TAX AND SPDEICTIIAOLN

BUSINESS E
LAW REPORT
A Newsletter from the Tax & Corporate Practice Group

www.flastergreenberg.com Summer 2002

Editor’s Note…
Richard J. Flaster
This entire Tax and Business Report is devoted to summarizing the most material provisions of the New Jersey Business Tax Reform Act
and the New Jersey Estate Tax changes of P.L. 2002, Chapter 31. The Tax Reform Act radically alters the Corporation Business Tax (“CBT”)
and hence the current playing field for businesses with a New Jersey “nexus.” P.L. 2002, Chapter 31 materially and significantly alters the New
Jersey Estate Tax and will now subject New Jersey estates which were previously exempt from taxation to new and significant state Estate Tax
obligations. Both new laws create tax structures quite different from other states, and businesses and individuals will be well-advised to
promptly re-assess their current income tax and estate tax planning.
If you provide us with your e-mail address and the e-mail addresses of colleagues who would be interested in receiving this Report,
we would be pleased to include that information in the data bank for this Report. Please send that information to me at
Rick.Flaster@flastergreenberg.com.

NEW JERSEY BUSINESS TAX REFORM ACT and

NEW JERSEY ESTATE TAX LAW CHANGES

Richard J. Flaster Alan H. Zuckerman Laura B. Wallenstein Elaine J. Petruzziello

Business Tax Reform Act

Aspect of Tax
C Corp Tax Rates
S Corp Tax Rates
Scope of Taxation
Prior Law
$0 - $100,000 income = 7% rate
$100,000 + income = 9% rate
Minimum tax = $210
FYE after 7/1/02 but before 7/1/03:
$0 - $100,000 = $0
Greater than $100,000 = .6%
FYE after 7/1/03: $0 tax
Taxes all corporations with a “nexus” to NJ.
New Law
$0 - $50,000 income = 6.5% rate
$50,000 - $100,000 income = 7.5% rate
$100,000 + income = 9% rate
Minimum tax = $500 ($2,000 for affiliated corporations
with payrolls greater than $5 million)
FYE before 7/1/06 = 1.33% rate
FYE after 6/30/06 but before 7/1/07 = .67% rate
FYE after 6/30/07 = $0 tax
Generally, taxes within constitutional limits all corporations
which derive income from NJ sources or have “nexus”
to NJ.

Copyright © 2002 Tax & Business Report • Flaster/Greenberg P.C.

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Aspect of Tax Prior Law New Law
AMA (Alternative No provision. Corporations pay greater of the CBT or AMA. At the
Minimum Assessment) corporation’s election (effective for five years), AMA is
calculated on the basis of either:
(a) Gross Receipts:
(i) $0 - $2 million = $0 assessment
(ii) $2 million - $20 million = .125% of gross
receipts above $2 million x 1.11111
(iii) $20 million - $30 million = .175% of gross
receipts
(iv) $30 million - $50 million = .3% of gross receipts
(v) $50 million - $75 million = .35% of gross receipts
(vi) $75 million + = .4% of gross receipts; or
(b) Gross Profits:
(i) $0 - $1 million = $0 assessment
(ii) $1 million - $10 million = .25% of gross profits
above $1 million x 1.11111
(iii) $10 million - $15 million = .35% of gross profits
(iv) $15 million - $25 million = .6% of gross profits
(v) $25 million - $37.5 million = .7% of gross profits
(vi) $37.5 million + = .8% of gross profits
Cap: $5 million for single corporation and $20 million
for affiliated group of 5 or more corporations.
Sunset: Generally by 7/1/06 (unless earlier abolished by
a 9 member commission on or before 12/31/04).
Credit carryover for excess AMA over CBT but subject
to limit of 50% of carryover year CBT
Scope = Inapplicable to NJ S corporations and professional
service corporations.
Investment Companies Limits taxable income to 25% of total income. Limits taxable income to 40% of total income.
Dividends Received 100% of dividends received from 80% - owned Eliminates exclusion for dividends received from companies
Exclusion companies are excludable and 50% of dividends owned less than 50%.
received from other companies are excludable.
Depreciation Generally followed Federal tax law. Disallows the 30% “bonus depreciation” provided by
2002 Federal tax law.
Operational Income Income allocation by three component Sales taxed in no other jurisdiction are eliminated from
Allocation formula based on fractions of NJ sales, payroll sales fraction denominator (the so-called “throw-out rule”
and assets. Sales fraction includes receipts for “nowhere sales”). Sales fraction includes all receipts
derived from financial services only if services derived from financial services to NJ customers irrespective
performed in NJ. of situs of service performance.
Deductions for Foreign Allowed. Eliminated.
Tax Payments
Non-Operational Income Specifically assigned to the taxing jurisdiction All Non-Operational Income is assigned to NJ if principal
(e.g., rent, royalties, of origin. office of corporation is in NJ, subject to constitutional
dividends, interest) limits.
Inter-Affiliate Charges Allowed. Generally eliminates deduction for inter-affiliate interest
payments (unless arm’s length terms and comparably taxed
to recipient) as well as royalties and other intangible
expenses paid to affiliates. Generally eliminates all
inter-corporate charges if not fair compensation and may
force consolidated return approach and new allocation
of charges.
NOL Carryover 7-year carryover. Suspension of carryover into 2002 and 2003 (but 2 years
added to 7-year carryover period at end).
Partnerships (including No processing fees. $150 per partner/member processing fee up to maximum
GP, LP, LLP and LLC) of $250,000 – paid for current year and 1/2 of next year in
with more than 2 owners advance, with overpayment credited to future obligations.

Tax & Business Report • Flaster/Greenberg P.C.

 3
Aspect of Tax Prior Law New Law
All partnerships (including No tax withholding for non-resident partners. Partnerships must withhold and remit income taxes for
GP, LP, LLP and LLC) non-resident partners.
Professional Service No processing fees. $150 processing fee for each licensed professional up to
Corporations maximum of $250,000 – paid for current year and 1/2 of
next year in advance, with overpayment credited to
future obligations.
R & D Deduction Allowed. Eliminates deduction used to claim NJ R&D credit but
not Federal R&D credit.
Job Investment Tax Allowed. Enhanced and extended to “mid-size” business (i.e., with
Credit $5 million or less in payroll and $10 million or less in
gross receipts).
3rd Quarter Estimated Due on 15th day of 9th month. For fiscal years beginning after 2002, 3rd Quarter payment
Tax Payment obligation is accelerated into 2nd Quarter for corporations
with gross receipts above $50 million.
4th Quarter 2002 25% of total estimated income calculated under 25% of total estimated income calculated under new law.
Estimated Tax Payment old law.
Effective Date of Act Tax years beginning on or after January 1, 2002.

Estate Tax Law Changes

Aspect of Tax Prior Law New Law
Estate Tax Changes Equal to the federal estate tax credit for state Equal to federal estate tax credit for state death taxes as
death taxes less the New Jersey Transfer if computed under 2001 law (with an Applicable
Inheritance Tax paid and hence no additional Exclusion Amount of $675,000) less New Jersey
cash outlay. Transfer Inheritance Tax paid. Therefore, the increase in
federal estate tax exclusion will not reduce the New Jersey
Estate Tax and many estates exempt from federal estate tax
will now have to pay substantial New Jersey Estate Tax.
Effective Date of P.L. Estates of decedents dying after 12/31/01.
2002, Chapter 31
(Estate Tax Changes)

Tax & Corporate Practice Group Services

Federal and State Taxation
◆ Tax planning
◆ Corporations, partnerships and LLC’s
◆ Sales, mergers and acquisitions
◆ IRS rulings
◆ Tax litigation
◆ Tax collections/liens
Business Corporate Services
◆ Business formations
◆ Structuring ownership arrangements
◆ Corporate control/management
contracts
◆ Shareholder disputes
◆ Contracts
◆ Sales, commercial mergers and
acquisitions
◆ Securities and finance
◆ Buy-ins/Buy-outs
◆ Employee agreements and
terminations
Wealth Preservation and Transfer
◆ Estate planning
◆ Drafting wills, trusts and other estate
planning documents
◆ Administration of estates and trusts
◆ Guardianships and conservatorships
◆ Litigation involving trusts and estates
◆ Asset protection
◆ Business transfers from one generation
to the next
Technology, E-Commerce and
Internet
◆ Contract agreements
◆ Protecting intellectual property rights
◆ Licensing
◆ Government regulation
◆ Venture capital
Employee Benefits
◆ Implementation and administration of
qualified retirement plans
◆ Employee Stock Ownership Plans
(ESOPs)
◆ Stock options, phantom stock and SAPs
◆ Plan qualification, IRS audits and
compliance issues
◆ Cafeteria plans and other welfare
benefit programs
◆ Employee benefit trusts
◆ Deferred compensation arrangements
This report is for general use and
information, and the content should
not be interpreted as rendering legal
advice on any matter. Specific situations
may raise additional or different
issues and such information should
be coordinated with professional
legal advice.

www.flastergreenberg.com
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Return Service Requested

Tax & Corporate Practice Group

Richard J. Flaster
Harvard Law School, J.D. 1966
Stephen M. Greenberg
Yale Law School, J.D. 1976
Laura B. Wallenstein
Rutgers Law School, J.D. 1977
New York University Law School, L.L.M. 1981

Office Locations 190 S. Main Road

Vineland, NJ 08360
(856) 691-6200
Allen P. Fineberg
Columbia Law School, J.D. 1979
Markley S. Roderick
Commerce Center University of Virginia Law School, J.D. 1982
1810 Chapel Avenue West 216 North Avenue Peter R. Spirgel
Cherry Hill, NJ 08002-4609 Cranford, NJ 07016 Georgetown Law School, J.D. 1985
Temple Law School, L.L.M. 1988
(856) 661-1900 (908) 245-8021
Alan H. Zuckerman
CPA 1982; Temple Law School, J.D. 1985
300 Walnut Street 2900 Fire Road, Suite 102A William S. Skinner
Philadelphia, PA 19106 Egg Harbor Township, NJ 08234 University of Pennsylvania Law School, J.D. 1986
(215) 922-4000 (609) 645-1881 Elaine J. Petruzziello
Willamette University, J.D., MBA 1985
University of Denver, L.L.M. 1986
Jeffrey S. Brenner
Rutgers Law School, J.D. 1989
Practice Areas Elliot D. Raff
University of Wisconsin Law School, J.D. 1990
Bankruptcy • Business and Corporate Services • Closely-Held and Family Businesses Aaron C. Buser
• Commercial Litigation • Commercial Real Estate • Construction Law • Employee Rutgers Law School, J.D. 2001
Benefits • Employment and Labor Law • Environmental Law • Estate Planning and Kristine M. Byrnes
Administration • Family Law and Adoption • Financial Work-Outs • Health Care Rutgers Law School, J.D. 1994
• Land Use • Pension and Retirement Plans • Securities Regulation • Taxation Mitchell R. Cohen (Of Counsel)
• Technology and Emerging Businesses Temple University Law School, J.D. 1979
Marc Garber (Of Counsel)
Duquesne University School of Law, J.D. 1981
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