NJ, MD and PA See Changes in Laws That Affect Taxes

Posted on Thu, Aug 28, 2014 ©2021 Drucker & Scaccetti

Among the tax courts, state legislatures and agendas of Governors around the country, laws that affect taxation in states are in a constant state of motion—ever changing, ever expanding and usually impacting your net worth.  In fact, Ronald Reagan once called state taxation a “the only snowball that could both survive and grow in Hell.”

 

Recently, the states of New Jersey, Maryland and Pennsylvania added some important changes to their laws that may affect those who live, die and/or own a business in these states (not necessarily in that order).

 

NEW JERSEY

The New Jersey Tax Court has ruled that a New Jersey resident S-corporation shareholder's gross income tax credit for taxes paid to New York on her S-corporation income was limited to the New York tax paid on the income that would have been allocated to New York under New Jersey's allocation rules.

 

For the tax year in question, 80% of the S-corporation's income was allocated to and taxed by New York based on New York's single factor gross receipts formula while only 60.8% of the S corporation's income would have been allocated to New York under New Jersey's 3-factor formula. The Court ruled that the credit for taxes paid to another state does not apply to the extent that tax is paid to New York on income that would have been allocated to New Jersey under New Jersey's tax rules. The Court also rejected the taxpayer's request to eliminate the payroll and property factors from the allocation formula.

 

MARYLAND

After the federal estate tax exclusion was raised to its current amount of $5,000,000 indexed for inflation many taxpayers continued to be subject to estate tax in their respective state, since only a handful of states increased their exclusion amounts to be commensurate with the feds.   This will be changing, over time, for residents of Maryland.  Governor Martin O’Malley recently signed a bill that will gradually increase the Maryland applicable exclusion to the federal estate tax applicable exclusion amount.  The new law increases the Maryland applicable exclusion as follows:

  • For taxpayers dying in 2015, the applicable exclusion is $1,500,000;
  • For taxpayers dying in 2016, the applicable exclusion is $2,000,000;
  • For taxpayers dying in 2017, the applicable exclusion is $3,000,000;
  • For taxpayers dying in 2018, the applicable exclusion is $4,000,000; and
  • For taxpayers dying in 2019 or later, the applicable exclusion is tied to the federal estate tax applicable exclusion amount, which is currently $5,340,000, indexed for inflation.

 

The new law does not change provisions that were previously available.  Maryland decedents are still able to pass an unlimited amount of their wealth to their spouse and/or to qualified charities free of Maryland estate tax.  In addition, a special exemption is still available for qualified agricultural property.

 

The new law also does not change the inheritance tax.  A taxpayer may be subject to the inheritance tax for property passed to a distant relative or an unrelated individual.  Other differences between federal and Maryland gift and estate tax laws may also still subject a taxpayer to tax.

 

PENNSYLVANIA

The Pennsylvania unclaimed property law has been amended to change the holding period of certain classes of unclaimed property by certain entities and to create a holding period for a new class of property. Record examination procedures were also updated for the state treasurer.

 

The holding periods have been changed from five years to three years for the following properties:

  • Any demand, saving, or matured time deposit in a financial institution
  • Any sum payable on checks or on certain written instruments
  • Contents of safety deposit boxes
  • Moneys held or owing by an insurer under any contract of annuity or policy of life insurance unclaimed and unpaid for after the moneys have or shall become due and payable 
  • Certain life insurance policies
  • Customer property held by a utility
  • Gift cards with no redemption period
  • Certificates of stock or participating right in a business association
  • Certain property held in a fiduciary capacity
  • Property held by courts and public officers and agencies
  • Certain miscellaneous property

Individual retirement accounts are now also subject to a three-year holding period under certain conditions.

 

The state treasurer’s current authority to examine and revise public accounts is amended to include abandoned and unclaimed property accounts. The state treasurer also may ascertain information about the abandoned and unclaimed accounts through review of documents and examination of witnesses.

 

Effective January 6, 2015, an individual who is not an attorney is prohibited from engaging in activities related to locating and recovering abandoned or unclaimed property for a fee unless they register with the state treasurer, maintain certain records, and file reports related to such transactions.

 

The state tax landscape is constantly changing.  These changes may require review and/or revision of your current tax or estate planning strategies. The experienced team of tax advisors and attorneys at Drucker & Scaccetti are available to review your plans and assist you in implementing the best course of action to minimize your tax liability. If you would like more information or would like to schedule a consultation, please call our office at (215) 665-3960 and ask to speak with one of our advisors or contact us by clicking the “Ask A Tax Warrior” button below. We are always prepared to handle this or any other tax-related matter.

Topics: NJ, Credit, estate tax, S corporation, State tax, MD, Maryland, Multi-state Tax, unclaimed property, New Jersey, PA, Pennsylvania

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