New Jersey Gross Income Credit for Taxes Paid to Other Jurisdictions

Article excerpt

The Spring 1995 issue of New Jersey State Tax News contains two discussions concerning New York taxes used in computing the credit for taxes paid to other jurisdictions for New Jersey gross income tax purposes.

The first discussion identifies the treatment of New York City Unincorporated Business Tax (UBT) for New Jersey residents who are subject to that tax. The New Jersey Division of Taxation (the Division) previously determined that the a UBT is not a tax on an individual's a income but a tax imposed on the unincorporated business. Therefore, the UBT cannot be used in the calculation of credit for taxes paid to another jurisdiction. (See New Jersey State Tax News July/August 1990.)

However, on the New York State nonresident income tax return, a New Jersey resident subject to the UBT must add the UBT paid to line 22, "New York State Additions," in the "Federal Amount" column. The Division has concluded that the amount of UBT added back may be used in the numerator of the credit calculation for taxes paid to other jurisdictions (New York State) on the New Jersey resident income tax return.

If a deduction of New York City UBT was taken to compute New Jersey Gross Income, that amount must be added back to recompute New Jersey taxable income, which results in a revised New Jersey tax.

The Numerator Is at Issue

The second discussion concerns the New Jersey Tax Court Case--David R. Allen v. Director, Division of Taxation, Tax Court 004866-93, decided November 30, 1994 [1994 WL 774013 (NJ. Tax)]. At issue was the numerator of the ratio used in computing the credit for taxes paid to other jurisdictions. The taxpayers had New York source income in 1990 of wages, capital gains, and other income. …