NEW JERSEY S CORPORATION TAX REPEALED

By Neil Becourtney, CPA, JH Cohn LLP, Englewood Cliffs, N.J.

On February 2, 2001, acting New Jersey Governor Donald DiFrancesco signed into law legislation repealing the corporate-level tax imposed on New Jersey S corporations. Shareholders remain subject to New Jersey gross income tax on the pass-through of income from S corporations.

The 0.5% tax incurred by S corporations with a taxable income of $100,000 or less is immediately repealed for tax years ending on or after July 1, 2001. The 2% tax incurred by S corporations with taxable income in excess of $100,000 will be phased out over a three-year period as follows:

or after

Years ending on	Tax Rate
July 1, 2001	1.33%
July 1, 2002	0.67%
July 1, 2003	-0-

For estimated tax purposes, New Jersey uses a “last year’s facts—this year’s rates” safe harbor. For S corporations with taxable income in excess of $100,000, estimated tax payments can be reduced over the next two years in accordance with the above tax rate reductions. For example, assume that a calendar-year S corporation reports taxable income of $1 million for the year ended December 31, 2000, incurring a tax of $20,000. For calendar year 2001, this S corporation need only make estimated tax payments of $13,300 (2000 taxable income times 2001 tax rate) to qualify for the safe harbor and avoid an underpayment penalty.

It should be noted that S corporations remain subject to the $200 minimum tax in all instances. In addition, any S corporation income that is subject to federal corporate tax (e.g., built-in gains) will continue to be subject to New Jersey corporate level tax of 7.5% if $100,000 or less, or 9% if in excess of $100,000.

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State and Local Editor:
Stewart Buxbaum, CPA
S. Buxbaum & Company P.C.

Interstate Editor:
Nicholas Nesi, CPA
BDO Seidman LLP

Contributing Editors:
Henry Goldwasser, CPA
M.R. Weiser & Co. LLP

Steven M. Kaplan, CPA
Kahn, Hoffman, Nonenmacher & Hochman, LLP

Warren Weinstock, CPA
Marks Paneth & Shron, LLP

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