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Editorial 11 MIN READ

New Jersey in June 2018: what an LLC actually costs, and what Trenton is about to do to the CBT

A $125 Public Records Filing, a $75 annual report, and a budget week that will rewrite the corporate-tax line

The Editors
Staff, Incorporator.org
11 min read Updated
Contents 6 sections
  1. The mechanics
  2. Maintenance, and the annual report trap
  3. The Corporation Business Tax, entering the last week of June 2018
  4. Transportation Trust Fund and the fee lines around it
  5. Who New Jersey actually makes sense for in mid-2018
  6. Sources

New Jersey LLC costs $125 to form and $75 a year to keep. Those are the two numbers on the registry side, and they have not moved in years. The numbers on the tax side are about to move, possibly this week, and that is the reason a New Jersey formation in late June 2018 is a different decision than it was in April.

This is a guide for someone filing in New Jersey in the last week of June 2018, written against a statute book that has been stable since 2014 (the Revised Uniform Limited Liability Company Act, N.J.S.A. 42:2C) and a Corporation Business Tax schedule that may not survive the weekend.

The mechanics

You file a Public Records Filing for New Business Entity, not an Articles of Organization, with the Division of Revenue and Enterprise Services inside the Department of the Treasury. New Jersey calls the document a "Certificate of Formation" once it is stamped, but the filing form itself is the Public Records Filing (the NJ-REG workflow calls it form NJ-REG, which combines the entity filing with tax registration). The filing goes through the online business portal at state.nj.gov/treasury/revenue. Paper filings still exist; nobody sensible uses them.

The fee is $125. It has been $125 since the Division of Revenue last reset the registry fee schedule, and a mid-2018 filer pays the same $125 that a 2013-era filer paid. Expedited service is available through the same portal: $15 on top for 8.5-hour turnaround, $50 for two-hour, and $500 for one-hour, assessed per document. For a standard formation the online filing clears in roughly an hour during business days anyway, so the $15 tier is the one most attorneys use when a closing clock is running.

The Certificate of Formation itself is a short instrument. Under N.J.S.A. 42:2C-18, the filing must state the name of the company (which must include "limited liability company," "LLC," or an approved variant under N.J.S.A. 42:2C-8), the name and street address of its registered agent in New Jersey, and a dissolution date if the company is not perpetual. Members are not listed. Managers are not listed. The operating agreement is not filed. New Jersey wants the minimum, and the minimum is the minimum.

The NJ-REG side of the filing is where the state adds work. New Jersey requires every new entity to register for taxes within sixty days of formation under N.J.S.A. 54:49-4 and the registration provisions in N.J.A.C. 18:2-2.1, even if the entity has no immediate sales-tax or employer obligation. The Business Registration Certificate that comes out the other end is the document a counterparty will ask for before paying a New Jersey vendor; state agencies and a lot of large private contractors will not issue a purchase order to an entity that cannot produce one.

You will also need an EIN from the IRS (Form SS-4 online, five minutes), an operating agreement (not filed with the state but expected by every bank that will open an account for the LLC), and a federal tax-classification decision. The Revised Uniform Act provides the default governance grammar: under N.J.S.A. 42:2C-37, a New Jersey LLC is member-managed unless the Certificate or operating agreement designates otherwise. Default rules on distributions, voting, and dissociation are in subchapter 4 of Chapter 2C. Most of them are waivable; a handful (the fiduciary-duty floor in N.J.S.A. 42:2C-39 and the information rights in 42:2C-40) are not.

Maintenance, and the annual report trap

Every New Jersey LLC owes an annual report to the Division of Revenue. The fee is $75. The due date is the last day of the anniversary month: if you formed on September 14, 2018, your first annual report is due September 30, 2019, and every September 30 thereafter. New Jersey does not use a universal calendar date the way Delaware uses June 1 for its LLC tax; the anniversary-month rule is per-entity.

Miss the annual report and the Division of Revenue will eventually revoke the LLC's charter for failure to file. Before revocation, the company falls out of good standing, which means it cannot get a Certificate of Standing to present at a closing, cannot register in another state as a foreign LLC, and cannot defend some kinds of contract claims in New Jersey court under N.J.S.A. 42:2C-57 (a revoked LLC's authority to maintain an action). Reinstatement is possible but requires a separate filing, back reports, and a reinstatement fee.

The annual report is a non-event in substance. It asks for the registered-agent address, the principal office address, and the names and addresses of managers or member-managers. There is no financial disclosure. A careful operator treats it as a ninety-second chore, runs it on the same date every year, and attaches a calendar reminder to the formation date.

New Jersey does not assess a separate franchise tax at the LLC level. An LLC taxed as a partnership files Form NJ-1065 and owes a $150-per- member partnership filing fee under N.J.S.A. 54A:8-6 (capped at $250,000) when it has more than two members and a New Jersey source of income. An LLC taxed as a C-corporation files the CBT-100 and steps into the corporate-tax schedule discussed below. An LLC taxed as a disregarded entity files through the owner's return. The entity-level obligations scale with what the LLC elected, not with what the Certificate of Formation said.

The Corporation Business Tax, entering the last week of June 2018

For an LLC that has elected C-corporation treatment, or for a New Jersey C-corp considering forming an LLC subsidiary, the Corporation Business Tax is the line item that dominates the budget. Entering the last week of June 2018, the schedule on the statute books is the one the 2017 CBT-100 filer used. Under N.J.S.A. 54:10A-5, the rate is 9% on entire net income above $100,000, 7.5% on income between $50,001 and $100,000, and 6.5% on income at $50,000 or less. The minimum tax floor ranges from $500 to $2,000 depending on New Jersey gross receipts, and it applies regardless of net income. The mechanics are examined in detail in New Jersey's Corporation Business Tax entering 2017, examined, and none of the structural rules in that piece have moved since.

What has moved is the political temperature. Governor Murphy, Senate President Sweeney, and Speaker Coughlin are in the final week of a budget fight that has run past every reasonable deadline. The constitutional budget deadline is June 30, 2018. As of Tuesday, June 26, the three principals have not agreed on either the Governor's proposed 10.75% gross-income-tax bracket on income above $1 million (revived in Trenton this spring and floated in a version that would reach down to $1 million, with a fallback $5 million threshold on the legislative side) or the legislative leaders' preferred vehicle, a temporary 2.5% surcharge on the CBT that would apply to corporations with New Jersey allocated net income over $1 million. The surcharge has been drafted as part of Assembly Bill 4202, the omnibus corporate-tax package that would also impose combined reporting on unitary groups and shift service-revenue sourcing to a market-based rule. A4202 had not been enrolled when this was written.

The arithmetic a New Jersey operator should plan for: if the surcharge goes into the final budget at the 2.5% level on top of the existing 9% top rate, the effective top-bracket CBT rate becomes 11.5% on allocated net income over $1 million for privilege periods beginning on or after January 1, 2018. That is retroactive to the start of the calendar year; a calendar-year 2018 filer would pay it on the first return due in April 2019. The package as drafted would step the surcharge down (to 1.5% for 2020 and 2021, then to zero for 2022), but a draft is not a statute and the step-down language has been traded back and forth for two months.

The millionaires' tax on the individual side is the other half of the fight. New Jersey's Gross Income Tax currently tops out at 8.97% on taxable income above $500,000, the bracket enacted in the McGreevey-era tax package and unchanged since. The Governor wants the 10.75% bracket at $1 million; the Legislature has floated the same rate at $5 million. Neither version has passed. A single- member LLC taxed as a disregarded entity whose owner earns above $500,000 should run both scenarios before July 1 and revisit as soon as the budget is signed. A pass-through LLC whose members are New Jersey residents above the relevant threshold will feel the change at the individual level regardless of whether the CBT surcharge is enacted.

For a June 26 formation, the practical answer is: the formation itself is unaffected (the $125 filing fee and the RULLCA rules are not in play in the budget fight), the CBT-100 obligation is what will shift, and the smart move is to file the entity this week and revisit the federal tax election after the budget signing.

Transportation Trust Fund and the fee lines around it

The 2016 Transportation Trust Fund reauthorization (P.L. 2016, c. 57) changed a cluster of revenue lines that brush up against formation decisions even when they do not directly tax the entity. The Petroleum Products Gross Receipts Tax rate on non-motor fuels went from 2.75% to 7% in 2016 and was adjusted again in 2017 under the statute's automatic reconciliation mechanism; the rate increased 3.3 cents per gallon on October 1, 2018 is on the statutory schedule but not yet in effect at the June 26 dateline. The sales- tax rate dropped from 7% to 6.625% on January 1, 2018 as part of the same TTF package, down from the 6.875% first-year reduction that took effect in 2017. None of that touches the LLC filing or annual-report fee, but a New Jersey operating company with deliveries, fleet fuel, or taxable sales will see those lines move first.

The estate-tax repeal completed under the TTF package (for decedents dying on or after January 1, 2018) changes estate-planning math for New Jersey holding-LLC owners, which is a reason the single-member holding structures that made sense in 2015 look different in mid-2018. The separate inheritance tax, which reaches transfers to non-lineal beneficiaries, is still live. An LLC held for a family enterprise still needs the inheritance-tax analysis even after the estate-tax repeal.

Who New Jersey actually makes sense for in mid-2018

Three fact patterns belong in New Jersey.

The first is an operating business with a New Jersey office, New Jersey employees, or New Jersey-situs real estate. Foreign- qualifying a Delaware or Wyoming LLC to do business in New Jersey costs roughly the same as forming domestically and produces a parallel-universe compliance load: two registered agents, two annual reports, and the NJ-REG registration anyway. If the business is here, form here. The "form in Delaware" reflex is correct for venture-backed C-corps and substantially wrong for operating LLCs rooted in New Jersey.

The second is a real-estate LLC holding New Jersey property. The title work, the lender's requirements, and the eventual refinance or sale all go easier when the entity is domestic. The $75 annual report is the cheapest compliance cost of any Northeast state. Delaware or Wyoming adds nothing to a single-property LLC whose entire economic life runs through a New Jersey closing.

The third is a professional practice organized as an LLC under New Jersey's PLLC rules (the professions authorized under N.J.S.A. 42:2C-64 through 42:2C-67 read against the Title 45 licensure statutes for each profession). New Jersey does not require a separate PLLC statute; the RULLCA accommodates licensed-profession LLCs directly, subject to the individual profession's board requirements. A law firm, an architecture practice, or a medical group operating in-state is better off under the domestic statute than in an imported one.

Everything else worth considering here is a matter of whether the CBT surcharge passes this week. A high-income pass-through LLC whose members are New Jersey residents will not find the surcharge on their K-1, but they will find the 10.75% individual-rate bracket on their NJ-1040 if either version of the millionaires' tax goes into the final budget. A CBT-100 filer will care about the 2.5% surcharge retroactive to January 1 and about combined reporting if the A4202 package ends up as enacted. For anyone forming this week, the entity mechanics are settled. The tax mechanics are not, and the right posture is to read the state budget on Monday morning before making any election you cannot easily undo.

A New Jersey LLC formed on June 26, 2018 will pay $125 on the way in and $75 every anniversary thereafter. Those two numbers are the backbone. Trenton will supply the rest within the week.

Sources

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