seeding, sodding or grass plugging of new lawns, planting trees, shrubs, hedges, plants and clearing and filling land.
• Flooring Installation:
  The bill further numerates all flooring and carpet installations as being taxable.
• Self Storage services:
  Furnishing of space for storage, such as charges for self-storage rentals for personal property. Rental of real property such as a commercial lease is not subject to tax.
• Initiation fees, membership fees or dues:
  For access to or use of the property or facilities of a health and fitness, athletic, sporting or shopping club or organization, except for membership in a club or organization whose members are predominantly age 18 or under;
• Tanning services, including the application of temporary tan
• Massage services,
  except when provided pursuant to a medical doctor's prescription.
• Tattooing, including permanent body art and permanent cosmetic make-up; Limousine services originating in this State, except as provided in connection with funeral services;
• Parking, storing or garaging a motor vehicle
  (other than employee parking, municipal metered parking and parking subject to municipal parking taxes); and
• Magazines and Periodicals
  The exemption is retained for newspapers, magazines and periodicals sold by subscription. Single issues (newsstand purchases) become taxable.

The bill includes a provision that clarifies the sales and use tax collection responsibility of a corporation that does not maintain a place of business in New Jersey but, through another corporation that is related through common ownership, conducts business activity in New Jersey through the actions of the related New Jersey agent corporation in furtherance of common marketing, promotion, selling or service activity. This is commonly known as "affiliation nexus" or "agency nexus."

Notice to All Sales and Use Tax Vendors Regarding Rate Increase from 6% to 7%

Notice to All Sales and Use Tax Vendors: New Tax Rate Schedules

Tax Rate Schedules Effective July 15, 2006

Fur Clothing "Gross Receipts Tax"
ASSEMBLY Bill, No. 4714: Effective July 15, 2006, this bill imposes a six percent gross receipts tax on the retail sale of certain fur clothing in this State and a six percent use tax on the use of certain fur clothing in this State for which the gross receipts tax has not been paid. Although this is a gross receipts tax it will be administered similar to the sales and use tax, but is at 6% not 7%.

Urban Enterprise Zone (UEZ) Sales Tax Exemptions
ASSEMBLY Bill, No. 4702: Concerns sales tax exemptions for goods and materials purchased by qualified businesses in Urban Enterprise Zones.

Effective July 15, 2006, This bill requires qualified businesses to obtain their UEZ sales tax exemptions savings in rebate form, rather than exempting the sales tax at the point of sale.

Qualified businesses that are certified by the Director of the Division of Taxation as having had less than $1,000,000 in annual gross receipts in that business' prior annual tax period will receive the exemptions at the point of sale.

Revisions to Realty Transfer Fees
ASSEMBLY Bill, No. 4701: A 1% fee, or 1% tax, is imposed on certain purchasers of certain commercial property for over $1 million.

Similar to the so called "mansion tax" enacted in 2005 on residential property, this bill imposes upon the buyerof commercial real property classified for real property tax purposes as Class 4A "commercial properties", for consideration in excess of $1 million, a fee for the recording of the deed separate from the realty transfer fee imposed on the sellerequal to 1 percent of the full amount of the consideration paid. Class 4A "commercial properties" are any kind of income-producing real property other than property classified as vacant land, residential property, farm property, industrial properties, and apartments. The bill also imposes a parallel tax on the purchaser in a non-deed transfer of a controlling interest (more than 50%) in an entity (incorporated or unincorporated) that owns Class 4A "commercial properties" if the total consideration for the transfer is in excess of $1 million. That tax is equal to 1 percent of the full amount paid for the transfer of the controlling interest.

The bill applies to deed and non-deed transfers occurring on and after August 1, 2006; however, special provisions are made for transactions that were "under contract" before July 1, 2006 and for which the transaction was recorded by November 15, 2006.

Notice Regarding New Transferee's / Grantee's Fee on the Transfer / Purchase of Certain Commercial Real Property Where the Consideration Exceeds $1,000,000.

Revisions to Cigarette and Tobacco Tax
ASSEMBLY Bill, No. 4705: Raises cigarette tax rate to 17½ cents per pack, changes tobacco products wholesale sales tax on moist snuff to weight-based tax and increases revenue dedication for Health Care Subsidy Fund.

Effective July 15, 2006, this bill increases the cigarette tax rate by 17 ½ cents per pack of 20 cigarettes. Presently, the State excise tax on cigarettes is $2.40 per pack. This bill raises the tax to $2.575 per pack.

This bill also creates a weight-based tax on moist snuff. Currently, moist snuff is taxed with other tobacco products at a rate of 30% of the wholesale price. With this new tax, moist snuff will be taxed based on weight rather than based on wholesale price. The new tax will be $0.75 per ounce of moist snuff.,

Returns are due September 1, 2006 showing the amount of cigarettes in the retail licensee's possession in the State at 12:01 a.m. on the effective date (July 15, 2006)

The tax due is equal to the additional tax on the number of cigarettes bearing stamps, and unaffixed stamps on hand. Each licensed distributor and wholesale dealer shall at the time of filing that return pay the tax to the director.

Cigarette Tax: Minimum Wholesale and Retail Price Sheet and Letter

Notice of Cigarette Tax Increase and Tobacco Products Wholesale Sales Tax on Moist Snuff.

Electronic Filing and Paying State Taxes
ASSEMBLY Bill, No. 4704: Concerns electronic methods for filing tax returns and paying State taxes; establishes additional penalty for failure to use required methods and requires certain tax preparers to file gross income tax returns and payments electronically.

Luxury Automobile Titling Fee
ASSEMBLY Bill, No. 4707: Establishes one-time supplemental titling fee on new luxury and fuel inefficient passenger automobiles.

Effective July 15, 2006, the bill establishes a one-time supplemental titling fee on new luxury (sale or lease price of $45,000 or more) and fuel inefficient (less than 19 EPA average miles per gallon) passenger automobiles for which certificates of ownership are issued on and after July 15, 2006.

Motor Vehicle Rental Surcharge Increase
ASSEMBLY Bill, No. 4715: Increases rental motor vehicle surcharge from $2 per day to $5 per day.

Effective immediately (July 8, 2006), the bill raises the surcharge on motor vehicle rentals from $2 per day to $5 per day.

Notice to All Motor Vehicle Rental Companies

HMO Written Premium Annual Assessment Increase
ASSEMBLY Bill, No. 4716: Increases annual assessment on net written premiums of HMOs to support charity care from 1% to 2%. This increase is effective for assessments made in the 2007 and subsequent fiscal years.

For additional information regarding the these legislative changes or any other state tax issue, please contact any of Amper, Politziner & Mattia's State & Local Tax professionals:

Richard A. Sackin, CPA
(732) 287-1000

John C. Genz, CPA
(732) 919-1400

Stephen J. Bercovitch, JD
(212) 682-1600

Dale Ives, MBA
(908) 218-5002

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