Assembly Commerce and Economic Development Committee Statement to Assembly, No. 4694 (May 18, 2023)

Summary

The Assembly Commerce and Economic Development Committee, in a statement dated May 18, 2023, reports favorably Assembly Bill No. 4694 with committee amendments. The bill as amended would establish a rule for taxation of the income of an employee who works for a New Jersey employer but resides and works outside of New Jersey at the employee's convenience. It provides a refundable gross income tax credit equal to 50 percent of the taxes owed to New Jersey after the readjustment of the credit for taxes paid to another State. It also establishes a nonrefundable credit of $2,000 for individuals who accept a reassignment from an out-of-State location to an in-State location, with tax credits capped at $10 million per State fiscal year.

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ASSEMBLY COMMERCE AND ECONOMIC DEVELOPMENT
                COMMITTEE

                          STATEMENT TO

                     ASSEMBLY, No. 4694
                         with committee amendments



       STATE OF NEW JERSEY
                             DATED: MAY 18, 2023

          The Assembly Commerce and Economic Development Committee
      reports favorably Assembly Bill No. 4694, with committee
      amendments.
          This bill, as amended, would establish a rule for the taxation on the
      income of an employee who works for a New Jersey employer but
      who resides and works outside of New Jersey at the employee’s
      convenience. The bill provides for certain reciprocal treatment for
      income taxation, so that if another state in which an employee resides
      imposes tax on the income of an employee who works out-of-state for
      an in-state employer due to the convenience of the employee, that
      same rule will apply to a person who works for a New Jersey employer
      but who resides and works outside of New Jersey at the employee’s
      convenience. This means that if an employee’s state of residence
      determines the source of income of nonresidents by a “convenience of
      the employer test,” and the employee works for a New Jersey
      employer from a location in the employee’s state of residence for the
      employee’s own convenience, then the New Jersey employer would be
      required to include those days as days worked in New Jersey and
      withhold income tax accordingly.
          The bill also provides a refundable gross income tax credit
      available to New Jersey resident taxpayers who obtain a final
      judgment from another state’s or jurisdiction’s tax court or tribunal in
      the resident taxpayers’ favor resulting in the resident taxpayer being
      refunded taxes paid to that State or jurisdiction on the basis that the
      income was derived from services rendered while the resident taxpayer
      was within New Jersey. The credit would be equal to 50 percent of the
      amount of the taxes that are owed to New Jersey as a result of the
      readjustment of New Jersey’s credit for taxes paid to another State.
          The bill also establishes a nonrefundable gross income tax credit of
      $2,000 for individuals who seek from their employer and accept a
      reassignment from an out-of-State location to an in-State location.
      The bill caps the amount of tax credits that may be awarded to
      qualified taxpayers at $10 million per State fiscal year.
                                 2

    Additionally, the bill establishes a pilot program, to be
administered by the Economic Development Authority, through which
the authority will provide grants to businesses to assign their New
Jersey resident employees to New Jersey locations. A business is
eligible for a grant if the business has 25 or more full-time employees
and is principally located in another State. The bill caps the sum of all
grants awarded in any fiscal year at $25 million and makes an initial
one-time appropriation from the General Fund for the grant program.
    Finally, the bill clarifies that its provisions would not affect any
agreements entered into by the Division of Taxation with another state
concerning the payment of income taxes by residents and out-of-state
workers. Under State law, the Division of Taxation is permitted to
enter into agreements with the taxing authorities of another state to
exempt New Jersey residents from the payment of income taxes to that
state.

PROPOSED COMMITTEE AMENDMENTS:
  The committee amended the bill to:
  - replace the bill’s language concerning the use of the
     “convenience of the employer” test with language clarifying
     that if the state in which an employee resides imposes tax on
     the income of an employee who works out-of-state for an in-
     state employer due to the convenience of the employee, that
     same rule will apply to a person who works for a New Jersey
     employer but who resides and works outside of New Jersey at
     the employee’s convenience;
  - clarify that the provisions of the bill would not affect any
     agreements entered into by the Division of Taxation with
     another state concerning the payment of income taxes by
     residents and out-of-state workers;
  - revise the amount of the refundable credit allowed under the
     bill to 50 percent of the amount of taxes that are owed to the
     State of New Jersey as a result of the readjustment of the credit
     for tax of another state pursuant to subsection (e) of
     N.J.S.54A:4-1;
  - establish a nonrefundable credit in the amount of $2,000 for
     “qualified taxpayers”;
  - define “qualified taxpayer” as a taxpayer who is a New Jersey
     resident and whose employer has assigned that individual a
     work location outside of the State, who seeks from the
     employer and accepts a permanent reassignment of work
     location to a New Jersey location during the taxable year;
  - provide that a “qualified taxpayer” does not include an
     individual who received a nonrefundable credit pursuant to the
     bill in a prior taxable year;
  - cap the value of nonrefundable tax credits approved by the
     authority pursuant to the bill at $10 million in any fiscal year;
                             3

-   revise the “legally domiciled” requirement under the pilot
    program established by the bill to provide that, to be eligible
    for a grant under the pilot program, a business is required to
    have 25 or more employees and be principally located in
    another state;
-   provide that the value of the grant under the pilot program
    established by the bill will be the net revenue realized by the
    State through New Jersey Gross Income Tax paid by resident
    employees re-assigned by the business to a New Jersey
    location, as certified by the Director of the Division of
    Taxation, or $100,000, whichever is less;
-   increase the cap on the sum of all grants awarded under the
    pilot program to $25 million per State fiscal year;
-   increase the amount appropriated from the General Fund to the
    New Jersey Economic Development Authority to $25 million;
-   clarify that the appropriation made under the bill is subject to
    the approval of the Director of Budget and Accounting in the
    Department of the Treasury; and
-   revise certain internal citations.


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