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Hit by the NJ Exit Tax on Sale of Real Estate? You Can Recoup Your Money

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The New Jersey “Exit Tax”, which became law in 2007, requires the real estate seller to file a GIT/REP form

Exiting NJ?

(Gross Income Tax form) in order to record a Deed for  the transfer of his property.

When a non-resident sells property, New Jersey will withhold this income tax in the amount of either 8.97 percent of the profit or 2 percent of the total selling price, whichever is higher. Therefore, even if the property is sold at a loss, tax must be withheld to fulfill the two percent requirement.

What Can I do?

It’s important to realize that while the Exit Tax requires a substantial withholding, it doesn’t have any impact on the actual tax liability. If the seller files a NJ tax return he is refunded the difference between what was withheld and what is owed. This recovery can be very significant when one factors in the selling costs and original purchase price, both of which reduce the taxable gain.

Estates Should Pay Special Attention

The recovery is often even greater in the case of real estate sold by an estate, as there is a step up in cost basis which would typically minimize a gain on the sale, often resulting in full recovery of the entire withholding. To quickly expedite the recovery of the excess withholding, it would be prudent to timely file Form NJ1040 NR (individual) or NJ1041 (estate/fiduciary).

How do I know if I am considered a “non-resident”?

So who’s considered a “resident” and who’s a “non-resident” with regard to this tax? The law defines a resident taxpayer as one of the following:

  • An individual who is and intends to continue to maintain a permanent place of abode (home, residence) in New Jersey on/after the day of transfer
  • An estate established under the laws of New Jersey
  • A trust established under the laws of New Jersey

A nonresident is simply defined as “any taxpayer that does not meet the definition of resident taxpayer.”

Turn OSHA Decision for NJ Staffing Agencies into an Opportunity to Shine

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warehouse workers

A recent case involving the U.S. Department of Labor’s Occupational Safety & Health Administration (OSHA) and some New Jersey staffing agencies sends a signal that temporary staffing agencies are obligated to do more than just place people in a job.

In certain circumstances, agencies must also provide adequate medical evaluations, training and other services, according to OSHA, which recently cited two staffing agencies that had placed workers at a Fiabila USA Inc. nail polish manufacturing plant in Mine Hill, N.J.

Here’s What Happened

Following a complaint, an OSHA inspection determined that Fiabila workers and temporary workers employed by two NJ staffing agencies were exposed to hazards and other dangerous safety and health violations while working at the plant.

A Dover, NJ-based staffing firm provided general labor staff to the nail polish manufacturing plant, while a NJ clinical & scientific staffing firm placed employees in Fiabila’s quality control laboratory. Both staffing agencies were cited for failure to train temporary workers about such issues as chemical hazards, emergency action plans, and proper use of a respirator. In addition to steep fines levied by OSHA against Fiabila, the Dover firm faces $18,000 in fines for three “serious” violations, while the Parsippany office of the clinical & scientific staffing firm was cited for two “serious” citations that carry a $12,000 penalty.

“Whether temporary or permanent, workers have a right to a safe and healthy workplace,” says Kris Hoffman, director of OSHA’s Parsippany Area Office. “Staffing agencies and host employers are joint employers of temporary workers. Both are responsible for providing and maintaining safe working conditions free of potentially fatal hazards.”

So What Does This Mean for Me?

OSHA seems to be taking a hard line against staffing agencies when it comes to training. The agency appears to be taking the position that it’s not enough to simply contract with a client—instead, staffing agencies need to identify and comply with onsite safety training and other requirements. This could mean more expenses for staffing agencies as they dig deeper into understanding a client’s operations.

There is a positive side to this, since a staffing agency that thoroughly understands its clients’ operations may be able to stand out from competitors by offering better client service.  A staffing agency that takes a leading role in training its workers can use this as a selling point to woo potential new clients.

Thanks-So What Should I Do?

Urbach & Avraham works with several excellent law firms that specialize in employment law and OSHA issues. We can help you work with employment attorneys to consider your agency’s responsibilities, and to identify documentation requirements, program activity and other ways to minimize your potential exposure to liability.

NJ Court Gives Stiffed Workers Six Years to Pursue Unpaid Wages

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Employees in NJ now have six years, instead of two years, to bring certain claims for additional wages, thanks to a decision handed down by the New Jersey Federal District Court—Meyers et al v. Heffernan et al, No. 3:2012cv02434 (D.N.J. 2014).

Here’s What Happened

The plaintiffs in the case were commissioned salespeople. In 2010, they filed a civil suit alleging that in 2007, executive officers of their (since-bankrupt) employer, Mortgage Lenders Network USA Inc., had stopped paying them the commissions they had earned, in violation of the New Jersey Wage Payments Law (WPL) and other regulations.

The defendants, however, claimed that the WPL carries a two-year statute of limitations; which would bar the employees’ wage-claims, since they were filed more than three years after separating from the Mortgage Lenders Network.

 

But the court took an expansive view. Looking beyond the strict terms of the WPL, it found that “the nature of the injuries identified with the plaintiffs’ cause of action are more analogous to breach of contract…” and held that a private course of action under the WPL is instead subject to the six-year statute of limitations that is provided by N.J.S.A. 2A:14-1 for breach of contract claims for economic harm.

So What Does This Mean for Me?

For some time now, New Jersey business owners’ exposure has been on the rise, thanks to a jump in the number of audits by both the state Department of Labor and the federal DOL. By tripling the statute of limitation for this kind of case, the unpublished court decision could further expand the exposure of business owners to additional wage lawsuits.

Thanks—So What Should I Do?

First, make sure that your wage-hour and other guidelines comply with local, state and federal standards. Then, be sure that your staff has been made aware of the guidelines, policies and procedures, and that they are actually being followed.

Is There Anything Else I Should Know?

Yes. Even if you and your staff are paying people properly, you have to document the data. Otherwise it could come down to a case of your word versus someone else’s.

Make sure that you maintain adequate time records; weekly time sheets which contain the daily hours worked as required for hourly wage earners. Ensure that the time sheets are signed by the appropriate personnel.

Finally, keep those records in a safe place for at least seven years. Many business owners think they only need to keep wage and hour records for three years, but as we’ve seen with this latest court case, keeping them longer can be safer. Urbach & Avraham has many years’ experience handling federal and state DOL audits for staffing and non-staffing firms. We work closely with our clients to present their time records and documentation to the DOL in the most favorable manner.

New NJ Program Offers Siestas instead of Layoffs

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Alternative to Slow-Period Layoffs:

NJ Program Helps Maintain Your Workforce 

Businesses that are thinking about laying off employees because of a slowdown in activity—but fear losing talented labor or getting socked with an increased Unemployment Insurance (UI) tax rate—may have an alternative, thanks to an innovative state program. Under the “shared-work” legislation a company that has to slice payroll expense by significantly cutting employees’ work hours may be able to have the NJ Department of Labor partially offset workers’ reduced pay by giving them “short-time” unemployment benefits. 

Employers may find that their UI tax rate is lower under the “short-time” approach, compared to having laid-off employees collect full unemployment. In addition to getting at least some of their pay, employees will be able to keep their health insurance and other benefits while they work fewer hours.

Here’s the fine print

For each company, the state may approve the program for a period no longer than one year and may, upon employer request, renew the approval of the program for additional periods.  Of course, there are certain filing and other requirements. For one thing, the business needs to complete a formal Shared-Work Plan Application and submit it to the New Jersey Department of Labor, Shared-Work Approval Unit (the application is available at NJ Department of Labor, Shared-Work Application).

 The business must have at least 10 employees; and the “affected unit” of the company—a specified plant or other facility, department, shift or other definable unit, must be composed of two or more employees.  Among other requirements, the reduction in weekly work hours of the affected employees must be not less than 10% and not more than 60% of the “usual weekly hours of work”.

 Not everyone’s eligible

Some kinds of employment—like subsidized seasonal employment during off-season, and employment that is temporary or intermittent on an ongoing basis—are not eligible for this program. 

Our recommendation

This program could cut payroll expenses for some businesses while enabling them to retain valued employees during a time of economic disruption. Still, disclosure, documentation, UI costs and other issues should be considered. Please contact one of our CPAs to see if this program is suitable for you.

                                     

Tax Court Hammers Home the Need to Document Your Mortgage Interest Expense

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 An individual who wishes to claim a home mortgage interest deduction has to be able to document his equitable ownership interest in the property, a U.S. Tax Court ruled earlier this year. The opinion, which was handed down in Dolorosa Luciano-Salas, Petitioner v. Commissioner Of Internal Revenue, Respondent appears to provide some useful guidance when it comes to claiming a mortgage interest and other deductions.

The Taxpayer’s Disputed Deductions

On her 2008 federal income tax return, California resident Luciano-Salas claimed a deduction for $24,144 of home mortgage interest on Schedule A, Itemized Deductions; and she also took a deduction for a rental real estate loss of $25,000 on Schedule E, Supplemental Income and Loss. 

But the IRS disallowed $24,144 of the $25,717 deduction for mortgage interest that she claimed on Schedule A, as well as the $25,000 deduction (rental real estate loss) that she claimed on Schedule E. The IRS said Luciano-Salas had failed to show that the duplex was used as a rental property or that she was otherwise entitled to the disallowed deductions. 

When is Interest Expense Deductible? 

Although personal interest expense cannot generally be deducted by an individual taxpayer, the tax code generally does allow a deduction for interest paid on a mortgage that is secured by a qualified residence. The mortgage, however, “must be the obligation of the taxpayer claiming the deduction, not the obligation of another,” although there is an exception if the individual paying the mortgage is the “legal or equitable owner,” even if he or she is not directly liable upon the bond or note secured by such mortgage, according to the Tax Court. 

There was no dispute that, at the time of her tax filing, Luciano-Salas lived in a Van Nuys duplex that had been purchased by her sister, who bought the property with a first and second mortgage. The sister later obtained a third-mortgage loan that was secured by a recorded “short form deed of trust” granting the lender a security interest in the duplex and the power to sell the property. 

Can You Legitimately Claim an Ownership Interest? 

Despite this, Luciano-Salas said that she was the true owner of the duplex—and was eligible to take the interest deduction and the loss on rental activity. Luciano-Salas said that her sister, who allegedly lived with her husband in Arizona, owned the property “in name only.” Luciano-Salas also said that her own credit rating was poor, so her sister agreed to help her out by acting as the purchaser of the property. 

There was a hitch, however. Luciano-Salas did not present a written agreement memorializing the supposed arrangement. Additionally, she was unable to present a reasonable paper trail showing that she, and not her sister, had made the mortgage payments. Adding to the confusion, she was unable to document the use of the duplex as a rental property. To top it off, in 2009 when Luciano-Salas’ sister declared bankruptcy, all the documents filed in connection with the matter indicated that she, not Luciano-Salas, was the legal and equitable owner of the duplex, according to Tax Court records. 

The Ruling 

“There is no objective evidence, however, that Ms. Hileman [the sister of Luciano-Salas], the legal owner of the duplex, entered into an agreement vesting petitioner with any ownership interest in the property. There is no evidence that petitioner had any duty or obligation to maintain or insure the property or that she was responsible for real estate taxes,” noted the Tax Court. “We have disallowed a deduction for mortgage interest where the taxpayer is unable to establish legal, equitable, or beneficial ownership of mortgaged property.”

 

Our recommendation: to reduce the likelihood of trouble, maintain adequate documentation for income and expense positions, and consult with your accountant.

Don’t Get Mixed Up Over Mixed-Wage Overtime

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In a bid to stay profitable, many businesses are operating with a lean staff. But even with fewer employees, work still needs to get done in a timely manner, so it’s no surprise that some companies are increasingly asking employees to put in more hours. Calculating overtime pay for non-exempt, or hourly workers—who must generally be paid 1.5 times their base hourly pay once they work more than 40 hours in a week—is pretty simple.

An employee may do different tasks at different hourly rates

But what happens if an employee has two or more job titles at the same business, and receives a different base hourly pay for each job? Then things get a little more complicated, but it’s not too tough to determine the wages that are due.

Basically, the employer determines a “blended” overtime rate by using the “weighted averaged” method. The first step is to determine the total gross wages due on a straight-time basis (hours worked at job title “A” times hourly rate, plus hours worked at job title “B” times the “B” hourly rate, and so on). Then take that gross total and divide it by the total number of hours worked to obtain the “regular” blended hourly wage.

Now take that blended “regular” hourly wage and divide it in half to determine the additional “premium” (half-time) rate that’s due to the employee. Finally, add that “premium” rate to the “regular” blended rate, and multiply that by the number of hours worked in excess of 40 hours. Voila, you have the blended overtime premium that’s owed to the employee.

An example

Here’s an example. Let’s assume that William works as an hourly draftsman at $22.00 an hour; but is so talented that he also spends part of each week developing his employer’s Web site, for which he gets $39.00 an hour. Let’s further assume that in a single week, William works for 30 hours as a draftsman, but puts in another 15 hours developing the company’s Web site.

So in this week, William put in a total of 45 hours. He earned $660 (30 hours x $22.00 an hour) for his draftsman’s work, and $585 (15 hours x $39.00 an hour) for his Web development work. We would calculate William’s overtime rate as follows:

30 hours x $22.00 per hour = $660

15 hours x $39.00 per hour = $585

Total gross = $1,245

That total straight-time gross ($1,245.00) is then divided by the total hours worked (45) to calculate the “regular” (straight-time) blended hourly wage, which is equal to $27.67 per hour. Of course, William is still due the additional premium pay (half-time) for the five overtime hours he worked. So the average “blended” straight time hourly rate ($27.67) is divided in half, yielding a half-time rate of $13.83 (rounded to the nearest tenth) per hour.

The 5 overtime hours are multiplied by the “blended” overtime premium of $13.83, to yield a total “premium pay” of $69.17 (if you do the multiplication, the difference is due to rounding), which is added to the original gross amount of $1,245.00, giving us the new gross amount of $1,314.17, which is the amount that must be paid to William for the week.

Both the state and US Department of Labor are paying more attention to wage-and-hour calculations, and an increasing number of wage and hour lawsuits are being filed. To stay on the safe side, be sure to consult with your accounting and/or legal advisor if you have any employee classification, overtime or other questions.