Ralph Thomas, the head of the New Jersey Society of CPAs, needs to hear more, but, at first glance, he feels the bipartisan tax legislation introduced last week is a good first step toward the state earning more revenue without additional taxes placed on New Jersey residents.
In short, New Jersey residents who work from home for companies based in other states, especially New York City, are forced to pay taxes to those states. Changing those rules potentially could bring New Jersey additional billions of dollars.
“We’d like to see more details on the exact language of the proposed legislation, but, on the surface, this certainly appears to be an important counterstrike at states, particularly New York, that have been unfairly and aggressively taxing New Jerseyans who work from home,” Thomas told ROI-NJ.
The legislation offers three possible solutions, and any or all could be adopted should the bill pass the Legislature and be signed into law — which appears likely, considering it has bipartisan support.
The proposals:
- Convenience of Employer:Under the first initiative, New Jersey would adopt its own “Convenience of Employer” provision, which would allow the state to tax employees of New Jersey firms if they worked at home in other states for their own convenience (instead of the employer’s need). This will start the process of creating parity with New York, which has its own provision that it uses to tax New Jersey residents working for New York firms who work at home for their own convenience, and with all other states that maintain the same legal rule.
- Tax credits for legal action:Under this initiative, the state would award tax credits to incentivize New Jersey residents to file legal actions against other states that collect taxes from them for services they perform while physically located in New Jersey.
- EDA pilot program:This initiative would establish a one-time $10 million pilot program, to be administered by the New Jersey Economic Development Authority, which would provide grants to certain businesses that assign their employees to New Jersey locations, incentivizing job growth and capital investments throughout the state.
Thomas said the proposals address key issues.
“We are pleased to see that the proposed legislation would create a Convenience of Employer provision that should bring pressure on New York to loosen its aggressive taxation policy of telecommuters,” he said. “We appreciate that intent of the proposal’s tax credits for legal actions taken by New Jerseyans and grants to businesses that assign their employees to New Jersey locations.”
Thomas, however, said he has a big concern.
Read more from ROI-NJ:
- Getting our tax back: Murphy, Legislature offer 3 proposals to fight unfair taxation by other states
“The proposal wants New Jersey residents to ask New York to send their income taxes to New Jersey instead, through the courts, if necessary,” he said. “That is a burden our members say that most taxpayers will be unwilling or unable to take on.”
The issue clearly is complicated.
And then there’s this: The courts have not been favorably viewing these efforts — which began shortly after the pandemic changed worked rules.
Gov. Phil Murphy’s administration did file a U.S. Supreme Court amicus brief in late 2020 in support of New Hampshire’s effort to challenge a similar situation with Massachusetts. The Supreme Court ultimately declined to take up the case.
Despite this, Thomas said the CPAs are happy the issue is being pressed.
“These are all great first steps and Gov. Murphy, Sen. Steve Oroho and all the lawmakers supporting this deserve a big round of applause,” he said.
