New Jersey Continues to Rank Poorly
Some Relief is Provided by the Equal Pay Act and SALT Deduction 
Mike Mazur, CPA, CFF
Focused on You. Dedicated to Your Success.
May 21, 2018

New Jersey continues to be one of the most expensive states to conduct business and live. 
The New Jersey Business and Industry Association (NJBIA) ranked New Jersey in its analysis: NJ Challenged in Regional Business Competitiveness , against seven neighboring states to illustrate the problem. Six different business costs – minimum wage rate, top income tax rate, top corporate tax rate, sales tax rate, property taxes as a percentage of home value, and the top unemployment tax rate were used to rank each of the states included in the study. New Jersey ranked poorly compared to Connecticut, Delaware, Maryland, Massachusetts, New York, and Pennsylvania. The Garden State’s overall score was 31, five points more than the second -highest ranking states (Massachusetts and Connecticut).  Click here to read NJBIA’s report.

Governor Murphy has proposed increasing the top tax income tax rate for incomes over $1 million, raising the sales tax back to 7 percent, and increasing the minimum wage to $15 per hour. Although these measures will help generate tax revenue and improve the well-being of the state’s workforce, they come at a price. It will become even more difficult for New Jersey businesses to be competitive.

The Governor recently signed two pieces of legislation aimed to help New Jersey workers and taxpayers – the Diane B. Allen Equal Pay Act and State and Local (SALT) Deduction. Here is what you need to know about both bills: 

Diane B. Allen Equal Pay Act
The Governor recently signed legislation aimed to help. On April 24, Governor Murphy signed 
the Diane B. Allen Equal Pay Act (the Act) making it a violation of New Jersey’s Law Against Discrimination (LAD) to pay women and minorities (protected classes) less than men for doing the same work. Employers can no longer compensate (including benefits) protected classes less than the rate paid to employees of unprotected classes for substantially similar work, when viewed as a composite skill, effort, and responsibility. The legislation also prohibits employers from punishing employees for discussing their pay with others. The Act becomes effective on July 1, 2018. Violators will be assessed penalties in the amount of three times the monetary damages and the aggrieved employee may obtain relief for up to six years of back pay. The legislation also allows courts to award treble damages for violations of the law.

While the Act generally requires equal compensation for all employees who perform substantially similar work, a pay differential may be permissible in certain situations including if it is based on a seniority or merit system. A pay differential can also be based “on one or more legitimate, bona fide factors such as training, education or experience, or the quantity or quality of production.” Such factors must be “applied reasonably, job-related with respect to the position in question, and based on a legitimate business necessity.” A factor cannot be based on business necessity if alternative business practices serve the same purpose without producing the wage differential. Furthermore, an employer cannot reduce an employee’s compensation to comply with the Act.

State and Local Tax Deduction
Governor Murphy also signed the State and Local Tax (SALT) Deduction into law on May 4, 2018. This legislation provides property tax relief to New Jerseyans. The law allows municipalities and local governments to establish charitable funds for a specific purpose such as funding schools. Taxpayers can donate to these funds in exchange for a tax credit of up to 90 percent of their donation to reduce their property tax bill. 

The Tax Cuts and Job Act (TCJA) caps the SALT deduction at $10,000. New Jersey’s SALT deduction allows taxpayers to get around this cap. 

Charitable contributions remain fully tax deductible. Taxpayers with more than $10,000 in SALT can pay some of their taxes in the form of charitable contributions and take the deduction on their federal taxable income, no matter the amount. 

The IRS has yet to rule on whether it will allow charitable contributions to apply to SALT deductions. 

Feel free to call any member of our team at 610-828-1900 with questions. You can also contact either Mike Mazur, CPA, managing principal - New Jersey office at 732-341-3893 ext. 14 or Michael.Mazur@MCC-CPAs.com and myself Marty.McCarthy@MCC-CPAs.com . We are always happy to help. 
Martin C. McCarthy, CPA, CCIFP
Managing Partner
McCarthy & Company, PC

Disclaimer This alert is for informational purposes only and does not constitute professional advice. Information contained in this communication is not intended or written to be used as tax advice, and cannot be used by the recipient to avoid penalties that may be imposed under the Internal Revenue Code. We strongly advise you to seek professional assistance with respect to your specific issue(s).