Wednesday, August 05, 2020

New Jersey's Corporate Business Tax Legislation: A Look at the Impact for Banks

Posted by OnCourse Staff July 3, 2018 5:15pm

Photo Credit: Stuart Miles

By Dennis Spinelli, CPA, Director - Tax Services  

This past weekend, the New Jersey Legislature and Governor Murphy came to an agreement on Corporate Business Tax ("CBT") changes in connection with the State's 2019 fiscal year budget. While some details still need to be ironed out, the new CBT provisions will have a significant impact on many New Jersey banks. Three of the more prominent components of the tax law changes are as follows: 

  • An increase in the current 9% tax rate for certain corporations depending on the corporation's level of allocated taxable (net) income. Corporations with allocated taxable income in excess of $1 million will be subject to a tax rate of 11.5% for tax years beginning on or after January 1, 2018 through December 31, 2019 (years 2018 and 2019 for calendar year taxpayers). The tax rate will be 10.5% for these corporations for tax years beginning on or after January 1, 2020 through December 31, 2021 (years 2020 and 2021 for calendar year taxpayers). After 2021, the tax rate reverts to 9%.
  • A reduction in the exclusion for dividend income received from a subsidiary that is at least 80% owned by the corporation. Current law provides for a full exclusion from income for these "intercompany" dividends. The new law decreases the dividend exclusion from 100% to 95% for taxable years beginning on or after January 1, 2017.
  • The adoption of combined (consolidated) tax filings under a unitary concept for corporations that are part of an affiliated group. This particular change is effective for tax years beginning on or after January 1, 2019. 

What does this mean for banks?  

The higher rates will create additional New Jersey tax expense for those banks with taxable income exceeding the stated threshold. For institutions affected by the new law, there is an immediate need to undergo an analysis that could require the revaluation of the NJ Deferred Tax Asset ("DTA") currently reflected on their Balance Sheet. The revaluation adjustment will be required for any temporary difference that is expected to "reverse" during the four-year surtax period referenced above. This DTA adjustment is similar to the adjustment made during the fourth quarter of 2017 as a result of the Federal tax rate change, with the major difference being that the NJ adjustment would be favorable for most banks. Also, due to the changes in the treatment of intercompany dividends, banks that are part of certain affiliated legal entity structures may end up paying more in NJ taxes than they have in the past.  

What are the next steps for banks?  

Bank Management teams should speak with their tax advisors to ascertain exactly how these changes will impact their institution's tax profile. As is the case with most new tax legislation, we anticipate further discussions will take place and some of the law changes will be clarified or possibly modified. At acxell Associates, our Tax Services group is closely monitoring this process, and we will provide additional updates as developments occur. Our experienced tax professionals are engaged in helping our clients understand the tax implications of the new law and discussing various tax planning options.

To learn about acxell's Tax Services and how we can help your institution, email or call 877-651-1700


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