The Corporation Business Tax (“CBT”) is a New Jersey State tax imposed on corporations for the privilege of doing business in the State. Nearly every state has instituted a similar type of tax on businesses, sometimes including taxes referred to as franchise taxes or privilege taxes. This tax is income-based and is measured by the net income which may be allocated to New Jersey. CBTs go towards general State use, with 4 percent of the CBT revenue dedicated to environmental projects and activities.
The following entities are exempt from CBT: corporations created under the limited-dividend housing corporation law, nonprofit cemetery corporations, nonprofit corporations without capital stock, federal corporations exempt from state taxes, certain agricultural cooperative associations, non-stock mutual housing corporations, canal and railroad corporations, water and sewer corporations, insurance companies subject to premiums tax, and certain municipal electric corporations.
A corporation may be either a “C” Corporation or a“S” Corporation. Generally, a corporation chooses its election of classification when it is being formed. A “C” corporation is subject to what is commonly referred to as “double taxation” because a C corporation’s revenue is taxed first as company revenue and then again when the shareholders are taxed for the revenue. However, there are also certain tax advantages including being able to deduct certain business expenses. On the other hand a “S” corporation is only taxed at the individual level, commonly referred to as a “pass-through” tax entity. The owners of the company are the only ones taxed for profit of the company. “S” corporation owners may be able to deduct corporate losses on personal tax returns. There are also a myriad of considerations in addition to tax factors which should be considered before making the determination as to what type of company to form.
As of 2015, generally every “C” corporation must pay a minimum tax of $500 each year. This tax applies to every “C” corporation which makes less than $100,000 in a year. If the company makes $100,000 or more, but less than $250,000, the tax is $750. For gross revenue of $250,000 or more, but less than $500,000, the tax is $1,000. If the company makes $500,000 or more, but less than $1,000,000, the tax owed is $1,500. If the “C” corporation makes $1,000,000 or more, the tax is $2,000 per year.
An “S” Corporation making less than $100,000 in a year is responsible for a tax of $375. If the company makes $100,000 or more, but less than $250,000, the tax owed is $562.50. If the corporations makes $250,000 or more, but less than $500,000, then the company owes $750. If the “S” Corporation makes $500,000 or more, but less than $1,000,000, then the tax is $1,125. If the company makes $1,000,000 or more in a year, the tax is $1,500. (It should be noted that all of the above amounts may change at any time, and there are some limited exceptions which may impose greater or lesser taxes than set forth herein.)
However, not all businesses are “corporations.” For instance, a company may be formed as a “limited liability company” or “LLC.” When an LLC is formed in New Jersey, the members can elect to have it taxed as a partnership or as a corporation. If treated as a corporation, it would be taxed as one. However, otherwise, LLCs are also considered “pass-through” entities, like “S” corporations. Therefore, while these LLCs are not subject to CBTs, their income is still taxed. A “partnership” LLC’s profits are distributed to individual LLC members and those members are responsible for federal and state taxes based upon that income.
The attorneys at McLaughlin & Nardi, LLC are experienced in forming all types of business matters and assisting with all manner of business-related issues from State registration to litigation. To learn more about what we can do to help, please visit our website, e-mail us or contact one of our lawyers at (973) 890-0004.