Navigating the New Jersey Corporate Tax Rate: A Comprehensive Guide for Start-Ups in the Garden State

In recent years, New Jersey has taken steps to improve its business environment by implementing strategic tax reforms and regulatory policies. These measures have been instrumental in fostering a more conducive atmosphere for businesses to thrive. Despite these advancements, the state continues to face challenges such as high living costs, congestion, and a high overall cost of doing business in certain areas.

While it is true that New Jersey’s relatively high operating and living costs make it less competitive, it is also important to acknowledge the state’s distinct advantages. One of its most notable advantages is its proximity to major metropolitan areas, particularly New York City. Because of this geographical advantage, businesses in New Jersey can tap into a large pool of highly skilled and educated workers without having to pay the exorbitant costs associated with operating in New York City.

Moreover, New Jersey’s robust infrastructure network—which includes sophisticated communication technologies and vast transportation networks—makes it more appealing to companies looking for effective connectivity and easy access to important markets. This infrastructure allows seamless interactions with clients, suppliers, and partners, increasing the state’s attractiveness as a business destination.

New Jersey Corporate Tax Rate: Key Takeaways 

• Tax Environment: New Jersey is known for high corporate and property taxes. However, the state has tried reducing corporate tax rates and offering tax incentives to attract and retain businesses. 
• Access to Talent and Markets: New Jersey’s proximity to major metropolitan areas like New York City and Philadelphia provides access to an educated, skilled, and diverse talent pool, as well as robust consumer markets.
• Industry Focus: New Jersey is known for its pharmaceuticals, healthcare, and technology industries. It also has a reliable public transportation network and logistics infrastructure.
• State Corporate Income Tax: New Jersey imposes a marginal bracketed corporate income tax, with a top marginal rate of 9% in 2024. It has the 4th highest corporate income tax rate in the US.
• C-corporations Minimum Income Tax: C-corporations in New Jersey must pay a minimum tax based on gross receipts, which ranges between $500 and $2,000 depending on revenue levels.
• Sales Tax: New Jersey has a state sales tax of 6.625% on most tangible personal property and certain services, with exemptions for items like groceries and prescription drugs.
• Penalties for Late Filing: Failure to file your New Jersey corporate tax returns on time may result in penalties, interest charges, and collection fees. The late filing penalty is 5% of the tax due per month or fraction of a month, up to 25% of the total tax owed.

What are the steps to starting a business in New Jersey?

Starting a business in New Jersey requires several steps, including registering with the New Jersey Division of Revenue and Enterprise Services and meeting other legal and regulatory requirements. The following is a general overview of the process: 

1. Select an Organizational Structure: Decide on the legal structure appropriate for your company, such as a corporation, LLC (Limited Liability Company), partnership, sole proprietorship, or other suitable form. Cleer Tax offers consultations with experts to discuss the best structure for your startup.
2. Register Your Business in New Jersey: If you plan to use a name for your business that is different from your legal name, you must register it with the New Jersey Division of Revenue and Enterprise Services (DORES). Check for name availability and file the necessary forms.
3. Obtain Permits and Licenses: The requirements for obtaining permits and licenses at the municipal, county, or state levels may vary depending on the nature of your business. Contact your local municipality and check the New Jersey Business Portal for guidance.
4. Apply for a Federal Tax Identification Number (EIN). Get your Employer Identification Number (EIN) from the IRS, which is necessary for tax purposes, hiring employees, and opening a business bank account.
5. State and Local Tax: Register for state and local taxes with the New Jersey Division of Taxation. This may include sales tax, employer withholding tax, and other applicable taxes.
6. Business Insurance: Depending on the nature of your business, you should consider acquiring the required business insurance coverage, such as liability insurance.
7. Banking: Set up a business bank account to separate your personal and business finances. You need your Federal AIN before you can open a bank account in the business’ name.
8. Tax Compliance and Recordkeeping: Understand and comply with all federal, state, and local taxes and regulations related to your business. Maintain accurate records of your financial transactions, such as income, expenses, and taxes. We can help with your books and financial statements and set up your chart of accounts to make sure everything is appropriately categorized for tax purposes.  Our all-inclusive bookkeeping packages include monthly statements plus your federal and state tax returns.

The New Jersey Business Portal is also a valuable resource for information and guidance related to business registration and compliance in the state.

Does New Jersey have a corporate income tax?

Yes, New Jersey has a corporate income tax. It implemented a phased reduction in its corporate income tax rate over several years to enhance the state’s competitiveness and attractiveness to businesses by lowering the tax burden. The corporate income tax rate in New Jersey varies depending on the entire net income and type of corporation. As of January 2024, the corporate income tax rates are as follows:

• 9% for corporations with entire net income greater than $100,000.
• 7.5% for corporations with entire net income between $50,000 and $100,000.
• 6.5%  for corporations with entire net income below $50,000.
• Corporations with fewer than 12 months of tax periods are eligible for the 6.5% rate if their prorated entire net income does not exceed $4,166 per month.

The income tax is based on the adjusted entire net income or such portion as may be allocated to New Jersey. Currently, the state has the 4th highest top marginal corporate income tax rate.

C-Corporation Minimum Tax

C-corporations must pay a minimum tax based on New Jersey gross receipts. 

Entities exempt from income tax include certain agricultural cooperatives, federal corporations exempt from state taxation, limited-dividend housing corporations, nonprofit cemetery corporations, nonprofit corporations without capital stock, non-stock mutual housing corporations, railroad and canal corporations, sewerage and water corporations, insurance companies subject to premiums tax, and certain municipal electric corporations.

Check with the New Jersey Division of Taxation for the most recent information on corporate income tax rates and requirements.

Does New Jersey have a franchise tax?

The Corporation Business Tax (CBT) Act levies a franchise tax on domestic and foreign corporations that operate in New Jersey for the privilege of existing or conducting business within the state, such as employing or owning capital or property, maintaining an office, deriving receipts, or entering into contracts in the state. It applies to many corporations, such as joint-stock companies, business trusts, and financial institutions. The tax is calculated using the portion of net income attributable to New Jersey and applies to the corporation’s accounting period when it is taxable in the state. Certain entities, including agricultural cooperatives and non-profit organizations, may be exempt from this tax. 

Does having a mailing address in New Jersey trigger corporate income tax or registration requirements?

Having a mailing address in New Jersey alone does not typically trigger corporate income tax or registration requirements. However, determining whether a business is subject to corporate income tax or registration requirements in New Jersey depends on various factors. Here are some key considerations:

• Nexus: Whether a business is subject to corporate income tax and registration requirements in New Jersey is often based on the concept of “nexus.” Nexus refers to a significant connection or presence that a business has within the state. Having a physical location, employees, property, or substantial business activities within New Jersey can establish a nexus.
• Business Activities: If your business conducts significant business activities within New Jersey, such as selling goods or services, owning property, or having employees in the state, you may be required to register with the state and pay corporate income tax on income generated from those activities.

If your company meets the criteria for nexus in New Jersey, you will likely need to register with the  New Jersey Division of Revenue and Enterprise Services (DORES). Registration may involve filing business entity formation documents and complying with state tax obligations.

Does having an employee in New Jersey trigger corporate income tax?

Having an employee in New Jersey can create a tax obligation for your business, specifically related to New Jersey’s corporate income tax and employment tax requirements. The presence of employees in the state can establish what is often referred to as a “nexus,” which is a significant connection or presence that can subject your business to various state tax obligations.

For instance, if your company has an employee who works in New Jersey and solicits sales, the income the employee makes may be subject to state corporate income tax.

Does having an independent contractor in New Jersey trigger corporate income tax?

Yes, having an independent contractor in New Jersey may trigger corporate income tax because it is considered to have created a nexus. Nexus can be established through various activities, such as having a physical location, employees, or significant sales in the state. Having independent contractors, agents, or other representatives working within the state is one of the nexus-creating activities in New Jersey. 

According to the technical bulletin (TB-108 (R) – Revised January 18, 2024), a corporation with nexus in New Jersey is subject to the Corporation Business Tax minimum tax and must file a Corporation Business Tax return. When determining if a corporation is conducting business in New Jersey, several factors are considered:

• The nature and extent of the corporation’s activities within the state.
• The location of its offices and other business premises.
• The consistency, frequency, and regularity of its activities in New Jersey.
• The employment of agents, officers, and employees within the state.
• The actual place of management or control for the corporation.

Additionally, regardless of the profitability of its activities, any for-profit corporation engaging in its organizational purposes within New Jersey is considered “doing business” for the purposes of the Corporation Business Tax Act. Profit or loss resulting from these activities is irrelevant in determining this status.

Does having a founder living in New Jersey trigger corporate income tax?

Having a founder living in New Jersey does not, by itself, trigger corporate income tax for a business. Corporate income tax is typically based on the business’s activities, its nexus in the state, and income generated within New Jersey rather than the location of individual founders or owners.

If you hold board meetings in New Jersey, will it trigger corporate income tax?

Board meetings are a part of a company’s corporate governance and are not typically considered income-generating activities that would lead to corporate income tax liability. Corporate income tax is generally based on factors such as the business’s nexus (presence), income generated within the state, and the nature of the business activities within the state.

Does New Jersey collect sales tax?

Yes. In New Jersey, a state sales tax of 6.625% is imposed on the sale of most tangible personal property, specified digital products, and certain services unless they are explicitly exempt under state law. New Jersey law allows exemptions for groceries, prescription drugs, clothing, and certain professional and medical services. Additionally, local governments may levy a local option sales tax of up to 2%. The average local tax is 0.003%. The highest combined sales tax rate (state and local sales tax) in New Jersey is 8.625% (city of Millville), while the average sales tax (including local sales tax) is 6.628%.

Does New Jersey charge sales tax on SaaS products?

In New Jersey, sales tax applies to certain Software as a Service (SaaS) and digital services. SaaS products and digital services, such as software delivered electronically and accessed remotely via the internet, are taxable in New Jersey. Some SaaS products or digital services, such as those sold to exempt entities or for specific purposes, may be exempt from sales tax.

According to New Jersey’s economic nexus regulations, businesses from other states may have to collect and remit sales tax on any taxable sales—including SaaS products—to customers in the state if they reach specific sales thresholds.

Does New Jersey tax online marketplaces?

Like many other states, New Jersey has taken steps to tax online marketplaces, particularly regarding sales tax. The taxation of online marketplaces in New Jersey is typically based on the following principles:

1. Marketplace Facilitator Laws: Like several other states, New Jersey has implemented marketplace facilitator laws, which require certain online marketplaces (platforms) to collect and remit sales tax on behalf of third-party sellers who use their platform to sell products to customers in the state. The marketplace facilitator becomes responsible for collecting and remitting the sales tax on eligible sales made through the platform.
2. Economic Nexus: New Jersey has adopted economic nexus rules, which means that businesses, including online marketplaces, that meet certain sales thresholds in the state are required to collect and remit sales tax on their taxable sales to customers in New Jersey. 

Section 6 of P.L. 2023, c.96 establishes New Jersey’s bright-line economic nexus standard. This standard determines whether a business has a substantial economic nexus and is subject to taxes under the Corporation Business Tax Act. According to this standard, a company is considered to have a substantial nexus if:

• It derives receipts from sources within New Jersey exceeding $100,000 during the fiscal or calendar year.
• Over 200 distinct transactions are delivered by the company to clients in New Jersey in a given fiscal or calendar year. For service transactions, “delivered to a customer” is defined based on where the benefit is received.

How do we close a business in New Jersey?

You must officially dissolve your business with the New Jersey Division of Revenue and Enterprise Services if your business is a corporation or an LLC. You can do this by filing dissolution paperwork, such as Articles of Dissolution, typically available on the division’s website. Here are the general steps you should follow to close your business in New Jersey:

1. File Business Closure: File the closure of your business on the Annual Reports and Change Services program. Have your 10-digit entity ID, business structure, and formation date ready. 
2. Submit Annual Reports: Continue filing annual reports until your business is formally closed. 
3. Cancel Tax Registration and Licenses: Have your 12-digit Taxpayer ID and 4-digit Sales Tax or Employer PIN, then cancel tax registration using the online Registration Change Service. Cancel any state and local licenses, permits, or registrations held by the business.
4. File Final State Tax Returns: Check the “Final Return” box on your current year’s state tax return, or write “Final” across the top of filing a paper return. File your final returns electronically.
5. Obtain a Certificate of Good Standing: Request a Certificate of Good Standing or Termination from the state to officially confirm the closure, which may need to be filed with your tax returns.

Other Considerations:

1. File Business Closure With Your Country: If you no longer intend to use your trade name, you may file a “Statement of Abandonment of Use” with your local County Clerk. 
2. Comply with IRS Filing Requirements. Here are the steps you need to close your business for federal taxes.

• File your final return and related forms:  File your final federal and payroll tax returns (if applicable). You must also file Form 966, Corporate Dissolution or Liquidation, if you adopt a resolution or intend to dissolve the corporation or liquidate any of its stock.  
• Make final federal tax deposits and report employment taxes. 
• Settle Outstanding Taxes: Ensure that all taxes are paid.
• Cancel your EIN and IRS business account.
• Retain Business Records: Keep all business records, financial documents, and tax returns for the required retention period, which may vary depending on the document type.

3. Inform Relevant Parties: Notify your employees, partners, and other stakeholders about your decision to close the business.
4. Review and Terminate Contracts: Review and terminate existing contracts, leases, or agreements according to their terms and conditions.
5. Notify Creditors and Customers: Inform creditors, suppliers, and customers about the closure and address any pending transactions or obligations.
6. Dispose of Assets:  Sell, transfer, or otherwise dispose of any business assets, equipment, or inventory. You may also need to settle any outstanding leases for business property.
7. Settle your outstanding obligations with third parties.
8. Close Bank Accounts: Settle any outstanding financial matters with your bank and close business accounts.

When is my New Jersey corporate tax return due? 

The due date for New Jersey corporate tax returns generally depends on the type of business entity and the fiscal year-end of your business. Here are some general guidelines for New Jersey corporate tax return due dates, which are the same as for the federal return:

1. C-Corporations (Form CBT-100): For calendar year-end C-corporations, the due date for filing the New Jersey Corporate Business Tax (CBT) return (Form CBT-100) is typically on or before the 15th day of the fourth month after the end of the corporation’s fiscal year. In most cases, this means April 15th for calendar year-end corporations.
2. S-Corporations (Form CBT-100S): The due date for filing the New Jersey CBT return (Form CBT-100S) is typically on or before the 15th day of the fourth month after the end of the fiscal year. This aligns with the due date for C-corporations.
3. Fiscal Year-End Corporations: If your corporation has a fiscal year-end that does not coincide with the calendar year, the due date for filing the CBT return will be on or before the 15th day of the fourth month following the close of your fiscal year.

If you anticipate failing to meet the deadline, consider requesting an extension to avoid late filing penalties. To request an extension, use Form CBT-200-T through the Corporation Business Tax Online Filing and Payments system. You must also include a tentative tax payment with your extension application. If you pay at least 90% of the tax by the original due date, your extension request will be allowed, and penalties and interest for late filing and payment will apply.

What happens if we file our New Jersey state tax return late?

If you fail to file your New Jersey corporate tax return by the due date (or extended due date) or if taxes are paid late, you may be subject to penalties, interest, and possible collection fees. 

• Late Filing Penalty: A penalty of 5% of the tax due per month or fraction of a month is imposed, up to 25% of the total tax owed.
• Late Payment Penalty: A late payment penalty of 5% of the tax due may also be imposed in addition to monthly interest equal to the Prime Rate plus 3%, compounded annually.
• Collection Fees: If your tax bill is sent to a collection agency, you will be charged an 11% Referral Cost Recovery Fee beginning January 1, 2022.

Can Cleer help me file my New Jersey tax?

Absolutely! Cleer Tax offers consultations with tax experts to discuss the best structure for your startup business, no matter what state you register in. We also offer Federal Income tax preparation, which includes your state tax as well. We also offer all-inclusive bookkeeping packages that include monthly statements plus your federal and state tax returns.

For additional questions or help, feel free to contact us.