New Jersey 2023 Tax Law Changes

In 2023, New Jersey will see major changes in three areas of tax laws.

Expiration of COVID Extension of Statute of Limitations on Assessments

At the beginning of the COVID-19 pandemic, Governor Murphy issued Executive Order 103, which declared a state of emergency.  The legislature then enacted a law that extended the deadline to assess New Jersey tax until 90 days after the conclusion of the state of emergency.  However, this caused taxpayers to remain subject to additional tax long after the previous statute of limitations would have cut off the Division of Taxation’s right to issue an assessment.  With no end in sight for the state of emergency, legislation was enacted at the end of 2022 to end the COVID extension of the statute of limitations on assessments and void any assessment of tax that was allowed as a result of the extension and was assessed after the date of enactment.

Changes to S Corporation Election Requirements

Historically, shareholders of federal S corporations had to make a separate New Jersey S corporation election if they wanted to be recognized as an S corporation for state tax purposes.  Many taxpayers did not know of this requirement, leading to a steady stream of retroactive relief requests.  Starting January 1, 2023, no New Jersey S corporation election will be required.  Federal S corporation status will automatically be treated as New Jersey S corporation status unless the company opts out according to the following provisions:

• All shareholders must consent to the opt-out.
• The opt-out may be made for any taxable year at any time during the preceding year, or on or before the due date of the S corporation’s tax return, including extensions.
• The opt-out election remains effective until revoked, which requires the approval of shareholders holding more than 50% of the shares.

Changes to Partnership Audits

The State has adopted amendments that will now conform to the new federal partnership audit rules.  The amendments include the following provisions:

• Partnerships must report any federal partnership audit adjustments made by the IRS to the NJ Division of Taxation on a federal adjustments report.
• The federal partnership representative will now also act as the state partnership representative and have sole authority to act on behalf of the partnership with respect to required or permitted actions under the new federal partnership audit regime.
• The NJ Division of Taxation is permitted to assess the federally audited partnership and/or the partners for any state tax owed.
• A partnership audited at the federal level will have the option to elect to pay state taxes due as a result of the federal audit.
• This new law takes effect immediately and applies to any adjustments made to taxable income on or after January 1, 2020.

Contact Us

If you have questions about the information outlined above or need assistance with a tax issue, Klatzkin can help. For additional information call 609-989-9189 or click here to contact us. We look forward to speaking with you soon.

©2023 Klatzkin & Company LLP. The above represents our best understanding and interpretation of the material covered as of this post’s date and should not be construed as accounting, tax, or financial advice. Please consult your tax advisor concerning your specific situation.