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Editorial 7 MIN READ

New Jersey in September 2022: the fees are fine, the tax is the problem

A $125 formation fee and a $75 annual report look competitive until you read the CBT rate sheet

The Editors
Staff, Incorporator.org
7 min read Updated
Contents 7 sections
  1. What the Division of Revenue actually charges
  2. The annual report, which catches people
  3. The Corporation Business Tax, which is the real price
  4. The PTET workaround that makes this tolerable
  5. How New Jersey stacks up against Delaware on paper
  6. Who this state actually makes sense for
  7. Sources

New Jersey LLC costs $125 to form and $75 a year to keep on the rolls. Those numbers are competitive; the Corporation Business Tax rate sitting behind them is not, and that is the whole story of forming here in 2022.

This is a guide for someone choosing New Jersey in the second half of 2022, when the state extended a surtax most people expected to sunset and quietly became the most expensive corporate-income jurisdiction in the Northeast.

What the Division of Revenue actually charges

You form a New Jersey LLC by filing a Certificate of Formation with the Division of Revenue and Enterprise Services. The filing fee is $125, payable at the time of submission. The authority is N.J.S.A. 42:2C, the Revised Uniform Limited Liability Company Act, which New Jersey adopted in 2012 and which governs every LLC formed on or after its effective date. The certificate itself wants a name, a registered agent, a registered office, and a purpose clause that can be as generic as "any lawful business."

You can file online through the Division's business portal or by mail. Online filings typically clear the same business day. Mail filings run a week or two depending on backlog. There is no separate expedited tier for LLCs at a steep premium the way Delaware sells, because the baseline turnaround is already fast.

Every LLC then needs to register for tax and employer purposes by filing Form NJ-REG with the Division of Revenue. This is separate from the Certificate of Formation and easy to miss. Without NJ-REG you cannot legally collect sales tax, pay employees, or file the returns the Division expects from an active entity.

The annual report, which catches people

New Jersey charges a $75 annual report fee for every domestic business entity, due on the last day of the month in which the entity was originally formed. Form an LLC on March 12, and your annual report is due every March 31 thereafter. The fee is flat; there is no sliding scale, no proration, no first-year grace. Miss the deadline by two years and the state administratively revokes the entity's charter, which means the LLC continues to exist on paper but loses its good standing and, with it, the ability to sue in New Jersey courts or renew licenses.

Reinstatement is possible but costs more than staying current. The state charges the accumulated back-year report fees plus a reinstatement fee, and in practice reinstatement involves certified tax-clearance correspondence with the Division of Taxation that can take weeks. The cheap move is to set a calendar reminder for the anniversary month and keep the $75 current.

Corporations (including LLCs that have elected C-corp or S-corp treatment for federal tax) owe the same $75 report on the same schedule. The report is a short form: name, registered agent, principal address, officers or managers. It is not a financial disclosure.

The Corporation Business Tax, which is the real price

New Jersey's entity-level income tax on C-corporations is the Corporation Business Tax, codified at N.J.S.A. 54:10A. The base rates under § 54:10A-5 are tiered:

  • 6.5% on entire net income of $50,000 or less,
  • 7.5% on entire net income above $50,000 and up to $100,000,
  • 9.0% on entire net income above $100,000.

Those rates alone would leave New Jersey roughly in line with New York. The surtax is what changes the picture. In 2018 the legislature enacted P.L. 2018 c. 48, which layered a 2.5% surtax on top of the 9% CBT rate for taxpayers with allocated taxable net income above $1 million. The surtax was originally scheduled to step down and expire, but P.L. 2020 c. 95, enacted during the pandemic, extended the 2.5% rate through tax year 2023.

The stacked result: a C-corporation in New Jersey with more than $1 million in allocated taxable income pays an effective rate of 11.5%. That is the highest corporate-income rate in the Northeast and among the highest in the country. Connecticut tops out at 7.5% plus a temporary 10% surtax on certain large filers. New York's base rate is 6.5%. Pennsylvania was 9.99% for 2022 before its scheduled step-down begins. Massachusetts is 8%. New Jersey sits at the top of that list by a wide margin.

A pass-through entity (an LLC taxed as a partnership, or an S-corp) does not pay CBT at the entity level. Members and shareholders pay the Gross Income Tax on their distributive share at New Jersey's individual rates, which top out at 10.75% on income above $1 million under N.J.S.A. 54A:2-1. The practical tax burden on a profitable pass-through operating in New Jersey is close to the C-corp burden, just allocated to the owner's 1040 instead of the entity's CBT-100.

The PTET workaround that makes this tolerable

In 2019 New Jersey enacted the Pass-Through Business Alternative Income Tax, commonly called BAIT, under N.J.S.A. 54A:12 (P.L. 2019 c. 320). BAIT is New Jersey's version of the state-level pass-through entity tax election that proliferated after IRS Notice 2020-75 blessed the structure as a federal workaround to the $10,000 SALT deduction cap. BAIT took effect for tax years beginning on or after January 1, 2020.

The mechanics: a pass-through entity (partnership, S-corp, or LLC taxed as either) can elect to pay tax at the entity level on its New Jersey sourced income, at graduated rates from 5.675% up to, after the 2021 amendments, 10.9% on distributive proceeds above $1 million. Members receive a refundable credit against their New Jersey Gross Income Tax for their share of the entity-level tax paid. Because the payment is made by the entity, it is deductible as a business expense on the federal return, which is the move that sidesteps the SALT cap.

For a two-member LLC with $2 million of New Jersey source income that would otherwise hit the members' 1040s at the top state rate, the BAIT election can preserve somewhere in the neighborhood of $100,000 of federal deduction that the cap would otherwise strip. The election is annual and must be made by the entity's original due date (including extensions) on Form PTE-100. Most New Jersey pass-throughs with material income should have run this math by tax year 2022; if yours has not, the CPA bill for the modeling is trivial relative to the savings.

How New Jersey stacks up against Delaware on paper

Direct comparison, strictly on formation and maintenance fees:

Delaware charges $90 to form an LLC and a $300 flat annual tax due June 1 every year. Total first-year cost for an out-of-state founder forming in Delaware: $390 plus a registered agent.

New Jersey charges $125 to form an LLC and $75 annually thereafter. Total first-year cost for a New Jersey founder forming in-state: $200, with no registered-agent cost if the principal runs the business from a New Jersey address.

On fee arithmetic alone, New Jersey is cheaper. The pitch breaks down at the tax layer. A Delaware LLC with no Delaware nexus pays no Delaware income tax on its operating income; it pays the flat $300 and passes income through to its members in whatever state they actually live and work. A New Jersey LLC that operates in New Jersey is on the hook for CBT (if C-corp) or GIT on distributive shares (if pass-through) at rates that reach 10.75% to 11.5% at the top.

This is the standard out-of-state-formation illusion. Delaware is cheaper for entities that operate somewhere else; New Jersey is the right domicile for entities that operate in New Jersey. Forming in Delaware to run a New Jersey business triggers foreign-qualification in New Jersey (a separate $125 filing under N.J.S.A. 42:2C-57), an additional $75 annual report, and the same CBT or GIT exposure on New Jersey source income. You end up paying both states, keep two sets of filings alive, and save nothing.

Who this state actually makes sense for

A New Jersey LLC is the right choice when the business operates in New Jersey and the owners live in New Jersey. In that case the anniversary-month $75 annual report is a routine expense, the BAIT election neutralizes most of the SALT-cap drag, and the state's formation mechanics are fast and inexpensive.

A New Jersey LLC is a costly choice when the business is throwing off more than a million dollars of taxable income and the owners have any real option to base the operating entity elsewhere. The stacked 11.5% effective CBT rate, extended through 2023, is not a number you can plan around. It is a number that shows up on the return.

For an operational business with nexus in New Jersey, the question is not whether to form here but whether to elect BAIT for the current tax year. If your accountant has not run the PTET math for TY 2022 yet, the filing season that closes in March gives you a narrowing window to do so before the election window closes with the return.

Sources

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