Corporate Business Taxes
The Corporation Business Tax (“CBT”) is a New Jersey State tax imposed on corporations for the privilege of doing business in the State. Nearly every state has instituted a similar type of tax on businesses, sometimes including taxes referred to as franchise taxes or privilege taxes. This tax is income-based and is measured by the net income which may be allocated to New Jersey. CBTs go towards general State use, with 4 percent of the CBT revenue dedicated to environmental projects and activities.
The following entities are exempt from CBT: corporations created under the limited-dividend housing corporation law, nonprofit cemetery corporations, nonprofit corporations without capital stock, federal corporations exempt from state taxes, certain agricultural cooperative associations, non-stock mutual housing corporations, canal and railroad corporations, water and sewer corporations, insurance companies subject to premiums tax, and certain municipal electric corporations.
A corporation may be either a “C” Corporation or a“S” Corporation. Generally, a corporation chooses its election of classification when it is being formed. A “C” corporation is subject to what is commonly referred to as “double taxation” because a C corporation’s revenue is taxed first as company revenue and then again when the shareholders are taxed for the revenue. However, there are also certain tax advantages including being able to deduct certain business expenses. On the other hand a “S” corporation is only taxed at the individual level, commonly referred to as a “pass-through” tax entity. The owners of the company are the only ones taxed for profit of the company. “S” corporation owners may be able to deduct corporate losses on personal tax returns. There are also a myriad of considerations in addition to tax factors which should be considered before making the determination as to what type of company to form.