States continue to provide relief in response to the spread of the COVID-19 virus. This week, numerous states responded to the federal income tax filing extension, and we expect additional states to respond in the coming days. Some states are also offering relief for non-income business taxes, and much of the relief is limited to small- to mid-size businesses. Furthermore, COVID-19 is causing complications in property tax assessments, payments, and appeals.
The World Health Organization has officially declared the coronavirus outbreak to be a pandemic. In addition to the cost on human life, the rapid spread of COVID-19 has left a trail of economic damage affecting business revenues. COVID-19 has caused complete or partial shutdown of factories, supply chain disruptions, and labor shortages, and has impacted demand in certain industries. This impact will also be felt by U.S. state, and local governments.
In response to the federal $10,000 cap on the state and local tax deduction, New Jersey recently enacted an elective pass-through entity tax. By taxing pass-through entities, the law shifts the tax burden from individuals subject to the federal deduction limitation to entities that are not subject to the limitation, which deduction then flows through to the pass-through entities’ owners without limitation. While uncertainty remains about the federal deductibility of such state pass-through entity taxes by individual owners, New Jersey joins a growing number of states to pass similar legislation in the wake of the SALT deduction cap, including Connecticut, Louisiana, Oklahoma, Rhode Island, and Wisconsin.
On September 27, 2018, the New Jersey Senate and General Assembly passed legislation amending certain provisions of the New Jersey Corporation Business Tax (“CBT”) reform bill that was enacted earlier this year (“Technical Amendments”). In July, Governor Phil Murphy and the New Jersey Legislature enacted a $37.4 billion budget package (the “Budget Bill”) that implements sweeping changes to the CBT. Among these changes are mandatory unitary combined reporting, market-based sourcing, and a new four-year surtax on corporations with over $1 million of allocated taxable net income. The Technical Amendments, which are awaiting Governor Murphy’s signature, make several changes to the Budget Bill. A summary of the most noteworthy provisions contained in the Budget Bill and Technical Amendments is below.