We wanted to alert you to an important law passed in our home state of New Jersey last week. Even if you are not a New Jersey resident, laws like this bear watching. As states compete against each other for business and labor, this is an important tax law change that may impact tax policy in other states.
After months of negotiating, NJ Governor Chris Christie and the State Senate and Assembly reached a deal concerning transportation funding and the NJ estate tax. Passed by both houses, Governor Christie signed the law on Friday, October 14th.
In recent years, New Jersey has seen an exodus of high net worth senior citizens to tax friendly states such as Florida, Texas and Arizona. Along with the obvious benefits of better weather, these states do not levy taxes on their citizens’ estates when they pass away. We believe that the estate tax has been a significant reason that citizens choose to leave New Jersey as moving to these tax friendly states allows individuals to pass more of their assets on to their families. The removal of this tax will make it more desirable to maintain a New Jersey residency.
The NJ media is marketing this as a gas tax increase, but buried in the new law is a repeal of the New Jersey estate or death tax.
Here are a few of the key components to the new law.
- The NJ estate tax will be eliminated over the next two years. Currently, New Jersey assesses an estate tax on any estates over $675,000. That threshold would rise to $2 million on Jan 1, 2017 and then be eliminated altogether in 2018. It is important to note that the New Jersey Inheritance Tax remains intact. The New Jersey Inheritance Tax is imposed on amounts passing to beneficiaries other than close relatives. Close relatives includes parents, spouses, children and grandchildren. Any amounts bequeathed to brothers, sisters, cousins or friends could have an inheritance tax between 11% to 16%.
- The gas tax will go up by 23 cents per gallon. Currently at 14.5 cents per gallon, consumers will now pay a total of 37.5 cents per gallon at the pump, the seventh highest tax rate in the U.S. However even with this increase, the NJ gas tax is still lower than neighboring New York and Pennsylvania. The tax is going to be used to support a $32 billion transportation program to pay for improvements to railroad, roads and bridges. An interesting point of the law is that the 23 cent increase is not a set amount. The law ensures the state will collect $1.16 billion each year. So if gas sales decline, the rate will be increased to hit the required $1.16 billion.
- New Jersey shoppers will see a small reduction in the state sales tax. The sales tax, currently at 7% will be reduced to 6.875% on January 1, 2017 and further reduced to 6.635% on Jan 1, 2018.
Please feel free to contact us if you want to discuss how this change in the law may impact your estate planning strategy.