New Jersey-2018-S863-Introduced

An Act exempting certain wages earned by nonresident taxpayers, who are present in the State for job training purposes, from gross income tax and employer withholding, amending and supplementing various sections of the statutory law.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. N.J.S.54A:1-2 is amended to read as follows:

54A:1-2. As used in this act, unless the context clearly indicates otherwise, the following words and phrases shall have the following meaning:

a. "Director" means the Director of the Division of Taxation in the Department of the Treasury.

b. "Fiduciary" means a guardian, trustee, executor, administrator, receiver, conservator, or any person acting in any fiduciary capacity for any person.

c. "Excludable income" shall be limited to those payments set forth in chapter 6 hereunder.

d. "Gross income" shall include that set forth in chapter 5 hereunder.

e. "Dependent" means a spouse or child, or a domestic partner as defined in section 3 of P.L.2003, c.246 (C.26:8A-3), or any individual related to the taxpayer and who is a dependent pursuant to the provisions of the Internal Revenue Code during a taxable year.

f. "Disabled" means total and permanent inability to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment, including blindness. For purposes of this subsection, "blindness" means central visual acuity of 20/200 or less in the better eye with the use of a correcting lens. An eye which is accompanied by a limitation in the fields of vision such that the widest diameter of the visual field subtends an angle no greater than 20 degrees shall be considered as having a central visual acuity of 20/200 or less.

g. "Medical expenses" means nonreimbursed payments for physicians, dental and other medical fees, hospital care, nursing care, medicines and drugs, prosthetic devices, X-rays and other diagnostic services conducted by or directed by a physician or dentist. In addition, medical expenses may also include amounts paid for transportation primarily for and essential to medical care and insurance (including amounts paid as premiums under part B of Title XVIII of the Social Security Act, relating to supplementary medical insurance for the aged) covering medical care.

h. Partnership and partner. The term "partnership" includes a syndicate, group, pool, joint venture, or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on, and which is not, within the meaning of this act, a trust or estate or a corporation; and the term "partner" includes a member in such a syndicate, group, pool, joint venture, or organization.

i. Blank.

j. Blank.

k. "Taxable year" means the calendar or fiscal accounting period for which a tax is payable under this act.

l. "Taxpayer" means any individual, estate or trust required to report or to pay taxes, interest and penalties under this act, or whose income in whole or in part is subject to the tax imposed by this act.

m. "Resident taxpayer" means an individual:

1. Who is domiciled in this State, unless he maintains no permanent place of abode in this State, maintains a permanent place of abode elsewhere, and spends in the aggregate no more than 30 days of the taxable year in this State; or

2. Who is not domiciled in this State but maintains a permanent place of abode in this State and spends in the aggregate more than 183 days of the taxable year in this State, unless such individual is in the Armed Forces of the United States.

n. "Nonresident taxpayer" means a taxpayer who is not a resident.

o. Resident estate or trust. A resident estate or trust means:

(1) The estate of a decedent who at his death was domiciled in this State,

(2) A trust, or a portion of a trust, consisting of property transferred by will of a decedent who at his death was domiciled in this State, or

(3) A trust, or portion of a trust, consisting of the property of:

(a) A person domiciled in this State at the time such property was transferred to the trust, if such trust or portion of a trust was then irrevocable, or if it was then revocable and has not subsequently become irrevocable; or

(b) A person domiciled in this State at the time such trust, or portion of a trust, became irrevocable, if it was revocable when such property was transferred to the trust but has subsequently become irrevocable.

For the purposes of the foregoing, a trust or portion of a trust is revocable if it is subject to a power, exercisable immediately or at any future time, to revest title in the person whose property constitutes such trust or portion of a trust, and a trust or portion of a trust becomes irrevocable when the possibility that such power may be exercised has been terminated.

p. Nonresident estate or trust. A nonresident estate or trust means an estate or trust which is not a resident.

q. Unless the context in which it occurs requires otherwise, the term "act" or "this act" shall mean the New Jersey Gross Income Tax Act, Title 54A of the New Jersey Statutes.

r. "Job training" means any in-State instructional course, lecture, meeting, workshop, seminar, convention, symposium, or conference, which is related to a nonresident taxpayer's occupation and is made available to the nonresident taxpayer by the taxpayer's employer for the primary purpose of professional development.

(cf: P.L.2003, c.246, s.39)

2. (New section) a. Gross income shall not include the remuneration for services rendered by a nonresident taxpayer who is assigned to a primary work location outside of the State, with respect to attending, organizing, or participating in job training for 14 days or less in a calendar year.

b. The exemption provided by subsection a. of this section shall not apply to:

(1) taxable income earned on and after the 15th day that a nonresident taxpayer attends, organizes, or participates in job training in a calendar year;

(2) taxable income earned on and after the date that a nonresident taxpayer is reassigned to a primary work location in the State; or

(3) compensation paid to the following types of professionals:

(a) nonresident traveling salespersons, when the compensation depends entirely on the volume of business transacted,

(b) nonresident public speakers,

(d) nonresident entertainers.

c. Any day in which a nonresident taxpayer spends part thereof earning taxable income in the State by reason of attending, organizing, or participating in job training shall be considered a full day of work for purposes of this section, other than the days in which the work performed in the State by the nonresident taxpayer is limited to de minimis tasks.

3. N.J.S.54A:7-1 is amended to read as follows:

54A:7-1. Requirement of withholding tax from wages.

(a) General.--From and after September 1, 1976, every employer maintaining an office or transacting business within this State and making payment of any wages subject to New Jersey personal income tax or making payment of any remuneration for employment subject to contribution under the New Jersey "unemployment compensation law" pursuant to R.S.43:21-1 et seq. that is subject to New Jersey personal income tax to a resident or nonresident individual shall deduct and withhold from such wages for each payroll period a tax computed in such manner as to result, so far as practicable, in withholding from the employee's wages during each calendar year an amount substantially equivalent to the tax reasonably estimated to be due resulting from the inclusion in the employee's New Jersey income of his wages received during such calendar year. The method of determining the amount to be withheld shall be prescribed by regulations of the director, with due regard to the withholding exemptions of the employee.

(b) Withholding exemptions.--For purposes of this section:

(1) An employee shall be entitled to the equivalent of the same number of New Jersey withholding exemptions as the number of withholding exemptions to which he is entitled for Federal income tax withholding purposes. An employer may rely upon the number of Federal withholding exemptions claimed by the employee.

(2) An employer shall not be required to deduct and withhold the amount of tax due, pursuant to subsection (a) of this section, from wages paid to a nonresident employee who the employer reasonably expects to qualify for the exemption allowed by subsection a. of section 2 of P.L. , c. (C. ) (pending before the Legislature as this bill); provided, however, that the employer shall be required to deduct and withhold from wages paid to a nonresident employee pursuant to subsection b. of section 2 of P.L. , c. (C. ) (pending before the Legislature as this bill).

(c) The payor of New Jersey gambling winnings shall withhold New Jersey gross income tax on those winnings at a rate of 3% in all instances where the payor is required to withhold for federal income tax purposes under subsection (q) of section 3402 of the federal Internal Revenue Code of 1986 (26 U.S.C. s.3402), as amended, except that this subsection shall not apply to the New Jersey State Lottery, except if winnings paid by the New Jersey State Lottery are included in gross income pursuant to N.J.S.54A:6-11. The rate of withholding for gambling winnings paid by the New Jersey State Lottery shall be determined by the director.

(cf: P.L.2009, c.69, s.4)

4. Section 2 of P.L.2006, c.85 (C.54A:7-1.2) is amended to read as follows:

2. a. A person, other than a governmental entity, homeowner, or tenant, maintaining an office or transacting business in this State and making a payment of compensation or remuneration for services rendered in this State to a resident unincorporated contractor or nonresident unincorporated contractor shall deduct and withhold from the payment a tax equal to 7 percent of the amount paid, except as otherwise provided by this section.

b. A person that obtains from its unincorporated contractor proof of the contractor's registration with the Division of Revenue in the Department of the Treasury shall not be required to withhold pursuant to subsection a. of this section. The types of proof required and the length of the retention period of the proofs shall be as prescribed by the Director of the Division of Taxation.

c. (1) Withholding pursuant to subsection a. of this section shall not be required for payments for which withholding is required pursuant to N.J.S.54A:7-1 or such other payments as the director may prescribe by regulation.

(2) An employer shall not be required to deduct and withhold the amount of tax due, pursuant to subsection (a) of this section, from wages paid to a nonresident unincorporated contractor who the employer reasonably expects to qualify for the exemption allowed by subsection a. of section 2 of P.L. , c. (C. ) (pending before the Legislature as this bill); provided, however, that the employer shall be required to deduct and withhold from wages paid to a nonresident unincorporated contractor pursuant to subsection b. of section 2 of P.L. , c. (C. ) (pending before the Legislature as this bill).

d. A person required to deduct and withhold tax from a payment under subsection a. of this section shall furnish to each unincorporated contractor an annual written statement reflecting the total of all payments made and tax withheld in a calendar year on or before February 15 following the close of that calendar year in the form prescribed by the director.

e. Payments to an unincorporated contractor for which withholding is required by subsection a. of this section shall be taxable or subject to employer withholding under the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq., as if no withholding were required by this section, but any amount actually deducted and withheld under this section in any calendar year shall be deemed to have been paid to the director on behalf of the unincorporated contractor from whom withheld, and the contractor shall be credited with having paid that amount for the taxable year beginning in such calendar year.

A person required to deduct and withhold tax under subsection a. of this section shall, for each calendar month, on or before the 15th day of the month following the close of the calendar month, file a return as prescribed by the director and pay over to the director or to a depository designated by the director the amounts required to be deducted and withheld. The director may, if the director believes such action necessary for the protection of the revenues, require a person to make a return and pay to the director the amounts deducted and withheld at any time, or from time to time. The director may, by regulation, require the filing of withholding returns and the payment of withheld amounts on a semimonthly or more frequent basis or require the filing of returns on a quarterly basis, with payments of the amounts withheld on a monthly or more frequent basis, if the director deems such action in the best interest of the State.

Any reconciliation of withholding shall be filed on or before February 15 following the close of the calendar year in accordance with rules and regulations prescribed by the director.

f. If a person required to deduct and withhold tax under subsection a. of this section fails to collect, truthfully account for, pay over the withholding, or make returns of the withholding as required in this section, the director may serve a notice requiring such person to withhold the amounts that become withholdable after service of such notice, to deposit such withholdings in a bank approved by the director in a separate account, in trust for and payable to the State of New Jersey and keep the amount of such withholdings in such account until payment over to the director. Such notice shall remain in effect until a notice of cancellation is served by the director.

g. (1) A person required to deduct and withhold tax under subsection a. of this section is hereby made liable for such withholding, except as that person may be excused from that withholding pursuant to subsection b. of this section.

(2) The owner or lessor of the real property to which construction, improvement, alteration, or repair of a building, structure, or improvement shall be made, required to deduct and withhold tax under subsection a. of this section for a contractor with whom the owner or lessor is in direct privity of contract and who is liable pursuant to paragraph (1) of this subsection for such withholding, is hereby also made liable for that contractor's withholding from a subcontractor, or the subcontractor's withholding from a lower tier subcontractor on that contract, except as the contractor, subcontractor or lower tier subcontractor may be excused from that withholding pursuant to subsection b. of this section.

(3) For purposes of assessment and collection, any tax required to be withheld and paid over to the director and any additions to tax, penalties and interest with respect to that tax shall be considered the tax of that person required to deduct and withhold. Any amount actually withheld under this section shall be held to be a special fund in trust for the director. No unincorporated contractor shall have any right of action against a person required to deduct and withhold an amount of a payment in respect to any moneys deducted and withheld and paid over to the director in compliance or in intended compliance with this section.

h. If a person required to withhold under subsection a. of this section fails to deduct and withhold tax as required, and thereafter the tax against which the tax may be credited is paid, the tax required to be deducted and withheld shall not be collected from the person required to withhold under subsection a. of this section, provided however that the person required to withhold under subsection a. of this section shall not be relieved from liability for any additions to tax, penalties and interest with respect to that tax otherwise applicable in respect of that failure to deduct and withhold.

i. For the purposes of this section:

"Contractor" means a person entering into a contract for services to construct, improve, alter, or repair a building, structure, or improvement to real property and includes a subcontractor, but shall not include professional services as defined in section 1 of P.L.1960, c.40 (C.17:16C-1 );

"Governmental entity" means: the State of New Jersey, or any of its agencies, instrumentalities, public authorities, political subdivisions or public corporations, including a public corporation created pursuant to agreement or compact with another state; the United States of America and any of its agencies and instrumentalities; and the United Nations or any international organization of which the United States of America is a member;

"Homeowner" means an individual who makes a payment to a contractor to construct, improve, alter, or repair a dwelling which the individual owns and in which the individual resides or will reside;

"Subcontractor" means a person entering into a contract with a contractor for services to construct, improve, alter, or repair a building, structure, or improvement to real property, but shall not include professional services as defined in section 1 of P.L.1960, c.40 (C.17:16C-1 );

"Tenant" means an individual who makes a payment to a contractor to construct, improve, alter, or repair a dwelling unit which the individual rents or leases and in which the individual resides or will reside; and

"Unincorporated contractor" means an individual contractor or a contractor organized as a sole proprietorship, a partnership, or any other business form not taxable as a corporation for federal tax purposes.

(cf: P.L.2006, c.85, s.2)

5. This act shall take effect immediately and apply to taxable years beginning on or after January 1, 2019.

STATEMENT

This bill provides that the income earned by a nonresident taxpayer, while attending 14 days or less of in-State job training, is exempt from gross income tax. The bill also provides that the nonresident taxpayer's employer is not required to withhold gross income tax from such wages as long as the taxpayer is reasonably expected to qualify for the exemption.

If a taxpayer not a resident of the State and is assigned to a primary work location outside of the State, then this bill permits the taxpayer to forego paying gross income tax on the wages earned for up to 14 days of working in the State for job training in a calendar year. The term "job training" means that the purpose for the nonresident taxpayer's presence in the State is to attend, organize, or otherwise participate in an instructional course, lecture, meeting, workshop, seminar, convention, symposium, or conference, which is related to the nonresident taxpayer's occupation and is made available to the nonresident taxpayer by an employer for the primary purpose of professional development. If a taxpayer earns income relative to more than 14 days of in-State job training during the calendar year, then the exemption ends and the taxpayer is required to pay gross income tax on the wages earned on the 15th day and thereafter, during the calendar year. Likewise, if a taxpayer is reassigned to a primary work location in the State, then the exemption ends and the taxpayer is required to pay gross income tax upon reassignment and thereafter. Any part of a day in which taxable income is earned in the State due to job training counts as a full day. However, de minimis tasks--such as responding to email or participating in a phone call--do not per se give rise to a countable day of work. The term "nonresident taxpayer" extends to both nonresident employees and nonresident unincorporated contractors.

This bill also excuses employers from the requirement to deduct and withhold gross income tax from State wages paid to a nonresident taxpayer who the employer reasonably expects to qualify for the exemption. If the nonresident taxpayer no longer qualifies for the exemption (for instance, earns income related to more than 14 days of job training in the State, or is transferred to a primary work location in the State), then the employer is required to deduct and withhold wages beginning on and after the date the nonresident taxpayer no longer qualifies for the exemption.