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NEW JERSEY: Multiple Taxes: Domestic Partner Act Has Tax Implications

NEW JERSEY Multiple Taxes: Domestic Partner Act Has Tax Implications

The Domestic Partnership Act, which establishes domestic partnerships for same sex and opposite sex (age 62 and older) unrelated partners, is effective july 10,2004, and has New Jersey personal income tax and transfer inheritance tax implications.

General requirements: Under the Act, a domestic partnership is established when both persons have a common residence and are jointly responsible for each other's common welfare as evidenced by joint financial arrangements or joint ownership of real or personal property. Both persons must not be related by blood or affinity up to and including the fourth degree of consanguinity, be at least 18 years of age and of the same sex, or of the opposite sex age 62 years or older. Both persons must agree to be jointly responsible for each other's basic living expenses during the domestic partnership. Neither person can be in a marriage recognized by New Jersey law or can be a member of another domestic partnership. Both persons must jointly file an Affidavit of Domestic Partnership with their local registrar.

Personal income tax: The Act applies to the 2004 income tax year and provides that the meaning of "dependent" includes a qualified domestic partner. Consequently, taxpayers are able to claim an additional $1,000 personal exemption for a qualified domestic partner that does not file a separate income tax return.

Transfer inheritance tax: For New Jersey transfer inheritance tax purposes, the Act applies to decedents dying on or after July 10, 2004. It exempts all transfers made by will, survivorship, or contract to a surviving domestic partner. This includes a membership certificate or stock in a cooperative housing corporation and the value of any pension, annuity, retirement allowance, or return of contributions.

Effect on federal returns: The New Jersey estate tax is based upon the federal estate tax credit for state death taxes, which was allowable under the provisions of the Internal Revenue Code in effect on December 31, 2001. The federal estate tax does not have a provision providing a deduction for property passing to a domestic partner. (Notice, New Jersey Division of Taxation, February 18, 2004.)