Government & Regulatory Affairs Alert Blog

Qualified Opportunity Zones – Waiting for Guidance

As part of the comprehensive 2017 Tax Reform, Congress enacted a set of provisions originally introduced in the Investing in Opportunity Act. These provisions present investors with an entirely new taxpayer-friendly investment vehicle. Rolling over the gain proceeds from the sale of any property, presumably including stock or real estate (the “initial property”), into an investment in a qualified opportunity zone (“QOZ”) offers investors the chance to defer and reduce capital gains on that initial sale, and achieve a subsequent tax-free exit from the QOZ investment. Tax Benefits Again, the tax benefits start with a deferral of gain on the current sale of the initial property until December 31, 2026 if the gain proceeds from that initial sale are invested within 180 days in a Qualified Opportunity Zone Fund (“QOF”), or until the investor exits the QOF (if before December 31, 2026). If the proceeds remain in the QOF for at least five years, the basis of the investment is increased by 10% (which will reduce taxes by 10% on the gain from the sale of such initial property). If the proceeds are kept in a QOF for at least seven years, the basis is increased an additional 5%, providing...

Applications Now Open for Six Additional Alternative Treatment Centers

New Jersey’s Department of Health is seeking applications for six new medical marijuana dispensaries, known as Alternative Treatment Centers (ATCs), to be located in the Northern, Central, and Southern regions of the State. Below is some critical information on the application process which closes on August 31, 2018. Why the Department Needs Additional ATCs The six current licensed ATCs are reaching their limit in terms of the number of patients they can treat. In March 2018, Governor Murphy and the Department added five additional medical conditions to the list of qualifying diagnoses eligible for treatment with medicinal marijuana. Among the conditions were two new types of chronic pain, as well as anxiety, migraines, and Tourette’s Syndrome. Since the addition of these conditions, the program has grown by over 7,000 patients and the total number is in excess of 25,000 people. What the New ATCs Can Do The six ATCs to be licensed will be vertically integrated and allow for the cultivation, manufacturing, and dispensing of marijuana. The Department’s objective is to have two licensees located in the Northern region (Bergen, Essex, Hudson, Morris, Passaic, Sussex, and Warren), two in the Central region (Hunterdon, Middlesex, Mercer, Monmouth, Ocean, Somerset, and Union), and...

Tax Changes Funding New Jersey’s New 2019 Budget

This past weekend, Governor Phil Murphy and the New Jersey legislature avoided a government shutdown by agreeing to a $37.4 billion compromise budget deal, which included significant changes to New Jersey’s business and individual taxes, including: A new “millionaire’s tax” on individuals earning $5 million or more increasing the top marginal Gross Income Tax (“GIT”) rate from 8.97% to 10.75% Business taxpayers with NJ allocated income in excess of $1 million will be liable for a 2.5% surtax (on top of the current 9% rate) for the next two years, with the surtax reduced to 1.5% for the following two years The new federal pass-through business income deduction (IRC Section 199A) will be unavailable for Corporation Business Tax (“CBT”) or GIT purposes; other decoupling provisions were adopted For CBT apportionment purposes, sales of services will be sourced to New Jersey if, or to the extent that, the benefit of the service is received at a location in New Jersey Additional legislation to expand the reach of the sales and use tax to remote sellers in light of the recent Supreme Court ruling in Wayfair v. South Dakota is awaiting the Governor’s signature Mandatory unitary combined reporting under the CBT is...

2018 Primary Yields (Mostly) Anticipated Results

New Jerseyans went to the polls on June 5th to select their party’s nominees for the November elections. The most closely watched races were the primaries for the upcoming Congressional races. Nationally, Democrats see a path to gain control of the House of Representatives and possibly the U.S. Senate, but it requires that the party hold their current seats while picking up enough open seats and defeating incumbent Republicans to gain the majority. U.S. Senate As expected, incumbent Democratic Senator Bob Menendez will face Republican Bob Hugin, the former CEO of Celgene. In addition to holding Senator Menendez’s seat, Democrats must win at least two Senate seats held by Republicans in order to flip control of the Senate. House of Representatives Democrats must flip 25 seats nationally to gain control of the House. Democrats believe three of those seats could be in New Jersey, which has a delegation of seven Democrats and five Republicans. In the 2nd Congressional District, State Senator Jeff Van Drew won a contested primary to earn the Democratic nomination. He will face Republican Seth Grossman, an attorney and former local and county office holder. While Senator Van Drew was expected to win the primary, Mr. Grossman...

Update: U.S. Treasury Approves New Jersey’s Opportunity Zones

As we had previously written, the Murphy Administration recently recommended 169 census tracts within 75 New Jersey towns to the U.S. Department of Treasury for inclusion in the newly-created federal Opportunity Zones Program. The Treasury Department has now approved Governor Murphy’s recommendations. A list of the Opportunity Zones and an interactive map showing the Zones can be found through the New Jersey Department of Community Affairs. Championed by Senators Cory Booker (D-NJ) and Tim Scott (R-SC), the 2017 tax reform law incorporated the Opportunity Zones Program to provide federal community development tax incentives and encourage long-term investment in eligible census tracts. The Program allows investors to temporarily defer payment of federal income tax on realized gains if the gains are invested in a qualified Opportunity Fund within 180 days of the date of the particular taxable sale or exchange. In addition, when a taxpayer disposes of an investment in a qualified Opportunity Zone held by the taxpayer for at least 10 years, the taxpayer can elect to exclude from gross income the capital gain on the investment in the Opportunity Zone Fund. A qualified Opportunity Fund is an investment vehicle that is organized as a partnership or a corporation for...

Medical Marijuana Reforms on the Horizon

Governor Phil Murphy and the New Jersey Legislature are taking actions towards expanding the medical marijuana program. The Governor announced new rules and regulations to reduce barriers to access for medical marijuana. These include expanding the list of debilitating medical conditions eligible for treatment with cannabis, permitting currently licensed Alternative Treatment Centers (ATCs) to dispense at satellite locations, eliminating the physician registry for doctors who prescribe marijuana, and soliciting new applicants for ATC permits. These actions stem from the Administration’s report on ways to expand access to marijuana for medical purposes. The New Jersey General Assembly Health and Senior Services Committee also recently approved legislation that would vastly expand the State’s existing medical marijuana program. The bill, A-3740, would allow medical marijuana to be prescribed for any condition and give greater flexibility for patients and caregivers to purchase and transport medical marijuana. Most importantly, and unlike the current medical marijuana distribution system where ATCs both cultivate and dispense medical marijuana, A-3740 creates a separate manufacturing and licensure system. The bill allows for the licensure of 34 medical marijuana dispensaries that would be authorized to dispense marijuana and marijuana products to patients. The legislation would also permit licensure of six medical marijuana cultivator-processors...

New Jersey Picks Its Opportunity Zones

The Murphy Administration announced it has recommended census tracts within 75 New Jersey towns to the U.S. Department of Treasury for inclusion in the newly-created federal Opportunity Zones Program. Championed by Senators Cory Booker (D-NJ) and Tim Scott (R-SC), the 2017 tax reform law incorporated the Opportunity Zones Program to provide federal community development tax incentives and encourage long-term investment in eligible census tracts. The Program allows investors to temporarily defer payment of federal income tax on realized gains if the gains are invested in a qualified Opportunity Fund within 180 days of the date of the particular taxable sale or exchange. In addition, when a taxpayer disposes of an investment in a qualified Opportunity Zone held by the taxpayer for at least 10 years, the taxpayer can elect to exclude from gross income the capital gain on the investment in the Opportunity Zone Fund. A qualified Opportunity Fund is an investment vehicle that is organized as a partnership or a corporation for the purpose of investing in Opportunity Zone Property. Eligible Opportunity Zone Property generally includes (i) stock in a domestic corporation; (ii) any capital or profits interest in a domestic partnership; and (iii) tangible property used in a trade...

Governor Murphy Delivers Fiscal Year 2019 Budget Address

Governor Phil Murphy delivered his first budget address to the New Jersey State Legislature on Tuesday, March 13th. The Governor’s proposed Fiscal Year (FY) 2019 Budget totals $37.4 billion, which is a $2.7 billion increase from the $34.7 billion spending plan enacted in Fiscal Year 2018. The Governor stated that the proposed FY 2019 Budget is “realistic and responsible,” affirms New Jersey’s values, and will begin the process of returning New Jersey to being a “good value for good money.” To accomplish this, Governor Murphy is proposing to: Increase public school spending by $341 million in FY 2019 with the goal of reaching full funding in four years; Invest an additional $83 million in pre-K this year and start a four-year expansion of a statewide program; Make community college tuition free for all in three years by investing an additional $50 million this fiscal year; Add 3,500 new Tuition Aid Grant awards; Triple funding for New Jersey Transit with an additional $242 million in investment; Increase the Earned Income Tax Credit from 35 percent to 40 percent over three years; Provide $3.2 billion in payments to the state pension system; Increase the minimum wage to $11 per hour for state...

New Jersey Corporate Reforms Become Law

A package of bills that reform the New Jersey Business Corporation Act (“NJBCA”) were signed into law on January 16, 2018. We previously wrote about this legislation which was modeled upon provisions of the “Delaware Business Corporation Law” and was recommended for enactment by the “New Jersey Corporate and Business Law Study Commission.” These revisions generally benefit corporate boards of directors and modernize provisions of the NJBCA. Inspections of Corporate Books and Records (P.L. 2017, c.364) Assembly Bill 2975 (Diegnan/Pinkin) modifies the NJBCA to allow corporations to impose reasonable limitations or conditions on the use or distribution of requested corporate books and records. While the law does not define such “limitations and conditions,” the legislative statement provides an example of conditioning the receipt of requested materials on the demanding shareholder agreeing to customary confidentiality obligations. The measure preserves the ultimate authority of a court to decide and order relief in actions brought by shareholders for inspection of materials. Derivative Proceedings and Shareholder Class Actions (P.L. 2017, c.362) Assembly Bill 2970 (Diegnan/Pinkin) gives corporations greater flexibility to vary the applicability or effect of commencing and maintaining a derivative proceeding and shareholder class action. This new law deviates from the prior standards and requires that...

Gov. Murphy’s First Executive Order Prohibits State Government from Asking Applicants about Salary History

Governor Phil Murphy has signed an executive order which bars state workers from asking job applicants seeking positions with the state about their previous salaries in his first official act after his swearing-in on January 16, 2018. State entities may now only inquire as to an applicant’s past salary history after the entity has made a conditional offer of employment, which includes an explanation of the compensation package being offered to the applicant. The goal of the executive order is to eliminate wage inequalities that result from female employees who accept lower starting salaries and then remain on a lower compensation track, with pay disparities compounding over time. Significantly, at the signing ceremony, the Governor stated that he would sign a bill that extended these same provisions to private sector employers which the legislative sponsors vowed to move quickly to his desk. In fact, legislation has already been introduced that prohibits an employer from inquiring about the salary history of an applicant. Assembly Bill 1094 was introduced on January 9, 2018 by Assemblywoman Joanne Downey (D-11) and referred to the Assembly Labor Committee. Senate Bill 559 was introduced by Senator Nia Gill (D-34) on January 9, 2018 and referred to...