Recent Tax Law Changes in New York, New Jersey and Connecticut

This article provides an overview of recent tax law changes in New York, New Jersey and Connecticut affecting individuals and corporations.

New York

This year, for the first time since 2006, New York enacted its budget before the March 31st deadline. Miraculously, there were no major tax increases. In fact, most of the tax provisions within the budget legislation either created or expanded credit and incentive opportunities.

One such opportunity is the Excelsior Jobs Program Act (EJPA). Under this program, qualifying companies meeting various investment and new job creation levels can qualify for a variety of tax credits. One component of the EJPA is the Excelsior Jobs Tax Credit (EJTC). Previously, the credit was limited to $5,000 (up to the first $187,781 of wages) per employee per year. Now, however, the credit is computed by simply multiplying each qualifying employee’s wages by 6.85% with no annual limit. For certain employers in the high-tech area where wages tend to be higher, the elimination of the annual limit can be material. For example, a qualifying employee earning a salary of $500,000 will generate a credit of $34,250 as opposed to the $5,000 allowed under the old law.

Another component of the EJPA is the Excelsior Research and Development (R&D) Credit. Previously, the credit was limited to 10% of the federal R&D credit. However, as a result of the new legislation, qualifying taxpayers can claim up to 50% of the federal R&D credit. Again, this is a significant increase in benefits for taxpayers who create or expand their investments in New York.

Perhaps the best news to come out of New York’s budget legislation is that there was no extension of the increased 8.97% tax rate for individuals with adjusted gross income above $500,000. When enacted in 2009, the increased rate was set to expire on December 31, 2011. Although there was much concern that the legislature would extend the provision, it did not. Hence, for tax years beginning after January 1, 2012, New York’s highest tax rate for individuals will return to the pre-2009 level of 6.85%.

New Jersey

Like New York, New Jersey has not enacted any new or increased any existing taxes in the latest legislative session. That’s good news for individuals and corporations within the state. However, in June New Jersey did enact a law which phases in a single sales factor regime for apportioning income for corporate taxpayers. As a result, out-of-state companies stand to see their corporate taxes increase.

Under the new legislation, corporate taxpayers will begin to migrate towards a single sales factor beginning in 2012. For tax year 2012, the apportionment factors will be weighted as follows: sales (70%); property (15%); and payroll (15%). For tax year 2013, the apportionment factors will be weighted as follows: sales (90%); property (5%); and payroll (5%). For tax years beginning on January 1, 2014 and thereafter, corporate taxpayers will apportion their income purely based on the amount of sales in New Jersey over sales everywhere.

Single sales factor apportionment regimes tend to shift the corporate tax burden from in-state companies (that tend to have significant property and payroll in the taxing state) to out-of-state companies (that generally tend to have just sales in the taxing state).

It is highly advised for both in-state and out-of-state companies to refocus how they attribute sales of tangible personal property and services in New Jersey as the state migrates to the single sales factor. New Jersey does not conform to the Uniform Division of Income for Tax Purposes Act, and its sales sourcing rules do differ in some cases from the methods applied in other states.


In the most recent legislative session, Connecticut has enacted widespread tax increases which will immediately affect individuals and businesses operating in the state.

Effective January 1, 2011, Connecticut increased the number of tax brackets from three to six with the top marginal rate increased to 6.7%. The state has issued new withholding tables to account for the new brackets and rate changes. Individuals making quarterly estimated tax payments will have to adjust their payments (beginning with the September 15th payment) to take the new rates into account.

Also effective January 1, 2011, the gift and estate tax exemption amounts have been reduced from $3.5 million to $2.0 million. The gift tax includes all Connecticut taxable gifts made since the tax was enacted on January 1, 2005, and can include Connecticut real property, tangible property situated in Connecticut and gifts of intangible property made by Connecticut residents. The estate and gift tax rates begin at 7.2% for transfers over $2 million and graduate up to a maximum of 12% for transfers over $10.1 million.

Effective July 1, 2011, the state sales tax rate increased from 6% to 6.35% for most sales of taxable property and services. However, sales of certain “luxury” items including motor vehicles sold for $50,000 or more; watercraft sold for $100,000 or more; and jewelry (whether real or imitation) sold for $5,000 or more per article, is subject to a 7% tax rate in lieu of the 6.35% rate.

The new law also subjects a variety of new services to the sales tax including: valet parking at airports; yoga instruction; motor vehicle storage and road services; livery services; cosmetic medical procedures; manicure services; and spa services.

Connecticut has implemented a “NY Amazon” type nexus standard for remote retailers. Similar to New York, Connecticut will seek to require online retailers, with no physical presence in the state, to collect sales tax on sales to Connecticut consumers where such retailers use in-state, commission-based affiliates to generate sales. Connecticut expects this to increase the number of online retailers that will be required to collect and remit sales tax.

As for Connecticut’s corporate income tax, the 10% surcharge that was set to expire on December 31, 2011, has now been increased to 20% (only applicable to corporations with net income in excess of $100 million) and extended through December 31, 2013. The state increased the surcharge in lieu of enacting a sales sourcing “throwback” rule that would have increased the Connecticut sales factor for businesses that make sales in other states where they are not subject to taxation.

Finally, Connecticut enacted new taxes and fees on hospitals, nursing homes and electric generation companies. These new taxes and fees generally went into effect on July 1, 2011. Therefore, as you can see from the breadth of the changes, a fresh review of your Connecticut business operations and tax compliance is well advised.