NJ Corporations Will Get Boost From Trump Tax Reform: CPA Group

ESSEX COUNTY, NJ — Corporations in New Jersey are expected to get a big boost from the Trump Administration’s recent federal tax reforms, according to the Essex County-based New Jersey Society of CPAs (NJCPA).

Almost 50 percent of 133 certified public accountants (CPAs) surveyed last month by the NJCPA said either “many” or “most/all” of their corporate clients would benefit from the Tax Cuts and Jobs Act of 2017 (TCJA).

The 15,000-member-strong Roseland organization added that almost 50 percent of the 74 CPAs polled who work for New Jersey companies said their company will see “moderate” to “significant” tax savings from tax reform.

According to the NJCPA:

“[We] separately polled CPAs working at CPA firms about whether or not their corporate clients stand to benefit from the TCJA and polled corporate CPAs about what benefits, if any, the TCJA will have on their companies. Of those CPAs who said their clients will benefit from tax reform, more than 50 percent said clients have not yet decided what to do with the extra tax relief, while more than 30 percent said their clients plan to reinvest in their business (e.g., equipment or software). More than 25 percent said their clients plan to expand their business, and more than 20 percent said they will either hire more employees or provide raises for employees.”

The NJCPA added:

“Similarly, the majority (46 percent) of the corporate CPAs who said their company will benefit from tax savings have yet to decide what to do with the savings, while more than 31 percent plan to reinvest in the business and nearly 15 percent plan to expand their business.”

PREPAID TAXES IN NJ AND THE SALT DEDUCTION: AG QUIZZES IRS

On the same day that the New Jersey Society of CPAs released their report, NJ Attorney General Gurbir Grewal sent a letter to the Internal Revenue Service (IRS) advising that, under his interpretation of state law, New Jerseyans who prepaid their 2018 local property taxes in 2017 are entitled to the 2017 state and local tax (SALT) deduction.

“This is a matter of fundamental fairness,” Grewal stated in the letter, which addresses public confusion resulting from an IRS Advisory on the issue. “If corporations can deduct employee bonuses in 2017 that will not be paid until 2018, individuals must be able to deduct property tax payments they made in 2017.”

According to Grewal, the Tax Cuts and Jobs Act of 2017 adopted an "unprecedented" change to the federal tax code. Previously, taxpayers could deduct from their federal tax liability all money paid for state and local income, property and sales taxes. Under the new code, however, the same taxpayers can only claim a deduction of up to $10,000 for those taxes.

Attorney General Grewal’s letter notes that many New Jersey residents, in an attempt to “mitigate the impact of the new law” rushed to prepay their state and local taxes in 2017.

“Thousands of our residents … assumed that local property tax payments made in 2017 would receive 2017 federal tax treatment," he wrote to the IRS.

However, the IRS issued an advisory on December 27, 2017 that was "ambiguous" and left the public unclear on the issue, stating that only some 2018 real property taxes prepaid in 2017 would qualify for 2017 treatment, Grewal said.

According to the IRS advisory, whether or not an individual would be allowed a deduction for prepayment depends “on whether … the real property taxes are assessed prior to 2018," an issue of “state or local law," Grewal said.

In his letter to the IRS, Grewal said that New Jersey law “welcomes prepayments – and if residents start satisfying their tax obligations during the prior year, their payments are ‘credited’ at that time."

"So as a matter of state law, a 2018 local property tax payment made in 2017 is entitled to treatment under 2017 rules," Grewal wrote.

Even if New Jersey statutes did not resolve the issue, Grewal said, an executive order issued in 2017 reaffirmed the state’s intent to permit prepayment of 2018 property taxes in calendar year 2017, and “to credit those payments as received in calendar year 2017 if the payment is postmarked on or before December 31, 2017.”

“All relevant sources of New Jersey law thus point to the same result – that New Jersey residents who prepaid their 2018 local property taxes in 2017 are entitled to the SALT deduction that applied in 2017,” Grewal asserted. “State statutes, executive orders and agency notices are clear that residents may satisfy property tax assessments in advance and payments must be credited at that time.”

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