Bulletin: NJ000091

Dear Associates:

As part of the budget package recently signed by Governor McGreevey, non-resident taxpayers will be required to pay estimated gross income taxes on the capital gains realized on the sale of any real property in New Jersey after August 1, 2004. The changes were set forth in Assembly Bill A-3128, which amends Title 54A. Although this is not strictly speaking a title matter, it will have an impact on every sale that takes place after the August 1 commencement date where the seller is an individual, estate or trust.

The estimated gross income tax payment, together with a certification to be developed by the Department of the Treasury, must be delivered to the county recording officer together with the deed for the transaction where property is sold or transferred by a non-resident individual, estate or trust as seller. Even if the seller is a resident of New Jersey, a form certifying that the sale is not subject to the requirement to pay the estimated gross income tax must be submitted with the deed. Failure to supply the certification and payment or other prescribed form will bar the recording of the deed until such time as the certification and payment are tendered.

The new legislation applies only to non-resident individuals, estates and trusts, and utilizes the definitions set forth in N.J.S.A. 54A:1-2. "Non-resident" individual is defined as:

• one who is not domiciled in New Jersey, has an abode elsewhere and spends no more than 30 days of the tax year in New Jersey; or
  
  
• one who is not domiciled in New Jersey but has a permanent place of abode here and spends less than 183 days of the tax year in New Jersey (unless the individual is in the Armed Forces).
  

A non-resident estate is the estate of a decedent who at death:

• is not domiciled in New Jersey
  
  
• is a trust or portion of a trust consisting of property transferred by will of the decedent who was not domiciled in New Jersey

A non-resident trust is a trust or portion or a trust consisting of property of a trustor/grantor:

• who was not domiciled in New Jersey at the time the property was transferred to the trust if the trust was irrevocable, or if revocable remains revocable; or
  
  
• who was not domiciled in New Jersey when the property was transferred to a revocable trust but the trust has subsequently become irrevocable.

The non-resident taxpayer must estimate the amount of gross income tax due on a form to be prescribed by the director of the Department of the Treasury using an estimated tax rate that is equal to the highest rate of tax for the taxable year. The amount of gain is computed based on federal income tax purposes, but may not be less than 2% of the consideration stated in the deed. The estimated tax form must be filed by the non-resident taxpayer whether there is a gain or a loss on the sale of the property. The estimated tax may not be applied as a credit against other recording fees or realty transfer tax.

The following are the only exceptions to the requirement of payment of the estimated gross income taxes by non-resident individuals, estates and trusts:

• if the real property being sold is used exclusively as the principal residence of the seller;
  
  
• if the transfer is a deed in lieu of foreclosure or by a deed in satisfaction of a foreclosure proceeding with no additional consideration; or
  
  
• if the seller is an agency of the United States, State of New Jersey, Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation, the Government National Mortgage Association, or a private mortgage insurance company.

Because this change to the statute affects the majority of properties being sold, we suggest you add the following note (not requirement) to your commitments:

"NOTE: Compliance with the revisions to Title 54A of the New Jersey Statutes requires that non-resident individuals, estates and trusts pay certain estimated gross income taxes as a prerequisite for the recording of any deed, and that resident individuals, estates and trusts complete certain forms required by the Department of the Treasury. County recorders are not permitted to record deeds without compliance with these requirements."

We will keep you advised of the manner in which the effective date of this legislation will be treated and the availability of the new forms and certifications from the Department of the Treasury.

Please call the state office if you have any questions.