New Jersey Corporation Business Tax on Regular S Corporation Income to Be Phased Out

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Title:
New Jersey Corporation Business Tax on Regular S Corporation Income to Be Phased Out
Date:
March 1, 2001
Area(s) of Practice:
Tax Law

New Jersey recently adopted legislation that will phase out the New Jersey Corporation Business Tax on regular S corporation income.  The Corporation Business Tax on regular income of S corporations having annual entire net income in excess of $100,000 will be phased out over three years.  The tax rate will be 1.33% for tax years ending on or after July 1, 2001; 0.67% for tax years ending on or after July 1, 2002; and the tax on regular income of S corporations will be eliminated for tax years ending on or after July 1, 2003.  The tax rate is currently 2%.

New Jersey Corporation Business Tax on regular income of S corporations having annual entire net income of $100,000 or less will be eliminated for tax years ending on or after July 1, 2001.  The tax rate is currently 0.5%.

The legislation may impact the analysis of whether an S corporation is preferable over other entities.  With this latest change, in certain cases an S corporation may be more favorable than LLCs or partnerships when withholding tax responsibility is taken into account.  In many situations, LLC or partnership income is subject to FICA/FUTA and the 2.9% medicare tax, whereas S corporation income is not.