Category: State Legislative/Budget Matters

Opportunity Zone Update – IRS Releases Second Set of Proposed Regulations

On April 17, 2019, the Internal Revenue Service released the second set of Qualified Opportunity Zone (“QOZ”) proposed regulations (the “New Regulations”). The New Regulations address multiple issues relating to the structuring and operation of qualified opportunity zone funds (“QOFs”) and provide clarity on areas that include: Meeting the original use test for purchased tangible property Safe harbors for leased tangible property to qualify as QOZ business property Related party rules for leased tangible property and tangible personal property Investment vs. active business use of QOZ land Safe harbors to meet the 50% gross income test for the active conduct of a QOZ business Inclusion events for otherwise deferred capital gains Definitions for the term “substantially all” used in several statutory provisions Special elections when QOF partnerships and S corporations dispose of property after 10 years QOF reinvestment of the proceeds from the distribution, sale, or disposition of QOZ property Application of the 90% asset test to newly contributed QOF assets The New Regulations provide answers to many unresolved questions and present needed definitions where uncertainties were impeding investment into QOZs, particularly with respect to QOZ businesses. Our new article discusses many of the details. Peter J. Ulrich, a Director...

Governor Murphy Presents FY 2020 State Budget

Governor Murphy presented his proposed Fiscal Year (FY) 2020 Budget to a joint session of the New Jersey Legislature on March 5, 2019. His spending plan for the upcoming fiscal year totals $38.6 billion, which is a $1.3 billion increase from last year’s appropriations bill. The Governor’s budget message continued his theme of a “fairer and stronger economy” to make the middle class more secure. He highlighted the recent enactment of a $15 minimum wage, expansion of paid family leave, and the implementation of the state’s paid sick leave law. The Governor also continued his call for greater K-12 education funding and making community college tuition free. The Governor’s proposal for FY 2020, which he described as a “blueprint for the middle class,” is built upon four pillars: Realizing sustainable savings; Stabilizing revenues and increasing creditworthiness; Maintaining and growing investment in education, infrastructure, and innovation; and Addressing affordability. To accomplish these goals, the Governor proposed: Achieving $1.1 billion in savings from public employee health benefit reforms and other departmental savings identified by the Treasury; Increasing the State’s surplus to $1.2 billion; Funding the State’s pension system at $3.8 billion; Reducing the diversion of funds from dedicated sources like the Affordable...

Qualified Opportunity Funds – An Important Step Forward – IRS Issues Proposed Regulations

On October 19, 2018, the IRS issued highly-anticipated proposed regulations regarding qualified opportunity funds (“QOFs”). As hoped, the proposed regulations provide taxpayers with sufficient initial guidance to start taking advantage of the outstanding tax benefits available to taxpayers making investments in QOFs investing in qualified opportunity zones. Under the new provisions, QOFs allow qualifying taxpayers to invest capital gain proceeds and achieve two significant and distinct tax benefits, (i) a deferral (and 10-15% reduction) of taxation on the original gains and (ii) essentially unlimited tax-free treatment of appreciation while invested in the QOF. The proposed regulations address several key issues relating to the establishment and qualification of a QOF, as well as the initial investments by taxpayers into such funds. Key sections provide that: only capital gains are eligible for deferral, QOFs may be structured as corporations or partnerships (or LLCs taxed as such), and gain proceeds may be split into one or more QOF investments. The proposed regulations also clarify rules relating to partnerships and create a new working capital 31-month safe harbor with respect to meeting the definition of a qualified opportunity zone business. Our new article on the significance and implications of the proposed regulations discusses many...

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...

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...

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...

NJ Legislative Budget Committees Receive Fiscal Updates

The Legislature received testimony regarding State revenues earlier this week. In separate appearances before the Assembly Budget Committee and the Senate Budget and Appropriations Committee, the State Treasurer and the Office of Legislative Services (OLS) testified regarding the revenue picture for the current fiscal year (FY 2017), and the anticipated revenues for the upcoming fiscal year (FY 2018). The OLS reported to the Committees that incoming revenues for FY 2017 are currently forecasted to be $228 million less than expected. However, the 2016 financial market rally and estimated tax payments by high-income earners suggest that FY 2017 revenues could push closer to the originally forecasted amounts. A more accurate revenue forecast will be available in May, after the April tax filing deadline passes. For FY 2018, both the Executive Branch and the OLS have similar projections for growth in the upcoming fiscal year. The Executive Branch anticipating growth that is only 0.6 percent higher than the OLS. While a small percentage amount, this still results in a difference of $212.9 million between the Executive Branch and OLS revenue estimates. The OLS Tax and Revenue Outlook can be accessed here. The State Treasurer’s testimony to the Assembly and Senate Budget Committees...

Governor Christie Presents the FY 2018 Budget

Earlier this week, Governor Christie announced his final State Budget to a joint session of the Legislature. The Governor’s Fiscal Year 2018 budget of $35.5 billion represents a 2.6 percent increase from the prior year. It assumes annual growth in the State’s major tax revenues (gross income tax, sales tax, and corporate business tax) and also reallocates funding between programs. The highlights of the FY 2018 Budget include: $17.4 billion in school and local aid, representing almost half of all State spending; A $2.5 billion contribution to the State pension system, with payments occurring quarterly; Cuts to most Executive Departments including Agriculture, Community Affairs, Corrections, Environmental Protection, Labor, Law and Public Safety, Military and Veterans Affairs, Transportation, and Treasury; Funding increases to the Departments of Health and Human Services for the expansion of FamilyCare, opioid addiction treatment, and graduate medical education; $20 million appropriation for lead remediation assistance for low and moderate income households; Additional State health benefit reforms, saving the State $125 million in FY 2018; and A lump-sum contribution from the State Lottery system to the State’s pension system to reduce the existing unfunded liability. Governor Christie also proposed a supplemental appropriation in the current fiscal year of...

New Jersey Legislature Focuses on Drone Technology

The First Legislative District Economic Development Task Force (“Task Force”) will meet on February 23, 2017, to discuss unmanned aviation technology and the potential impact it could have on the Southern New Jersey region. The Task Force, established by the New Jersey Senate in 2014 and reauthorized in 2016, was charged with “identifying methods, policies, regulations, incentives, and tools to foster economic activity and create jobs in Atlantic, Cape May, and Cumberland counties.” To accomplish its work, the 11-member Task Force is composed of a broad cross-section of thought leaders from the political, educational, and economic spheres. Over the last three years, the Task Force has met multiple times and has studied several issues of importance to the region. It has also studied aquaculture development and educational initiatives to develop a more skillful workforce. Throughout their deliberations, the members of the Task Force have identified actions that will grow the workforce and position the region to attract and support innovation. As the home of the William J. Hughes Technical Center and Stockton University, Southern New Jersey is known for aviation innovation. The testimony received by the Task Force on February 23rd will highlight the potential assets of the region. This...

Governor Christie Delivers 2017 State of the State Address

On January 10, 2017, Governor Chris Christie delivered his State of the State address to a joint session of the New Jersey Legislature. The Governor concentrated his remarks on his accomplishments over the past seven years, and his goals for the final year of his Administration. The Governor noted that during his tenure, the State saw seven consecutive years of job creation, decreasing the unemployment rate from 9.8% to 5.0%. The collective size of State, county, and local government was reduced by 31,000 employees and Discretionary State spending is $2.3 billion less today than it was nine years ago. The State contributed $6.3 billion to the State pension system since the Governor took office, double the amount that has been contributed over the past sixteen years. Governor Christie also stated that 2017 will be the first year since 1996 that New Jersey residents will see broad-based tax cuts, including a reduction in the sales tax, the phase-out of the estate tax, increases in retirement income tax exclusions, and increases in the earned income tax credit.