Tax Impact of Enacted Legislation in California, Connecticut, New Jersey & Ohio
By Lisa Haime, Senior Manager, Tax & Business Services
As states finalize budgets and pass new laws, it is important to consider the tax impact of any recently enacted legislation in order to plan effectively.
Below is a summary of key points in recent state and local tax (SALT) provisions in California, Connecticut, New Jersey, and Ohio.
- Enacted a tax on pass-through entities as a workaround for the $10,000 SALT deduction cap for individual pass-through entity deductions. More detailed information on this workaround can be found within our recently issued article.
- Allocated $120 million to the California Competes Tax Credit program to incentivize businesses to relocate to California. This is in addition to $1.5 billion invested in direct grants to California small businesses.
- Implemented a Tax Amnesty program that will be available from November 1, 2021, through January 31, 2022. Eligible taxpayers may receive an abatement of 75% of interest that otherwise would be due, and the Tax Commissioner will not seek to collect any civil penalties from such eligible taxpayers. Until further information is released, we expect the tax amnesty will apply to all types of taxes.
- Extended the expiring 10% corporation business tax surcharge until 2023.
- Delayed the phasing out of capital tax on corporations. The capital base tax phase-out now begins January 1, 2024, instead of January 1, 2021.
- Increased the cap on tax credits a taxpayer can claim for research and development (R&D) expenses, from 50.01% of the taxpayer’s annual tax liability to:
- 60% of the taxpayer’s annual liability for tax years beginning on or after January 1, 2022, and
- 70% of the taxpayer’s annual liability for tax years beginning on or after January 1, 2023.
- Reduced the period for unused R&D credits from unlimited to 15 years.
- Increased the aggregate cap on Invest CT tax credits, which relates to insurance taxes.
- Increased the Connecticut earned income tax credit (EITC) from 23% to 30.5% of the federal EITC.
- Allows a percentage of the Film and Digital Media Production Credit to be claimed against sales tax if certain conditions are met.
- Increased the threshold for the retirement income tax exclusion to $150,000.
- Provides additional deductions for higher education, including up to $10,000 for in-state tuition payments and up to $10,000 for contributions to 529 accounts.
- Made some key revisions to the New Jersey Economic Recovery Act of 2020:
- Tax credits for certain residential projects increased to 60% of total project costs.
- Tax credits for transformative projects increased to 40% of total project costs, with a $350 million limit.
- Tax credits for solar energy projects were expanded to include projects that generate geothermal, wind, or any other renewable or distributive energy.
- The top state income tax rate will drop from 4.797% to 3.99%.
- Beginning in 2026, Ohio will provide two income tax deductions for taxpayers with certain capital gains.
- Employment services for temporary labor or employment placement services will no longer be subject to sales taxes.
- The exemption for sales and use tax on the sale of investment metal bullion and coins was reinstated.
- Employees working from home may be included in annual employment reporting for the Job Creation Tax Credit.
For additional information regarding any of these updates, please contact your Marcum State and Local Tax professional.