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STARTING AND OPERATING A BUSINESS IN NEW JERSEY Copyright © 2004, Michael D. Jenkins
CONTENTS OF THIS SECTION:
I. INTRODUCTION I. INTRODUCTION New Jersey has a fairly typical tax and legal structure under which businesses must operate. However, it stands out in the industrialized Northeast for its low personal income tax rates, and for the absence of various types of taxes imposed by most neighboring states, such as rental occupancy taxes, a separate franchise tax or corporate net worth or capital taxes, or any general taxes on gross business income or on intangible personal property. Like most states, New Jersey imposes an income tax (called a franchise tax on net income) on corporations, a sales and use tax, various excise taxes, with property taxes generally imposed at the local level. The state has also adopted a limited liability company (LLC) law, and a limited liability partnership (LLP) law, so that businesses operating in New Jersey in LLC or LLP form may obtain the advantages of limited liability, without incorporating or becoming subject to corporate taxation, generally. At present, the state's economy is growing rapidly and has recovered from a long period of relatively high rates of unemployment. For example, in June, 2004, the state's unemployment rate was 4.7%, down sharply from 5.9% a year earlier. This compares favorably to a national unemployment rate of 5.6% for the same month. To view the latest federal Bureau of Labor Statistics unemployment rate data for New Jersey or any other state, visit the BLS website. On the other hand, the corporate franchise (income) tax rate, at 9%, is relatively high and, like all other Northeastern states, New Jersey has no right-to-work law. Also, it is one of only a handful of states that makes health and accident (temporary disability) insurance for employees mandatory, although employees share part of the cost of such coverage with employers. II. LEGAL ENTITIES -- FILING FEES AND REPORTING REQUIREMENTS. (a) In General. A business that operates in New Jersey can operate as a sole proprietorship, a general or limited partnership, a corporation, or a limited liability company. In addition, like the federal tax law, the state income tax law also recognizes S corporations, for income tax purposes, and generally allows the income or losses of an S corporation to "flow through" and be taxed or deducted at the shareholder level. However, unlike most other states, New Jersey also imposes a tax at (at a considerably reduced tax rate) on the income of the S corporation as well. This S corporation tax was eliminated entirely for S corporations with income of $100,000 or less, for tax years starting on or after July 1, 2001, and will be phased out entirely by July 1, 2007 for S corporations with over $100,000 of "regular" taxable income allocable to New Jersey. (S corporation income that is taxable for federal tax purposes is taxed at 9% by New Jersey.) New Jersey also provides for limited liability partnerships, in which no partner is liable for debts of the partnership, in general, as in the case of a corporation or LLC, but with fewer legal formalities than are required for either a corporation or an LLC. Each of the above entities is discussed below, along with the basic requirements for forming such an entity and any general ongoing (non-tax) reporting requirements that are applicable to it. The tax treatment of each form of legal entity is discussed in Section IV below. (b) Sole Proprietorships. In general, sole proprietorships in New Jersey can be formed with no formalities. However, as discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, as well. No separate tax form filing is required, generally, for a sole proprietorship, under the New Jersey income tax law. Instead, as with the Schedule C on your federal Form 1040, you simply report the net income or loss from your sole proprietorship on your state personal income tax return. See Section IV(c) for information on the New Jersey income tax and filing requirements for individuals. (c) Partnerships. As a rule, general partnerships in New Jersey can be formed with no formalities, although it is highly advisable to have a written partnership agreement. However, as discussed in Section IV(b), it will generally be necessary to obtain one or more local business licenses from cities or counties in which you operate and, in some cases, state licenses, for any type of partnership, including general or limited partnerships, or limited liability partnerships. A limited partnership, in which there is at least one general partner (who is liable for partnership debts) and at least one limited partner (who is not liable for partnership debts), may also be formed under New Jersey law. Unlike a general partnership, a limited partnership must generally have a written partnership agreement, and must file a certificate of limited partnership with the New Jersey Division of Revenue, part of the Department of Treasury, together with a filing fee of $125. Foreign limited partnerships must also register before being allowed to do business in New Jersey, and must also pay a registration fee of $125. Both domestic and foreign limited partnerships are also required to file an annual report and pay an annual fee of $50. For information on limited partnership filing requirements, see the contact information for the offices of the New Jersey Division of Revenue, listed in Section VI(a). Limited liability partnerships (LLPs) are a relatively new form of partnership permitted under the laws of New Jersey. Like an LLC, an LLP provides limited liability for its owners, while retaining the tax advantages of a partnership for federal and New Jersey state income tax purposes. However, unlike an LLC, an LLP typically operates like a regular partnership, and is not required to file articles of organization. To form an LLP in New Jersey, you must file a registration form with and pay a filing fee of $125 to the Division of Revenue. Foreign LLPs, those created under the laws of another state, must register with the Business Services Office (formerly the Division of Commercial Recording) of the Division of Revenue, Department of Treasury, for a certificate of authority and pay a fee of $125. Every LLP doing business in New Jersey, including both domestic and foreign LLPs, must file an annual report and pay an annual fee of $50 to the Division of Revenue, Business Services Office. For more information on LLP registration and reporting requirements, see the contact information for the offices of the Division of Revenue, of the New Jersey Department of Treasury, listed in Section VI(a). Note that one potential drawback of LLPs, if you will do business in other states besides New Jersey, is that some states, like California and New York, only recognize certain types of professional partnerships as LLPs. If yours is not a professional partnership, such other states may simply treat your LLP like an ordinary general partnership, with no limitation of liability. A partnership agreement, for any type of partnership, should spell out in considerable detail such matters as the following:
Partnerships, as entities, are not subject to state income tax in New Jersey. Instead, the income or losses of the partnership, as allocated among the partners, must be reported on the personal income tax returns of the individual partners (or on the corporate tax returns of any corporate partners). Information returns of partnerships are due on April 15th of the following year, for partnerships on a calendar year. However, most partnerships (or entities taxable as partnerships, such as LLCs) with more than two partners, except for certain small investment clubs, are required to pay an annual tax or fee of $150 per partner each year, up to a maximum annual fee of $250,000. The fee must be paid at the time the partnership tax return is filed, and the partnership must also prepay 50% of the next year's liability, based on the fee paid for the year just ended. For more on New Jersey partnership tax return filing requirements, see Section IV(c). (d) Corporations. To form a corporation in New Jersey, you must file articles of incorporation with the Business Services Office and pay a fee of $125. A foreign corporation (one formed under the laws of another state or a foreign country), must obtain a certificate of authority before it may legally conduct business in New Jersey, by filing an application for a certificate of authority and paying a filing fee of $125. For more information on filing articles of incorporation or applying for a certificate of authority to do business in New Jersey, see the contact information for the offices of the Division of Revenue, listed in Section VI(a). In addition, once your corporation is formed, it will be required to file annual reports and a filing fee of $50 with the Division of Revenue, Business Services Office, each year. Failure to file this report on a timely basis could result in suspension or revocation of your corporation's charter. In addition to paying federal income taxes on its income, a corporation that does business in New Jersey must also file Corporation Business Tax (income tax) returns with the state. See Section IV(c) for a discussion of New Jersey corporate income tax rates and tax return filing requirements. Professional corporations that have more than two licensed professionals are required to pay an annual filing fee of $150 for each licensed professional employed by the company, with a maximum fee of $250,000, in addition to any corporate income tax. For tax forms and more information on corporate income (franchise) taxes in New Jersey, see the contact information for the offices of the Division of Taxation, Department of Treasury, listed in Section VI(a). (e) S Corporations. An S corporation is simply a regular corporation that has elected, for federal or state income tax purposes, or for both, to be taxed somewhat like a partnership, with its income, losses and tax credits flowing through to its owners, who report such income, losses, or credits on their individual tax returns. New Jersey recognizes S corporations for income tax purposes, and treats them in a manner similar to the federal tax treatment, except that the S corporation itself also pays franchise (income) tax, at a greatly reduced rate, on its taxable income. This S corporation tax was eliminated entirely for S corpoations with an income of $100,000 or less, for tax years starting on or after July 1, 2001. It is being phased out over several years for corporations with over $100,000 of "regular" taxable income, being reduced from the prior 2% rate to 1.33% for the period from July 1, 2001 to June 30, 2006, and to 0.67% for the following 12 months. It is eliminated entirely, on and after July 1, 2007. A separate state election on Form CBT-2553 is required if a corporation wishes to be treated as an S corporation for state purposes in New Jersey. The election form must be filed within 3 1/2 months of the beginning of the corporation's fiscal (tax) year, to be effective for that tax year. Otherwise, a corporation will be treated as fully taxable under the Corporation Business Tax Act. For example, if you incorporate your business and the corporation's first taxable year begins on July 1, 2006 (ending December 31st), you would need to make the S corporation election for the initial (short) tax year by October 15th, 2006, in order for the S corporation election to be effective in for New Jersey tax purposes for that first taxable year. (f) Limited Liability Companies. New Jersey, like every other state in the U.S., has adopted a limited liability company (LLC) law. Thus, in addition to the traditional choices of a sole proprietorship, partnership, or corporation, a business that operates in New Jersey may also choose to operate in the form of an LLC. In most states, LLCs are very attractive entities for many small businesses, in that they offer the same protection as a corporation from creditors for debts of the business, while offering much of the flexibility plus the flow-through tax treatment of a partnership for federal tax purposes. See Section IV(c) for a discussion of the income tax treatment of LLCs under New Jersey tax laws. To form an LLC under the laws of New Jersey, you must file articles of organization with the Office of Business Services of the New Jersey Division of Revenue, which must be accompanied by filing fees of $125. New Jersey state law now permits the formation of one-member LLCs, and will ignore the existence of such a one-member LLC for tax purposes, like a sole proprietorship, as under the federal tax regulations. Foreign LLCs, those formed under the laws of another state, must obtain a certificate of authority to do business in New Jersey, by filing an application for a certificate of authority with the Department of Revenue, Business Services Office, and paying a filing fee of $125. Like corporations, LLPs, and limited partnerships, LLCs are required to file annual reports with the state, and pay an annual fee of $50. For more information on filing articles of organization for an LLC, see the contact information for the Office of Business Services of the Division of Revenue, listed in Section VI(a). III. BUSINESS ACQUISITIONS (a) In General. When acquiring an existing business, there are a number of state legal and tax issues and other matters that you, or, for some items, your business attorney or CPA, should attend to before closing the purchase, to help prevent later, unpleasant surprises. These include matters such as:
Depending upon the state (or states) in which the seller's assets are located, you may also have to comply with state bulk sale or bulk transfer laws. You should also obtain tax releases from various state taxing agencies, as discussed below. (b) Bulk Sale Laws. Typical bulk sale laws require either publication of legal notices to all creditors in advance of the sale and recording of such notices in some cases, or maintenance of detailed lists of the property to be transferred, for inspection by the public. New Jersey is one of the states that has repealed its bulk sale laws, so you no longer have to be concerned with this requirement when buying a business in New Jersey. (c) Tax Releases. When you acquire an existing business, you will want to make sure that you do not unwittingly become liable for any unpaid taxes owed by the seller. Typically, to protect yourself, you will need to receive a tax release or releases from various state taxing agencies, for such taxes as sales and use tax, income tax withholding, and state unemployment taxes, in each state in which the seller does business. If you fail to obtain such a release or written statement from the tax agency that the seller is not delinquent on any tax payments, you will be held responsible for such tax if it is not withheld from the purchase price proceeds and paid to the state at the time the sale of the business transpires. In New Jersey, you should obtain tax releases for sales and use tax that may be owed by the seller. You must give notice of the planned purchase to the Division of Taxation, at least 10 days in advance, of Form C-9600, Notification of Sales Transfer, or else you may be liable for unpaid taxes of the seller. (d) Unemployment Tax Rating of Seller. In addition to obtaining tax releases, you may find it advantageous to succeed to the seller's unemployment tax experience rating, if the seller has a tax rate lower than you would otherwise obtain as a new business. In New Jersey, note that a seller's unfavorable experience rating may be given to you, unless you object within four months after the purchase of the seller's business. For more information, contact the New Jersey Department of Labor, Employer Status Section. (e) Withholding State Taxes on Real Estate Purchases. If you acquire business real estate as part of the purchase of a business or otherwise, and if the seller is a nonresident individual, estate or trust, you need to make sure by or at the time of the closing that the seller pays the estimated New Jersey Gross Income Tax on his or her gain on the sale of the property. The amount of the estimated tax payment is computed on the seller's gain at the highest gross income tax rate and, at a minimum, the seller must pay in at least 2% of the sales price, even if he or she has no taxable gain (or has a loss) on the sale. The estimated tax payment is made directly to the county recording office, which collects the tax on behalf of the state Division of Taxation. No estimated tax payment is required if the property you are purchasing was used as the principal residence of the seller. While New Jersey does not, technically, require you (the buyer) to withhold the tax, it is important that you see to it that the nonresident seller pays the tax (or certifies that the tax payment is not required, if the property was his or her principal residence). Otherwise, the county recording office will not register your deed to the property, unless the tax is remitted or the seller certifies that the property was a principal residence. IV. NEW JERSEY TAXES AND OTHER GENERAL REQUIREMENTS. (a) In General.
New Jersey has one of
the most inviting, pro-business environments of any major
Northeastern state, offering low personal income taxes, no
bulk sale law requirements on purchase of a business, no tax
on the capital of corporations, no business gross income
taxes or unincorporated business taxes, and no commercial
occupancy or rental taxes. In addition, there is no
property tax on intangible property, or on business
inventories.
The state government of New Jersey has also developed a
wide range of government services to attract and promote both
large and small businesses in the state. In addition to having
an Office of Small Business to assist businesses get through
government red tape, the state provides numerous seminars
and consulting services to help businesses comply with
the laws and improve their business operations.
(b) State and Local Licensing. Nearly any business, operated anywhere in the United States, will have to have at least one government license of some kind. In most cases, this will be a local license, issued by your city or county. Before you open your business, contact your local city or county hall and find out if your particular business needs one or more local licenses. Most kinds of local business licenses are granted upon payment of a fee, with no further requirements, except possibly for annual or other periodic renewal fees. However, if you are engaging in any kind of food business, you will usually need to also obtain a health department permit and show that you are in compliance with health department food-handling requirements. In addition, be sure to check with an attorney or local government zoning or planning department officials to determine if your business will be in compliance with all local zoning and planning restrictions. If you own or rent any type of facility, you will generally need fire department permits, showing that you meet fire safety codes and any construction or improvements to an existing structure will usually require a building permit. If you intend to simply operate your business from your home, you may be in violation of local zoning requirements, but this is less likely to be a concern if you don't have clients, customers, suppliers, or employees coming to your house on business, on a regular basis. State governments have also traditionally required special licenses for many kinds of professionals, such as physicians, dentists, lawyers, and accountants. To further protect consumers, New Jersey has expanded the list of occupations that must be licensed by the state to include many other occupations. Most state licenses not only require payment of fees, but are only issued for a given profession or occupation upon showing that you have completed certain educational or experience requirements, or passed certain tests, or some combination of the foregoing. In New Jersey, all businesses must register with the state for tax and employer purposes, on Form NJ-REG, Business Registration. With an Internet connection, you may also register on-line, on the web site of the Department of Treasury, Division of Revenue's Business Gateway Registry web page. For information on state licensing and business registration requirements in New Jersey, see the contact information for the offices of the New Jersey Office of Small Business, listed in Section VI(a). (c) Income and Franchise Taxes. New Jersey has both an individual income tax and a corporate income tax (called a franchise tax) on corporations, but, unlike many states, does not impose a separate franchise tax on the net worth or capital of corporations. The New Jersey individual income tax has been reduced several times in recent years, and, until recently, was imposed at a maximum tax rate of 6.37%, on income over $75,000 (or over $150,000 for married couples filing jointly). However, on June 28, 2004, the governor signed into law a "millionaire's tax" bill that creates a new 8.97% tax bracket on taxable income in excess of $500,000. The new tax bracket is retroactive in effect to January 1, 2004, and was enacted in order to increase the amount of property tax rebates to certain eligible homeowners. Individual taxpayers generally pay state income tax on their business earnings from a sole proprietorship, or on their share of the earnings of a pass-through entity, such as a partnership, S corporation, or LLC. The New Jersey personal income tax return is Form NJ-1040, which must be filed with the Division of Taxation of the New Jersey Department of Treasury, by April 15th of the following year. The New Jersey individual income tax is referred to as the "Gross Income Tax," as it is not based on federal taxable income. Instead, the amount subject to tax is based on most types of gross income (including net business income), with certain exclusions, reduced by only a few deductions, such as for alimony paid, medical expenses in excess of 2% of income, property taxes, and a few other items. No deductions are allowed, generally, for mortgage or other interest, other taxes, or charitable contributions. Partnerships, or entities taxable as partnerships, such as LLCs, are not subject to New Jersey state income taxation, but must file an information return with the Division of Taxation each year, showing each partner's share of taxable income, losses, and credits, on Form NJ-1065. The partnership information return is due by April 15 of the following year, in the case of a calendar year partnership. While not subject to income tax, any partnership with New Jersey income and more than two partners must pay an annual filing fee at the time it files its tax return, in the amount of $150 per partner (limited to $250,000 in total). The filing fee payment is to be remitted with Form PART-100, Partnership Voucher. Individual taxpayers doing business as sole proprietors, or who are partners in partnerships, or members of LLCs, are required to make payments of estimated New Jersey individual income taxes, on Form NJ-1040-ES, if their net tax liability (not covered by withholding) exceeds $400. Estimated tax payments are due in four installments, on the 15th day of the 4th, 6th, and 9th months of the taxable year, and the 15th day of the first month of the following year. Estimated tax penalties will apply if the amount of estimated tax paid in is less than 80% of the current year's tax, or 100% of the prior year's tax (110% of the prior year's tax, in the case of taxpayers with taxable gross income exceeding $150,000, or $75,000 if married, filing separate return). The New Jersey corporate income tax rate, on corporations other than S corporations, is imposed at a rate of 9%. For small corporations that have $100,000 or less of "entire net income," a reduced tax rate of 7.5% applies, and a 6.5% rate applies to corporations with $50,000 or less of entire net income. Since 2002, a $500 minimum tax (adjusted every fifth year for inflation) has applied, and the minimum tax is $2,000 for certain groups of corporations with combined payrolls of $5 million or more. The state corporation income tax return is Form CBT-100, which must be filed with the Division of Taxation by the 15th day of the fourth month following the end of the taxable year, or by April 15th in the case of a corporation whose taxable year is the calendar year. Corporations are required to make estimated tax payments of their state corporate income tax in advance, if their tax liability for the year equals or exceeds $500. Estimated tax payments are due in advance, in four equal installments, on the 15th day of the 4th, 6th, 9th, and 12th months of the taxable year. The total estimated tax that must be paid in is usually equal to 90% of the actual tax liability for the year. However, if the tax paid is equal to or exceeds the amount of the tax that would have been owed for the preceding year, computed at the current year's tax rates but based on the preceding year's facts, the current year payments will not be considered an underpayment of estimated tax. Penalties are imposed for failure to make the required estimated tax payments on a timely basis. S corporations are generally treated the same under New Jersey tax laws as under federal, but a small tax applies to the income of certain larger S corporations, currently 1.33%. Certain small S corporations whose entire net income is $100,000 or less are entirely exempted from this tax. This tax on the income of S corporations with more than $100,000 of entire net income, formerly imposed at the rate of 2%, is being phased out. The rate is 1.33% from July 1, 2001 until June 30, 2006, and then 0.67% for the period from July 1, 2006 until June 30, 2007. It is scheduled to be repealed entirely on and after July 1, 2007. (The tax was previously scheduled to phase out by July 1, 2003, but the phase-out period has been extended to 2007.) Any S corporation income that is subject to federal tax, or that does not separately elect to also become an S corporation for New Jersey tax purposes is taxed by New Jersey at the same rate as a regular corporation ("C corporation"), 9% at present. A corporation that wishes to elect to be a New Jersey S corporation must complete and file a New Jersey S Corporation Election, Form CBT-2553, with the Division of Taxation. The filing due date for Form CBT-2553 is one month after the time to file a federal S corporation election. In other words, since the federal S corporation election must be made within 2 1/2 months after the start of the taxable year, the New Jersey S corporation election must be made within 3 1/2 months after the start of the taxable year. In New Jersey, a limited liability company (LLC) will be taxed in the same manner as a partnership (unless it is taxed as a corporation for federal tax purposes), thus avoiding the possible double taxation of income that can occur with a corporation. Note that under IRS tax regulations, an LLC is now able to elect to be treated as a partnership if it has more than one owner, or as a sole proprietorship if it does not, for federal tax purposes. New Jersey law now recognizes the validity of a one-owner LLC, and follows the federal tax treatment. Note that it is not always entirely clear whether an LLC is a "single-member LLC" LLC or not, where the "single owner" is a married couple who hold the entire ownership of the LLC in some form of co-tenancy, such as joint tenants with right of survivorship, tenants by the entirety, or as tenants in common. The federal Internal Revenue Service (IRS) has taken a very lenient position in Rev. Proc. 2002-69, where a couple hold the LLC interest as community property, ruling that the IRS will accept whatever choice the couple make, either to disregard the LLC as an entity (treating it as a "single-member LLC") or to treat it as a partnership between the husband and wife. However, New Jersey is not a community property state, so where the LLC is owned by a husband and wife in some form of co-tenancy, it is unclear whether the IRS treatment would be as lenient as for community property owners, since the IRS has not issued any published rulings on whether an LLC can be a disregarded entity if held in one of the various forms of co-tenancy by a married couple, rather than being held as community property. Thus, it is also unclear, where an LLC is owned by a husband and wife as co-tenants, whether New Jersey would treat the LLC as a single-member LLC or as a partnership. While not taxable entities when electing partnership treatment, any partnership or entity that is taxed as a partnership (such as an LLC) and which has more than two partners or members must pay an annual fee of $150 per partner or member, with a maximum annual amount payable of $250,000. In addition, any partnership must remit tax payments on each nonresident partner's share of the partnership's New Jersey income; such payment is credited against the nonresident partner's New Jersey income tax liability, like an estimated tax payment, as of the date the Division of Taxation receives the tax from the partnership. (d) Sales and Use Tax. New Jersey imposes a general sales tax on retail sales of tangible personal property and certain types of services at the statewide rate of 6%. Additional local taxes are permitted on room rentals and sales of alcoholic beverages in Atlantic City, at varying rates. There are numerous exemptions from the sales tax, the most important of which is the resale exemption. If you are a wholesaler or retailer who purchases goods that you will resell, your purchase of such goods may qualify as an exempt sale for resale. Similarly, if you sell goods to wholesalers or retailers for resale by them, your sale may also qualify as an exempt sale for resale. In any such transaction, the exemption is ordinarily available only if the purchaser gives the seller a valid resale certificate, certifying that the items are being purchased for resale, and not for use or consumption by the buyer. A shadow tax, the use tax, is also imposed at the same rate as the sales tax. It is primarily intended to tax property that is acquired from sources outside of the state, in transactions not subject to sales tax, when such property is used or consumed within New Jersey. Use tax may also apply to items purchased on an exempt basis, such as for resale, if such items end up being used or consumed, instead of being resold. Before making any taxable sales, you will need to register with the New Jersey Division of Taxation on Form NJ-REG, Business Registration form. If you indicate on the Business Registration form that you will be collecting sales tax, paying use tax, or using New Jersey Exemption Certificates, the Division will send you a New Jersey Certificate of Authority for sales tax. This certificate is your permit to collect sales tax, and to issue and receive exemption certificates. The New Jersey Certificate of Authority must be displayed at your place of business. For more information on New Jersey sales and use tax registration and compliance, see contact information for the offices of the Division of Taxation, listed in Section VI(a). (e) Real and Personal Property Taxes. In New Jersey, as in every other state, any business real estate you own will be subject to real property taxes. In general, there is little that you must do, unless you wish to challenge your assessed valuation, since the assessor will bill you for each year's property taxes as they come due. New Jersey also imposes personal property taxes on tangible personal property. However, certain business personal property, such as business inventories, are exempt from personal property tax in New Jersey. While New Jersey generally taxes tangible personal property, it does not impose a property tax on intangible personal property, such as stocks, bonds, promissory notes, and other such paper assets. A Massachusetts Taxpayers Foundation study of state taxes in 2004 (based on 2002 data) found that New Jersey had the second highest property taxes in the nation, in relation to residents' income, at $48 of tax per $1,000 of income. (Alabama had the lowest property taxes, at $13 per $1,000 of income, in comparison, while Maine had the highest property taxes, at $55 per $1,000 of income.) (f) Other Business Taxes. New Jersey imposes a number of other taxes on businesses, including:
(g) Trade Names. A trade name, also known as a fictitious or assumed name, is any name used in the course of business that does not include the actual legal names of all the owners of the business. Thus, if your business goes by any name other than your own real name, it is operating under a trade name. The same is true of a corporation, if it operates under a name other than its legal name. A trade name might also be one that suggests the existence of additional owners, by using such words as "company," "associates," or "group." In most states where you do business, it will be necessary to register a trade, fictitious, or assumed name, so that people who do business with you can find out who the actual owners of your business are. You may also want to register any such trade name, as a means of protecting against other companies usurping that particular trade name. In New Jersey, sole proprietorships and partnerships that do business under a trade or fictitious name must file a a fictitious name certificate in duplicate with the county clerk in the county where they do business, along with a $5 fee for the county and a $5 fee for the New Jersey Division of Revenue, Office of Business Services, to whom the county clerk will forward the duplicate registration certificate. A limited liability partnership (LLP) is exempted from filing a fictitious name certificate with the county, but must instead file an "alternate name" registration with the Office of Business Services, along with a $50 fee. Corporations using an assumed name are also exempted from filing with the county clerk, but can register an "alternate name" with the Office of Business Services, with a $50 fee. LLCs and limited partnerships are also permitted, for a $50 fee, to file an "alternate name" certificate with the Office of Business Services, if using an assumed name. V. EMPLOYER REQUIREMENTS IF YOU HAVE EMPLOYEES (a) Employer Registration and Withholding. If you have any employees, you will already be withholding federal income tax and FICA taxes from their wages. Since New Jersey imposes a state income tax on the income of individuals, employers must also withhold New Jersey income tax (called the New Jersey "Gross Income Tax") from the wages of employees. Before you begin to pay wages, you must register as an employer with the Division of Revenue on Form NJ-REG, Business Registration, which also serves as registration for sales and use tax and various other state taxes. Under a new "one-stop" service plan initiative implemented by former Governor Whitman, employers now only need to file one form to register with the Division of Revenue and to also become registered with Division of Employer Accounts of the New Jersey Department of Labor and Workforce Development, for state unemployment taxes and temporary disability insurance tax. Thus, the state Department of Labor and Workforce Development no longer requires a separate New Jersey employer registration number for unemployment and disability insurance purposes. Instead, the Federal Employer Identification Number has become the basic identifier for both the Division of Taxation and the Division of Employer Accounts of the Department of Labor. Reporting requirements for the Division of Taxation's "Quarterly Return of Gross Income Tax Withheld" (Form NJ-941 and Form NJ-941W) and the Division of Employer Accounts' "Quarterly Contribution Report" (Form UC-27) have been consolidated into one new form, "Employer's Quarterly Report" (Form NJ-927), and employers can now submit one form and one check to satisfy their reporting requirements with both agencies. For more information on New Jersey income tax withholding and registration requirements for employers, see the contact information for the offices of Division of Taxation of the New Jersey Department of Treasury, listed in Section VI(a). (b) Unemployment and Other State Payroll Taxes. If your business employs one or more individuals in each of 20 weeks during any calendar year or if your payroll amounts to $1,000 in any calendar quarter, you, as an employer, will be required to pay state unemployment tax based on the amount of such wages paid. Employers subject to the New Jersey unemployment tax were formerly required to register with the Employer Status Section of the New Jersey Department of Labor to obtain a state employer identification number for unemployment tax purposes. However, under the new "one-stop" reorganization described in Section V(a), registration with the Division of Revenue for withholding and other taxes now also covers your registration as an employer with the Department of Labor, and no separate identification number is issued for unemployment tax purposes. New employers are required to pay tax at a rate of 2.8% in 2004 on the first $24,300 of wages paid to each employee. After you have had employees for a while, you will develop an unemployment tax experience rating. This rating is based on the number of employees you terminate who then claim unemployment benefits and the amount of such benefits paid to those former employees, under complex formulas. The state will inform you when they have assigned you an individual tax rate based on your firm's experience rating. That rate may be higher or, if you have had relatively few benefit claims charged to your account, lower than the standard new employer tax rate you initially were paying. The above unemployment taxes must be paid by you, as the employer. However, your employees must also pay in a small portion of their wages, 0.425% in 2004, on the wage base amount, which you must withhold from their paychecks and pay over to the state along with the employer contributions. In addition to unemployment taxes, New Jersey is one of just a few states that require employers to provide temporary disability insurance for employees (TDI). For a description of the temporary disability tax and current rates, see the discussion in Section V(f)(5). For more information on your New Jersey unemployment tax and TDI obligations as an employer, see the contact information for the offices of the Department of Labor, Division of Employer Accounts, listed in Section VI(a). (c) Workers' Compensation. Workers' compensation insurance is a state-mandated insurance requirement for most employers, in almost every state. In New Jersey, virtually all businesses with one or more employees are required by law to have workers' compensation insurance, except those able to self-insure. Note that a sole proprietor, a partner in a partnership, or a member of a limited liability company is generally not considered an employee, and is not required to be covered for workers' compensation purposes, but may elect coverage. However, unlike most states, New Jersey law generally treats officers of a corporation as employees who must be covered by workers' compensation, even if the officer is the sole owner of the corporation. Workers' compensation provides wage loss and medical benefits to employees injured on the job and it protects you, as an employer, from legal action for damages for injuries or job-related illnesses suffered by your employees. In effect, it is a "no-fault" insurance system for work-related injuries or illnesses. Thus, if you fail to obtain required workers' compensation insurance, and an employee is injured on the job, you will have opened yourself to unlimited liability and severe legal consequences, so it is very important to obtain workers' compensation insurance for your employees. Be aware that neither general liability nor health and accident insurance can properly substitute for workers' compensation insurance. As an employer, you must notify injured employees of their benefits and post a notice in the workplace informing your employees of their workers' compensation coverage. For more detailed information regarding your obligations as an employer under the New Jersey workers' compensation laws, contact your insurance carrier or see the contact information for the offices of the Division of Workers' Compensation of the New Jersey Department of Labor and Workforce Services, listed in Section VI(a). (d) State Wage and Hour Laws. Some employees of certain small firms not engaged in interstate commerce are not covered by the federal minimum wage and overtime laws. However, even if few or none of your employees are covered by the federal wage-hour laws, if, for example, because your firm does less than $500,000 a year in gross sales and the employees in question are not deemed to "...engage in (interstate) commerce...," they will still generally be subject to the New Jersey wage-hour laws, which provide for a state minimum hourly wage that is currently $5.15 an hour, the same as the federal minimum wage. Note that, as under federal wage-hour laws, certain classes of executive, administrative, and professional employees, as well as outside salespersons, are exempted from the New Jersey wage-hour rules. New Jersey, like the federal law, requires payment of overtime, at time-and-a-half, for hours worked in excess of 40 hours a week. Besides the federal wage-hour posters that you must display in the workplace, you must also display a state wage-hour poster, which you can obtain from the New Jersey Department of Labor. In addition to wage-hour laws, most businesses are subject to federal child labor laws, which put numerous restrictions on the working hours and kinds of work in which minors under the age of 18 may engage. Your business must also be cognizant of similar state child labor laws, in New Jersey. The New Jersey child labor laws provide numerous restrictions on the type and hours of work that my be performed by minors under age 18, and even more restrictions on hiring minors under the age of 16. Employment certificates must generally be obtained from the local school district before a minor is allowed to work. (e) State Occupational Safety and Health Laws. Employers in New Jersey must comply with state and federal job safety laws designed to prevent injuries resulting from unsafe or unhealthy conditions in the workplace. While New Jersey primarily relies on federal OSHA to enforce job health and safety in the state in private industry, and does not have a full-fledged OSHA law or enforcement agency of its own, the state has enacted laws for the protection of laws and citizens in connection with certain types of hazardous industries and activities, in addition to enforcing health and safety rules in public sector (government) employment. The Office of Safety Compliance of the New Jersey Department of Labor enforces health and safety standards issued under the laws of New Jersey. Note that while you may obtain a free safety consultation from federal OSHA experts, they must and will cite you for any violations they discover at your workplace. This is not the case with state safety inspections. If you request a safety consultation from the state Department of Labor and they detect violations, they will not cite you if you promptly correct the unsafe conditions. For information on your job safety and health obligations as an employer, required posters, and possible on-site safety consultations, see the contact information for the New Jersey Department of Labor, listed in Section VI(a). (f) Other Miscellaneous State Labor Laws. Other New Jersey labor laws you need to be aware of, as an employer, include the following: (1) Wage payments to employees. An employer must pay wages at least twice monthly, in general, except that less frequent payments may be made to certain executive and supervisory employees. In the event an employee is discharged from employment or quits, or when an employee is suspended during a labor dispute, all wages due the employee must be paid no later than the next regularly scheduled payday. An extra 10 days is granted, in the case of a labor dispute that also involves those employees who are involved in preparing the payrolls. (2) Right-to-work laws. About half the states have enacted "right-to-work" laws, which guarantee that no person may be denied employment for refusing to join a union or for not paying union dues, thus banning either "union shop" or "agency shop" agreements, or both. In a union shop, an employee not belonging to a union may be hired but then must join the union, usually within 30 days. In an agency shop, an employee need not join the union but, to remain employed, must pay union dues. New Jersey does not have such a right-to-work law and allows union shop or agency shop contracts between an employer and a union. (3) State anti-discrimination laws. In addition to complying with federal anti-discrimination laws, employers must also be aware of and comply with state civil rights laws in New Jersey, and display a poster informing employees of their rights. You can obtain this poster from the Division of Civil Rights of the New Jersey Department of Law and Public Safety, at the address listed in Section VI(a). (4) Reporting new hires. Under new federal welfare reform laws, employers in all states are now required to report newly-hired (or rehired) employees to a designated state agency (the New Jersey Division of Revenue, New Hire Operations Center for New Jersey employers) within 20 days after the date of hire. (5) Temporary Disability Benefits Law. New Jersey is one of only a few states that makes health and accident insurance for employees mandatory. This law provides for payment of cash benefits to a worker who cannot work because of an injury or illness that is not caused by his or her job. (On-the-job injuries or illnesses are covered by workers' compensation insurance, which is also mandatory for employers to provide.) Employers are required to pay a disability insurance tax on behalf of their employees, and employees also pay part of their wages to help pay for such benefits. In 2004, an employer must pay 0.5% of the wages paid to an employee, up to the wage base (currently $24,300), and must also withhold 0.5% of such wages from amounts paid to the employee, for state temporary disability insurance. VI. STATE SOURCES OF HELP AND INFORMATION (a) Key State Agencies Contact Information. New Jersey, as many states have done in recent years, has set up a "one-stop" center to help your new or existing businesses to obtain all necessary state licenses and permits from a single office, without your having to go from agency to agency to meet all the legal and regulatory licensing requirements. To obtain information and assistance with regard to starting or relocating your business in New Jersey, or help in dealing with the regulatory process, contact:
To register your business for New Jersey taxes and as an employer, see "BUSINESS REGISTRATION" below. Also, the New Jersey Office of Small Business offers a variety of resources to promote and assist in the start-up, growth and expansion of firms that range in size from one to 100 employees. Among other assistance it provides, the Office of Small Business:
Contact the Office of Small Business at the following address:
COMMERCIAL RECORDING. The Office of Business Services (formerly Commercial Recording), a branch of the Division of Revenue, fulfills the function typically served by the secretary of state's office in most states. Contact this office for information on:
STATE SALES TAX. Obtain your sales and use tax Certificate of Authority (license) and information on the New Jersey sales and use tax law from the New Jersey Division of Taxation, at the address listed above for that agency. STATE UNEMPLOYMENT TAX AND DISABILITY INSURANCE. Contact the following state agency to determine whether you are an employer subject to payment of state unemployment taxes, and for registration as an employer if you are subject to unemployment and mandatory employee disability taxes. Contact the New Jersey Department of Labor and Workforce Development, Division of Employer Accounts, at the address listed above for that agency, for unemployment tax information. WORKERS' COMPENSATION INSURANCE. If you employ workers for whom you must supply workers' compensation coverage, contact the main office of the New Jersey Department of Labor and Workforce Development listed above for further information. STATE OSHA PROGRAM. For information on the New Jersey occupational safety and health laws that affect you as an employer in New Jersey, contact the main office of the New Jersey Department of Labor and Workforce Development listed above for further information. However, since New Jersey relies primarily on federal OSHA for job safety and health enforcement in the state, you want to also contact the federal OSHA office at:
(b) Small Business Development Centers. A number of Small Business Development Centers (SBDCs) are located throughout New Jersey to assist you. These centers, usually located on college campuses, provide a wealth of start-up information and sponsor frequent business-oriented seminars. Contact the lead office below for information, or for the location of other SBDCs nearer to you. Any New Jersey SBDC can provide you with a free copy of their Doing Business in New Jersey Guide.
(c) Internet Sites. If you have access to the Internet, there is a wealth of state and even local business information provided by state and local governments. All states now have a state government Web page, and most major state agencies also have sites on the Internet where you can obtain useful small business information on matters such as state taxes, financing sources, or the addresses and phone numbers (or e-mail addresses) of various state and federal agencies' offices in New Jersey. Since new sites are appearing constantly, you might also want to search for other New Jersey government Web sites by using one of the popular Internet search engines, such as Excite! or Yahoo. To start your Internet search for New Jersey government information, you may want to begin with the following Internet sites: State of New Jersey home page: New Jersey Department of Commerce Business Information page, which provides links to various state agencies and other sites of interest to New Jersey businesses: State of New Jersey departments and agencies listing: Division of Revenue, Business Gateway Services (fees, other information regarding corporate, LLC, LLP, and limited partnership filings, One-Stop Business Filing and Registration): New Jersey Department of Treasury, Division of Taxation (tax information and to download state tax forms): Division of Taxation Business Registration site, where you can register your business in New Jersey, on-line, including application for a Federal Employer Identification Number, which you will also use for New Jersey tax filing purposes:(d) Financing Sources. For information and help on locating financing for your small business, contact the nearest U.S. Small Business Administration office in New Jersey, or contact the following state agency:
The address of the main SBA Office in New Jersey is:
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Copyright © 2004 Michael D. Jenkins
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