On 18 January, New Jersey Gov. Phil Murphy (D) signed S 4068, which revises the Business Alternative Income Tax (BAIT) by amending the calculation of the tax base ‒ i.e., “distributive proceeds” ‒ to include all of the distributive share of partnership income of residents that is subject to tax under the New Jersey Gross Income Tax Act. Prior to the amendment, “distributive proceeds” was defined as the net income, dividends, royalties, interest, rents, guaranteed payments, and gains of a pass-through entity (PTE), derived from or connected with sources within New Jersey for both resident and nonresident members. The changes are effective as of 1 January 2022.
Observation: The Division of Taxation is in process of updating its website guidance, including FAQs, to address the impact of the legislative changes. Certain aspects of the legislation remain open to interpretation, and taxpayers should continue monitoring developments as the Division issues guidance, including anticipated regulations. As PTEs engage in modeling exercises, other relevant legislative changes, including tax rate changes, should also be considered.