1. How is Income From a Specific Business Taxed?
2. What Kind of Tax Will You Owe on New Jersey Business Income?
3. What Are the Tax Rates Among States?
4. What is New Jersey's Taxation Rank in the US?

The New Jersey Corporate Tax rate is currently 9 percent on adjusted net income over $100,000. The rate is currently 7.5 percent for all corporations with an entire net income up to $100,001. A rate of 6.5 percent is charged for all corporations with net income of $50,000 or less. The minimum tax that can be paid is based on gross receipts within New Jersey.

How is Income From a Specific Business Taxed?

Generally, the method of how a company‘s income is taxed depends on the business structure chosen by the organization. The most common types of legal structures are:

  • Corporation
  • Limited Liability Company
  • Limited Partnership
  • Partnership
  • Sole Proprietorship

What Kind of Tax Will You Owe on New Jersey Business Income?

In the majority of states, corporations must pay an income tax at the corporate level. However, income from a business that is considered a pass-through entity, such as a limited liability company (LLC), S corporation, partnership, or sole proprietorship, must pay state tax on the owner's personal tax return. New Jersey does not typically have any privilege or franchise tax for businesses. Rather, the state taxes corporations through its corporate business tax (CBT).

If the income of a business passes directly to you, then that compensation will be taxed on a personal state income tax return. As a general rule, the CBT states that the typical corporation must pay the larger of one of the following:

  • An alternative minimum assessment (AMA) which is based on a company‘s gross profits
  • AMA formulated on a company's gross receipts
  • A progressive tax which is based on a company's net income

New Jersey CBT rates are based on net income and are calculated as follows: if your net income is $50,000 or less then the tax rate is 6.5 percent. If your net income is greater than $50,000 but less than $100,001 then the tax rate is 7.5 percent. If your net income is more than $100,000 then your tax rate is 9 percent.

Generally, the AMA based on gross revenues and the AMA based on gross profits are only applicable to businesses based in the state of New Jersey that meet specific criteria. To specify, the entity must be a multi-state corporation whose business activity in New Jersey is comprised of soliciting orders only.

Under the federal law relating to the state business taxation, PL 86-272, the two AMAs apply only to businesses that have opted to absolve themselves from the progressive tax on corporate income. If you have questions regarding AMAs, it is highly recommended to speak with a tax professional that specializes in New Jersey corporate tax.

What Are the Tax Rates Among States?

Tax rates vary widely among states for both personal and corporate income. In most cases, corporate rates are flat and generally range from about four to 10 percent. Corporate rates do not correlate to the amount of personal income. On the other hand, personal tax rates do vary based on the amount of personal income and can range from zero percent to about nine percent, depending on the state.

At this time, there are six states that don't charge income tax at the corporate level. These states include:

  • Nevada
  • Ohio
  • South Dakota
  • Texas
  • Washington
  • Wyoming

However, corporations in Ohio, Texas, South Dakota, and Washington will have a form of gross receipts tax. Currently, there seven states that don't have personal income tax. These states include:

  • Alaska
  • Florida
  • Nevada
  • Wyoming
  • Washington
  • Texas
  • South Dakota

Tennessee and New Hampshire are the two states that only tax individuals on dividend and interest income. In addition to taxing a business a personal corporate income tax, many states also charge an additional tax on the business. These are often referred to as a privilege tax or franchise tax and are mandated for operating in the state.

Similar to state tax on business income, the legal form of a business will influence the specifics surrounding the state‘s franchise tax. Franchise taxes are typically derived from a flat fee or partly depend on the legal form of a company.

What is New Jersey's Taxation Rank in the US?

Residents of New Jersey are aware that they live in a state with high taxes. In fact, New Jersey ranks 50th in the State Business Tax Climate Index and has one of the highest individual income tax rates in the United States.

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