New Jersey Strikes Back with Tax Incentives

The following article was first posted in the Insights section of Marcum’s website. It is reposted here with permission.

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For a while, New Jersey has been critical of New York on what it feels is lost revenue to New York from its controversial “convenience of the employer” rule.

Finally, Gov. Phil Murphy addressed the issue head-on when he signed New Jersey Assembly Bill 4694 in July of this year. The bill established a “reverse convenience rule” and a resident credit to employees who successfully challenge New York’s convenience rule.

New Jersey went a step further by creating incentives for companies to reassign employees to a New Jersey location, thus potentially avoiding the New York convenience rule altogether.

The bill established a nonrefundable gross income tax credit of $2,000 for resident individuals who get permanently reassigned from an out-of-state location to a New Jersey location.

The bill caps the tax credits awarded to qualified taxpayers at $10 million per state fiscal year on a first come, first serve basis.

Pilot Program

The bill also enacted a $35 million per year pilot program that will provide grants to out-of-state businesses that reassign New Jersey resident employees from an out-of-state location into a New Jersey location.

Companies approved for the grant will enter into an agreement with New Jersey establishing certain provisions, including the amount of the grant and the employees that the company will need to reassign.

Businesses can receive disbursements equal to the New Jersey Gross Income Tax withholdings, up to a maximum of $500,000, of resident employees reassigned by the business to a New Jersey location. Clawback provisions apply for misleading statements or non-compliance with the agreement.

To be eligible to apply for a grant, a business:

• Must be principally located in another state
• Have more than 25 full-time employees
• Apply to the New Jersey Economic Development Agency on or before July 1, 2028

Capital Investments

In awarding the grants, the NJEDA could require eligible businesses to make certain capital investments or provide compensation increases to the reassigned employees.

While New Jersey took steps to address its revenue shortfalls from other states imposing a convenience rule, the provisions of the enacted incentives (credit and grant) do not seem to only target employees coming from a state with a convenience rule.

[Note: Arkansas, Delaware, Nebraska, New York, and Pennsylvania apply the convenience of the employer rule. Connecticut applies the rule only to nonresident employees of a Connecticut employer who work from a remote location and reside in one of those five states.]

The broader provisions appear to apply even to states such as Pennsylvania, where New Jersey already has a reciprocal agreement.

Companies that are potentially eligible may want to consider whether the incentives would benefit their business and New Jersey resident employees.

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About the author: Lisa Haime is senior manager, tax and business services, with Marcum LLP.