A3496

An Act increasing the filing threshold and the applicable exclusion amount for the New Jersey estate tax to $5,000,000 over a period of five years, amending R.S.54:38-1.

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

1. R.S.54:38-1 is amended to read as follows:

54:38-1. a. In addition to the inheritance, succession or legacy taxes imposed by this State under authority of chapters 33 to 36 of this title (R.S.54:33-1 et seq.), or hereafter imposed under authority of any subsequent enactment, there is hereby imposed an estate or transfer tax:

(1) Upon the transfer of the estate of every resident decedent dying before January 1, 2002 which is subject to an estate tax payable to the United States under the provisions of the federal revenue act of one thousand nine hundred and twenty-six and the amendments thereof and supplements thereto or any other federal revenue act in effect as of the date of death of the decedent, the amount of which tax shall be the sum by which the maximum credit allowable against any federal estate tax payable to the United States under any federal revenue act on account of taxes paid to any state or territory of the United States or the District of Columbia, shall exceed the aggregate amount of all estate, inheritance, succession or legacy taxes actually paid to any state or territory of the United States or the District of Columbia, including inheritance, succession or legacy taxes actually paid this State, in respect to any property owned by such decedent or subject to such taxes as a part of or in connection with the estate; and

(2) (a) Upon the transfer of the estate of every resident decedent dying after December 31, 2001 which would have been subject to an estate tax payable to the United States under the provisions of the federal Internal Revenue Code of 1986 (26 U.S.C. s.1 et seq.) in effect on December 31, 2001, the amount of which tax shall be, at the election of the person or corporation liable for the payment of the tax under this chapter, either

(i) the maximum credit that would have been allowable under the provisions of that federal Internal Revenue Code in effect on that date against the federal estate tax that would have been payable under the provisions of that federal Internal Revenue Code in effect on that date on account of taxes paid to any state or territory of the United States or the District of Columbia, or

(ii) determined pursuant to the simplified tax system as may be prescribed by the Director of the Division of Taxation in the Department of the Treasury to produce a liability similar to the liability determined pursuant to clause (i) of this paragraph reduced pursuant to paragraph (b) of this subsection.

(b) The amount of tax liability determined pursuant to subparagraph (a) of this paragraph shall be reduced by the aggregate amount of all estate, inheritance, succession or legacy taxes actually paid to any state or territory of the United States or the District of Columbia, including inheritance, succession or legacy taxes actually paid this State, in respect to any property owned by such decedent or subject to such taxes as a part of or in connection with the estate; provided however, that the amount of the reduction shall not exceed the proportion of the tax otherwise due under this subsection that the amount of the estates's property subject to tax by other jurisdictions bears to the entire estate taxable under this chapter.

(c) (i) Notwithstanding the provisions of subparagraph (a) of this paragraph (2), upon the transfer of the estate of every resident decedent dying after December 31, 2014 but before January 1, 2016, the tax imposed by this section shall only apply if the decedent’s taxable estate plus adjusted taxable gifts determined in accordance with the provisions of the federal Internal Revenue Code of 1986 (26 U.S.C. s.1 et seq.) in effect on December 31, 2001 exceeds $1,000,000 as calculated in accordance with the provisions of the federal Internal Revenue Code of 1986 (26 U.S.C. s.1 et seq.) in effect on December 31, 2001, provided however, that the applicable exclusion amount for the purposes of subsection (c) of section 2010 of the federal Internal Revenue Code of 1986 (26 U.S.C. s.2010) shall be $1,000,000.

(ii) Notwithstanding the provisions of subparagraph (a) of this paragraph (2), upon the transfer of the estate of every resident decedent dying after December 31, 2015 but before January 1, 2017, the tax imposed by this section shall only apply if the decedent’s taxable estate plus adjusted taxable gifts determined in accordance with the provisions of the federal Internal Revenue Code of 1986 (26 U.S.C. s.1 et seq.) in effect on December 31, 2001 exceeds $2,000,000 as calculated in accordance with the provisions of the federal Internal Revenue Code of 1986 (26 U.S.C. s.1 et seq.) in effect on December 31, 2001, provided however, that the applicable exclusion amount for the purposes of subsection (c) of section 2010 of the federal Internal Revenue Code of 1986 (26 U.S.C. s.2010) shall be $2,000,000.

(iii) Notwithstanding the provisions of subparagraph (a) of this paragraph (2), upon the transfer of the estate of every resident decedent dying after December 31, 2016 but before January 1, 2018, the tax imposed by this section shall only apply if the decedent’s taxable estate plus adjusted taxable gifts determined in accordance with the provisions of the federal Internal Revenue Code of 1986 (26 U.S.C. s.1 et seq.) in effect on December 31, 2001 exceeds $3,000,000 as calculated in accordance with the provisions of the federal Internal Revenue Code of 1986 (26 U.S.C. s.1 et seq.) in effect on December 31, 2001, provided however, that the applicable exclusion amount for the purposes of subsection (c) of section 2010 of the federal Internal Revenue Code of 1986 (26 U.S.C. s.2010) shall be $3,000,000.

(iv) Notwithstanding the provisions of subparagraph (a) of this paragraph (2), upon the transfer of the estate of every resident decedent dying after December 31, 2017 but before January 1, 2019, the tax imposed by this section shall only apply if the decedent’s taxable estate plus adjusted taxable gifts determined in accordance with the provisions of the federal Internal Revenue Code of 1986 (26 U.S.C. s.1 et seq.) in effect on December 31, 2001 exceeds $4,000,000 as calculated in accordance with the provisions of the federal Internal Revenue Code of 1986 (26 U.S.C. s.1 et seq.) in effect on December 31, 2001, provided however, that the applicable exclusion amount for the purposes of subsection (c) of section 2010 of the federal Internal Revenue Code of 1986 (26 U.S.C. s.2010) shall be $4,000,000.

(v) Notwithstanding the provisions of subparagraph (a) of this paragraph (2), upon the transfer of the estate of every resident decedent dying after December 31, 2018, the tax imposed by this section shall only apply if the decedent’s taxable estate plus adjusted taxable gifts determined in accordance with the provisions of the federal Internal Revenue Code of 1986 (26 U.S.C. s.1 et seq.) in effect on December 31, 2001 exceeds $5,000,000 as calculated in accordance with the provisions of the federal Internal Revenue Code of 1986 (26 U.S.C. s.1 et seq.) in effect on December 31, 2001, provided however, that the applicable exclusion amount for the purposes of subsection (c) of section 2010 of the federal Internal Revenue Code of 1986 (26 U.S.C. s.2010) shall be $5,000,000.

b. (1) In the case of the estate of a decedent dying before January 1, 2002 where no inheritance, succession or legacy tax is due this State under the provisions of chapters 33 to 36 of this title or under authority of any subsequent enactment imposing taxes of a similar nature, but an estate tax is due the United States under the provisions of any federal revenue act in effect as of the date of death, wherein provision is made for a credit on account of taxes paid the several states or territories of the United States, or the District of Columbia, the tax imposed by this chapter shall be the maximum amount of such credit less the aggregate amount of such estate, inheritance, succession or legacy taxes actually paid to any state or territory of the United States or the District of Columbia.

(2) In the case of the estate of a decedent dying after December 31, 2001 where no inheritance, succession or legacy tax is due this State under the provisions of chapters 33 to 36 of this title or under authority of any subsequent enactment imposing taxes of a similar nature, the tax imposed by this chapter shall be determined pursuant to paragraph (2) of subsection a. of this section.

c. For the purposes of this section, a "simplified tax system" to produce a liability similar to the liability determined pursuant to clause (i) of subparagraph (a) of paragraph (2) of subsection a. of this section is a tax system that for the transfer of the estate of every resident decedent dying after December 31, 2001 but before January 1, 2015 is based upon the $675,000 unified estate and gift tax applicable exclusion amount in effect under the provisions of the federal Internal Revenue Code of 1986 (26 U.S.C. s.1 et seq.) in effect on December 31, 2001, and for the transfer of the estate of every resident decedent dying: (1) after December 31, 2014 but before January 1, 2016 is based upon an applicable exclusion amount of $1,000,000 for purposes of subsection (c) of section 2010 of the federal Internal Revenue Code of 1986 (26 U.S.C. s.2010), (2) after December 31, 2015 but before January 1, 2017 is based upon an applicable exclusion amount of $2,000,000 for purposes of subsection (c) of section 2010 of the federal Internal Revenue Code of 1986 (26 U.S.C. s.2010), (3) after December 31, 2016 but before January 1, 2018 is based upon an applicable exclusion amount of $3,000,000 for purposes of subsection (c) of section 2010 of the federal Internal Revenue Code of 1986 (26 U.S.C. s.2010), (4) after December 31, 2017 but before January 1, 2019 is based upon an applicable exclusion amount of $4,000,000 for purposes of subsection (c) of section 2010 of the federal Internal Revenue Code of 1986 (26 U.S.C. s.2010), and (5) after December 31, 2018 is based upon an applicable exclusion amount of $5,000,000 for purposes of subsection (c) of section 2010 of the federal Internal Revenue Code of 1986 (26 U.S.C. s.2010), and results in general in the determination of a similar amount of tax but which will enable the person or corporation liable for the payment of the tax to calculate an amount of tax notwithstanding the lack or paucity of information for compliance due to such factors as the absence of an estate valuation made for federal estate tax purposes, the absence of a measure of the impact of gifts made during the lifetime of the decedent in the absence of federal gift tax information, and any other information compliance problems as the director determines are the result of the phased repeal of the federal estate tax.

(cf: P.L.2002, c.31, s.1)

2. This act shall take effect immediately.

STATEMENT

This bill increases the filing threshold and applicable exclusion amount for the New Jersey estate tax from a gross estate of $675,000 to a taxable estate of $5,000,000. The bill provides for the increase to be phased in over a period of five years commencing with the estate of any resident decedent dying after December 31, 2014 and ending, when the increase is fully phased in, with the estate of any resident decedent dying after December 31, 2018.

Current law provides that a New Jersey estate tax return must be filed with the Director of the Division of Taxation if the decedent’s gross estate plus adjusted taxable gifts determined in accordance with the provisions of the federal Internal Revenue Code in effect on December 31, 2001 exceeds $675,000. This archaically low threshold for New Jersey’s estate tax — less than the value of many middle-class homes — encourages small businesses and their owners to shut down and leave the State. The current State estate tax also deters small and family-owned businesses from relocating their businesses to New Jersey. By increasing the ceiling on the exemption amount, this bill will encourage small business to remain in New Jersey and will increase New Jersey’s attractiveness to small businesses considering relocation.

The New Jersey estate tax is imposed on the estate of a resident decedent equal to the amount of the credit allowed under federal estate tax law for state inheritance taxes paid, based on the terms of the federal estate tax in effect on December 31, 2001, or at the election of the estate, pursuant to a simplified system developed by the Director of the Division of Taxation.