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NEW JERSEY BUSINESS TAX REFORM ACT andNEW JERSEY ESTATE TAX LAW CHANGESEditor’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 Actand 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 Taxobligations. Both new laws create tax structures quite different from other states, and businesses and individuals will be well-advised topromptly 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.
Copyright © 2002Tax & Business Report•Flaster/Greenberg P.C.
www.flastergreenberg.comSummer 2002
T
AX AND
B
USINESS
L
AW
R
EPORT
A Newsletter from the Tax & Corporate Practice Group
T
AX AND
B
USINESS
L
AW
R
EPORT
A Newsletter from the Tax & Corporate Practice Group
 Alan H. Zuckerman 
Business Tax Reform Act
Aspect of TaxPrior LawNew Law
C Corp Tax Rates
$0 - $100,000 income = 7% rate$0 - $50,000 income = 6.5% rate$100,000 + income = 9% rate$50,000 - $100,000 income = 7.5% rateMinimum tax = $210$100,000 + income = 9% rateMinimum tax = $500 ($2,000 for affiliated corporations with payrolls greater than $5 million)
S Corp Tax Rates
FYE after 7/1/02 but before 7/1/03:FYE before 7/1/06 = 1.33% rate$0 - $100,000 = $0FYE after 6/30/06 but before 7/1/07 = .67% rateGreater than $100,000 = .6%FYE after 6/30/07 = $0 taxFYE after 7/1/03: $0 tax
Scope of Taxation
Taxes all corporations with a “nexus” to NJ.Generally, taxes within constitutional limits all corporations which derive income from NJ sources or have “nexus”to NJ.
Richard J. Flaster Elaine J. Petruzziello Laura B. Wallenstein 
 S P E C I A L E D I  T I O N
 
2
Tax & Business Report•Flaster/Greenberg P.C.
Aspect of TaxPrior LawNew 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 iscalculated on the basis of either:(a)Gross Receipts:(i)$0 - $2 million = $0 assessment(ii) $2 million - $20 million = .125% of grossreceipts above $2 million x 1.11111(iii) $20 million - $30 million = .175% of grossreceipts(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 profitsabove $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 profitsCap: $5 million for single corporation and $20 millionfor 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 subjectto limit of 50% of carryover year CBTScope = Inapplicable to NJ S corporations and professionalservice 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 receiptsderived from financial services only if servicesderived from financial services to NJ customers irrespectiveperformed in NJ.of situs of service performance.
Deductions for Foreign
 Allowed.Eliminated.
Tax PaymentsNon-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 interestpayments (unless arm’s length terms and comparably taxedto recipient) as well as royalties and other intangibleexpenses paid to affiliates. Generally eliminates allinter-corporate charges if not fair compensation and may force consolidated return approach and new allocationof charges.
NOL Carryover
7-year carryover.Suspension of carryover into 2002 and 2003 (but 2 yearsadded 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.
 
 www.flastergreenberg.com
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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/managementcontracts
◆
Shareholder disputes
◆
Contracts
◆
Sales, commercial mergers andacquisitions
◆
Securities and finance
◆
Buy-ins/Buy-outs
◆
Employee agreements andterminations
 Wealth Preservation and Transfer
◆
Estate planning
◆
Drafting wills, trusts and other estateplanning documents
◆
 Administration of estates and trusts
◆
Guardianships and conservatorships
◆
Litigation involving trusts and estates
◆
 Asset protection
◆
Business transfers from one generationto the next
Technology, E-Commerce andInternet
◆
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 andcompliance issues
◆
Cafeteria plans and other welfarebenefit programs
◆
Employee benefit trusts
◆
Deferred compensation arrangements
This report is for general use andinformation, and the content shouldnot be interpreted as rendering legaladvice on any matter. Specific situationsmay raise additional or differentissues and such information shouldbe coordinated with professionallegal advice.
Aspect of TaxPrior LawNew 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 tofuture obligations.
R & D Deduction
 Allowed.Eliminates deduction used to claim NJ R&D credit butnot 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 ingross 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 TaxPrior LawNew Law
Estate Tax Changes
Equal to the federal estate tax credit for state Equal to federal estate tax credit for state death taxes asdeath taxes less the New Jersey Transfer if computed under 2001 law(with an ApplicableInheritance Tax paid and hence no additional Exclusion Amount of $675,000) less New Jersey cash outlay.Transfer Inheritance Tax paid. Therefore, the increase infederal 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)
of 00

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