By Dennis Spinelli, CPA, Director - Tax Services
This past weekend, the New Jersey Legislature and Governor Murphy came to an agreement on Corporate Business Tax ("CBT") changes in connection with the State's 2019 fiscal year budget. While some details still need to be ironed out, the new CBT provisions will have a significant impact on many New Jersey banks. Three of the more prominent components of the tax law changes are as follows:
What does this mean for banks?
The higher rates will create additional New Jersey tax expense for those banks with taxable income exceeding the stated threshold. For institutions affected by the new law, there is an immediate need to undergo an analysis that could require the revaluation of the NJ Deferred Tax Asset ("DTA") currently reflected on their Balance Sheet. The revaluation adjustment will be required for any temporary difference that is expected to "reverse" during the four-year surtax period referenced above. This DTA adjustment is similar to the adjustment made during the fourth quarter of 2017 as a result of the Federal tax rate change, with the major difference being that the NJ adjustment would be favorable for most banks. Also, due to the changes in the treatment of intercompany dividends, banks that are part of certain affiliated legal entity structures may end up paying more in NJ taxes than they have in the past.
What are the next steps for banks?
Bank Management teams should speak with their tax advisors to ascertain exactly how these changes will impact their institution's tax profile. As is the case with most new tax legislation, we anticipate further discussions will take place and some of the law changes will be clarified or possibly modified. At P&G Associates, our Tax Services group is closely monitoring this process, and we will provide additional updates as developments occur. Our experienced tax professionals are engaged in helping our clients understand the tax implications of the new law and discussing various tax planning options.
To learn about P&G's Tax Services and how we can help your institution, email WhatsYourRisk@pandgassociates.com or call 877-651-1700.
Dennis Spinelli, CPA
Dennis Spinelli, CPA, directs and manages P&G's tax practice, which encompasses tax preparation and filing, tax accounting, tax planning and other consulting services for banks. He has over 30 years of experience providing a full range of tax services to financial institutions of all sizes. His extensive background spans public and private accounting, and includes tax management roles at a national bank and a regional bank.