S2385

An Act terminating the estate tax and increasing the gross income tax rate on income exceeding $1,000,000, amending R.S.54:38-1, N.J.S.54A:2-1 and supplementing Title 54A of the New Jersey Statutes.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. R.S.54:38-1 is amended to read as follows:

54:38-1. a. The estate tax imposed pursuant to this section shall not apply to the transfer of an estate of a resident decedent dying on or after the effective date of P.L. , c. (C. ) (pending before the Legislature as this bill).

In addition to the inheritance, succession or legacy taxes imposed by this State under authority of chapters 33 to 36 of this title (R.S.54:33-1 et seq.), or hereafter imposed under authority of any subsequent enactment, there is hereby imposed an estate or transfer tax:

(1) Upon the transfer of the estate of every resident decedent dying before January 1, 2002 which is subject to an estate tax payable to the United States under the provisions of the federal revenue act of one thousand nine hundred and twenty-six and the amendments thereof and supplements thereto or any other federal revenue act in effect as of the date of death of the decedent, the amount of which tax shall be the sum by which the maximum credit allowable against any federal estate tax payable to the United States under any federal revenue act on account of taxes paid to any state or territory of the United States or the District of Columbia, shall exceed the aggregate amount of all estate, inheritance, succession or legacy taxes actually paid to any state or territory of the United States or the District of Columbia, including inheritance, succession or legacy taxes actually paid this State, in respect to any property owned by such decedent or subject to such taxes as a part of or in connection with the estate; and

(2) (a) Upon the transfer of the estate of every resident decedent dying after December 31, 2001 which would have been subject to an estate tax payable to the United States under the provisions of the federal Internal Revenue Code of 1986 (26 U.S.C. s.1 et seq.), in effect on December 31, 2001, the amount of which tax shall be, at the election of the person or corporation liable for the payment of the tax under this chapter, either

(i) the maximum credit that would have been allowable under the provisions of that federal Internal Revenue Code in effect on that date against the federal estate tax that would have been payable under the provisions of that federal Internal Revenue Code in effect on that date on account of taxes paid to any state or territory of the United States or the District of Columbia,

(ii) determined pursuant to the simplified tax system as may be prescribed by the Director of the Division of Taxation in the Department of the Treasury to produce a liability similar to the liability determined pursuant to clause (i) of this paragraph reduced pursuant to paragraph (b) of this subsection.

(b) The amount of tax liability determined pursuant to subparagraph (a) of this paragraph shall be reduced by the aggregate amount of all estate, inheritance, succession or legacy taxes actually paid to any state or territory of the United States or the District of Columbia, including inheritance, succession or legacy taxes actually paid this State, in respect to any property owned by such decedent or subject to such taxes as a part of or in connection with the estate; provided however, that the amount of the reduction shall not exceed the proportion of the tax otherwise due under this subsection that the amount of the estate's property subject to tax by other jurisdictions bears to the entire estate taxable under this chapter.

b. (1) In the case of the estate of a decedent dying before January 1, 2002 where no inheritance, succession or legacy tax is due this State under the provisions of chapters 33 to 36 of this title or under authority of any subsequent enactment imposing taxes of a similar nature, but an estate tax is due the United States under the provisions of any federal revenue act in effect as of the date of death, wherein provision is made for a credit on account of taxes paid the several states or territories of the United States, or the District of Columbia, the tax imposed by this chapter shall be the maximum amount of such credit less the aggregate amount of such estate, inheritance, succession or legacy taxes actually paid to any state or territory of the United States or the District of Columbia.

(2) In the case of the estate of a decedent dying after December 31, 2001 where no inheritance, succession or legacy tax is due this State under the provisions of chapters 33 to 36 of this title or under authority of any subsequent enactment imposing taxes of a similar nature, the tax imposed by this chapter shall be determined pursuant to paragraph (2) of subsection a. of this section.

c. For the purposes of this section, a “simplified tax system” to produce a liability similar to the liability determined pursuant to clause (i) of subparagraph (a) of paragraph (2) of subsection a. of this section is a tax system that is based upon the $675,000 unified estate and gift tax applicable exclusion amount in effect under the provisions of the federal Internal Revenue Code of 1986 (26 U.S.C. s.1 et seq.), in effect on December 31, 2001, and results in general in the determination of a similar amount of tax but which will enable the person or corporation liable for the payment of the tax to calculate an amount of tax notwithstanding the lack or paucity of information for compliance due to such factors as the absence of an estate valuation made for federal estate tax purposes, the absence of a measure of the impact of gifts made during the lifetime of the decedent in the absence of federal gift tax information, and any other information compliance problems as the director determines are the result of the phased repeal of the federal estate tax.

(cf: P.L.2002, c.31, s.1)

2. N.J.S.54A:2-1 is amended to read as follows:

54A:2-1. Imposition of tax. There is hereby imposed a tax for each taxable year (which shall be the same as the taxable year for federal income tax purposes) on the New Jersey gross income as herein defined of every individual, estate or trust (other than a charitable trust or a trust forming part of a pension or profit-sharing plan), subject to the deductions, limitations and modifications hereinafter provided, determined in accordance with the following tables with respect to taxpayers' taxable income:

a. For married individuals filing a joint return and individuals filing as head of household or as surviving spouse for federal income tax purposes:

(1) for taxable years beginning on or after January 1, 1991 but before January 1, 1994:

If the taxable income is: The tax is:

Not over $20,000.00.......... 2% of taxable income

Over $20,000.00 but not

over $50,000.00............. $400.00 plus 2.5% of the

excess over $20,000.00

Over $50,000.00 but not

over $70,000.00.............. $1,150.00 plus 3.5% of the

excess over $50,000.00

Over $70,000.00 but not

over $80,000.00.............. $1,850.00 plus 5.0% of the

excess over $70,000.00

Over $80,000.00 but not

over $150,000.00............. $2,350.00 plus 6.5% of the

excess over $80,000.00

Over $150,000.00............... $6,900.00 plus 7.0% of the

excess over $150,000.00

(2) for taxable years beginning on or after January 1, 1994 but before January 1, 1995:

If the taxable income is: The tax is:

Not over $20,000.00.............. 1.900% of taxable income

Over $20,000.00 but not

over $50,000.00................ $380.00 plus 2.375% of the

excess over $20,000.00

Over $50,000.00 but not

over $70,000.00.............. $1,092.50 plus 3.325% of the

excess over $50,000.00

Over $70,000.00 but not

over $80,000.00.............. $1,757.50 plus 4.750% of the

excess over $70,000.00

Over $80,000.00 but not

over $150,000.00............. $2,232.50 plus 6.175% of the

excess over $80,000.00

Over $150,000.00 ............. $6,555.00 plus 6.650% of the

excess over $150,000.00

(3) for taxable years beginning on or after January 1, 1995 but before January 1, 1996:

If the taxable income is: The tax is:

Not over $20,000.00............. 1.700% of taxable income

Over $20,000.00 but not

over $50,000.00................ $340.00 plus 2.125% of the

excess over $20,000.00

Over $50,000.00 but not

over $70,000.00.............. $977.50 plus 2.975% of the

excess over $50,000.00

Over $70,000.00 but not

over $80,000.00.............. $1,572.50 plus 4.250% of the

excess over $70,000.00

Over $80,000.00 but not

over $150,000.00............. $1,997.50 plus 6.013% of the

excess over $80,000.00

Over $150,000.00 ............. $6,206.60 plus 6.580% of the

excess over $150,000.00

(4) for taxable years beginning on or after January 1, 1996 but before January 1, 2004:

If the taxable income is: The tax is:

Not over $20,000.00............ 1.400% of taxable income

Over $20,000.00 but not

over $50,000.00................ $280.00 plus 1.750% of the

excess over $20,000.00

Over $50,000.00 but not

over $70,000.00.............. $805.00 plus 2.450% of the

excess over $50,000.00

Over $70,000.00 but not

over $80,000.00.............. $1,295.50 plus 3.500% of the

excess over $70,000.00

Over $80,000.00 but not

over $150,000.00............. $1,645.00 plus 5.525% of the

excess over $80,000.00

Over $150,000.00 ............. $5,512.50 plus 6.370% of the

excess over $150,000.00

(5) for taxable years beginning on or after January 1, 2004 but before January 1, 2016 (except as provided in section 1 of P.L.2009, c.69 (C.54A:2-1a) for taxable years beginning on or after January 1, 2009 but before January 1, 2010):

If the taxable income is: The tax is:

Not over $20,000.00 ........... 1.400% of taxable income

Over $20,000.00 but not

over $50,000.00 ................ $280.00 plus 1.750% of the

excess over $20,000.00

Over $50,000.00 but not

over $70,000.00 ............. $805.00 plus 2.450% of the

excess over $50,000.00

Over $70,000.00 but not

over $80,000.00 ............. $1,295.50 plus 3.500% of the

excess over $70,000.00

Over $80,000.00 but not

over $150,000.00 ............ $1,645.00 plus 5.525% of the

excess over $80,000.00

Over $150,000.00 but not

over $500,000.00 ............ $5,512.50 plus 6.370% of the

excess over $150,000.00

Over $500,000.00 ............ $27,807.50 plus 8.970% of the

excess over $500,000.00

(6) for taxable years beginning on or after January 1, 2016:

If the taxable income is: The tax is:

Not over $20,000.00 ........... 1.400% of taxable income

Over $20,000.00 but not

over $50,000.00 ................ $280.00 plus 1.750% of the

excess over $20,000.00

Over $50,000.00 but not

over $70,000.00 ............. $805.00 plus 2.450% of the

excess over $50,000.00

Over $70,000.00 but not

over $80,000.00 ............. $1,295.50 plus 3.500% of the

excess over $70,000.00

Over $80,000.00 but not

over $150,000.00 ............ $1,645.00 plus 5.525% of the

excess over $80,000.00

Over $150,000.00 but not

over $500,000.00 ............ $5,512.50 plus 6.370% of the

excess over $150,000.00

Over $500,000.00 but not

over $1,000,000.00 .......... $27,807.50 plus 8.970% of the

excess over $500,000.00

Over $1,000,000.00 ……… $72,657.50 plus 10.75% of the

excess over $1,000,000.00

b. For married individuals filing separately, unmarried individuals other than individuals filing as head of household or as a surviving spouse for federal income tax purposes, and estates and trusts:

(1) for taxable years beginning on or after January 1, 1991 but before January 1, 1994:

If the taxable income is: The tax is:

Not over $20,000.00............ 2% of taxable income

Over $20,000.00 but not

over $35,000.00................ $400.00 plus 2.5% of the

excess over $20,000.00

Over $35,000.00 but not

over $40,000.00................ $775.00 plus 5.0% of the

excess over $35,000.00

Over $40,000.00 but not

over $75,000.00.............. $1,025.00 plus 6.5% of the

excess over $40,000.00

Over $75,000.00................ $3,300.00 plus 7.0% of the

excess over $75,000.00

(2) for taxable years beginning on or after January 1, 1994 but before January 1, 1995:

If the taxable income is: The tax is:

Not over $20,000.00...... 1.900% of taxable income

Over $20,000.00 but not

over $35,000.00......... $380.00 plus 2.375% of the

excess over $20,000.00

Over $35,000.00 but not

over $40,000.00................ $736.25 plus 4.750% of the

excess over $35,000.00

Over $40,000.00 but not

over $75,000.00.............. $973.75 plus 6.175% of the

excess over $40,000.00

Over $75,000.00............... $3,135.00 plus 6.650% of the

excess over $75,000.00

(3) for taxable years beginning on or after January 1, 1995 but before January 1, 1996:

If the taxable income is: The tax is:

Not over $20,000.00......... 1.700% of taxable income

Over $20,000.00 but not

over $35,000.00................ $340.00 plus 2.125% of the

excess over $20,000.00

Over $35,000.00 but not

over $40,000.00................ $658.75 plus 4.250% of the

excess over $35,000.00

Over $40,000.00 but not

over $75,000.00.............. $871.25 plus 6.013% of the

excess over $40,000.00

Over $75,000.00............... $2,975.80 plus 6.580% of the

excess over $75,000.00

(4) for taxable years beginning on or after January 1, 1996 but before January 1, 2004:

If the taxable income is: The tax is:

Not over $20,000.00............ 1.400% of taxable income

Over $20,000.00 but not

over $35,000.00................ $280.00 plus 1.750% of the

excess over $20,000.00

Over $35,000.00 but not

over $40,000.00................ $542.50 plus 3.500% of the

excess over $35,000.00

Over $40,000.00 but not

over $75,000.00.............. $717.50 plus 5.525% of the

excess over $40,000.00

Over $75,000.00............... $2,651.25 plus 6.370% of the

excess over $75,000.00

If the taxable income is: The tax is:

Not over $20,000.00 ............ 1.400% of taxable income

Over $20,000.00 but not

over $35,000.00 ............... $280.00 plus 1.750% of the

excess over $20,000.00

Over $35,000.00 but not

over $40,000.00 ............... $542.50 plus 3.500% of the

excess over $35,000.00

Over $40,000.00 but not

over $75,000.00 ............. $717.50 plus 5.525% of the

excess over $40,000.00

Over $75,000.00 but not

over $500,000.00 ............. $2,651.25 plus 6.370% of the

excess over $75,000.00

Over $500,000.00 ............... $29,723.75 plus 8.970% of the

excess over $500,000.00

(6) for taxable years beginning on or after January 1, 2016:

If the taxable income is: The tax is:

Not over $20,000.00 ............ 1.400% of taxable income

Over $20,000.00 but not

over $35,000.00 ............... $280.00 plus 1.750% of the

excess over $20,000.00

Over $35,000.00 but not

over $40,000.00 ............... $542.50 plus 3.500% of the

excess over $35,000.00

Over $40,000.00 but not

over $75,000.00 ............. $717.50 plus 5.525% of the

excess over $40,000.00

Over $75,000.00 but not

over $500,000.00 ............. $2,651.25 plus 6.370% of the

excess over $75,000.00

Over $500,000.00 but not

over $1,000,000.00 ............. $29,723.75 plus 8.970% of the

excess over $500,000.00

Over $1,000,000.00 ……… $74,573.75 plus 10.75% of the

excess over $1,000,000.00

c. For the purposes of this section, an individual who would be eligible to file as a head of household for federal income tax purposes but for the fact that such taxpayer is a nonresident alien, shall determine tax pursuant to subsection a. of this section.

(cf: P.L.2004, c.40, s.17)

3. (New section) a. Notwithstanding the provisions of the “Administrative Procedure Act,” P.L.1968, c.410 (C.52:14B-1 et seq.) to the contrary, the Director of the Division of Taxation may adopt, immediately upon filing with the Office of Administrative Law, such regulations as the director deems necessary to implement the amendments to N.J.S.54A:2-1 made by section 2 of P.L. , c. (C. ) (pending before the Legislature as this bill) as to taxable years beginning in 2016, which regulations shall be effective for a period not to exceed 180 days from the date of the filing. The regulations may thereafter be amended, adopted, or readopted by the director as the director deems necessary in accordance with the “Administrative Procedure Act,” P.L.1968, c.410 (C.52:14B-1 et seq.).

b. (1) For purposes of the amendments to N.J.S.54A:2-1 made by section 2 of P.L. , c. (pending before the Legislature as this bill), this subsection shall apply for taxable years beginning in 2016.

(2) No additions to tax or penalty shall be imposed upon a taxpayer pursuant to N.J.S.54A:9-6 for insufficient payment of increased estimated tax on taxable income received before October 1, 2016 for which the increased estimated tax due is attributable to the rate imposed on taxable income over $1,000,000 by the amendments to N.J.S.54A:2-1 made by section 2 of P.L. , c. (pending before the Legislature as this bill).

(3) No interest, penalties, or other costs shall be imposed upon an employer maintaining an office or transacting business within this State and making payment of any salaries, wages and remuneration subject to the “New Jersey Gross Income Tax Act,” N.J.S.54A:1-1 et seq., or making payment of any remuneration for employment subject to contribution under the New Jersey “unemployment compensation law,” pursuant to R.S.43:21-1 et seq., for insufficient withholding of salaries, wages, and other remuneration paid before October 1, 2016 that is attributable to an increase in the amount of tax due pursuant to the rate imposed on taxable income over $1,000,000 by the amendments to N.J.S.54A:2-1 made by section 2 of P.L. , c. (pending before the Legislature as this bill).

4. This act shall take effect immediately and section 2 and 3 shall apply to taxable years beginning on or after January 1, 2016.

STATEMENT

This bill terminates the New Jersey estate tax and increases the gross income tax rate on income exceeding $1,000,000. The bill will raise a greater portion of State revenue from high-income generating activities rather than high-value assets passed at death. The bill ends the estate tax as the date of enactment.

This bill increases the rate of the New Jersey gross income tax for taxpayers with incomes exceeding $1,000,000 in taxable years beginning on or after January 1, 2016. The bill provides for adjusted income taxation at the following bracket at the following rate: over $1,000,000 is adjusted from 8.97% to 10.75%.