This case arises under the New Jersey Gross Income Tax Act, N.J.S.A. 54A:1-1 et seq. Specifically, it involves the computation of the "resident credit" authorized by N.J.S.A. 54A:4-1. This credit is available to New Jersey residents for any income tax or wage tax imposed by another state with respect to income which is also subject to tax by New Jersey. The matter is before the court on defendant's motion for summary judgment. Plaintiff also seems a ruling based solely on the papers submitted, without the necessity for oral argument or plenary hearing.
The undisputed facts follow. In 1976*fn1 plaintifs had income from wages of $22,639.41 and income from the sale of property of $13,393.60 that was subject to tax by both New York and New Jersey. The total of $36,033.01 was reported by plaintiffs on their 1976 New Jersey Gross Income Tax Resident Return as income subject to tax by other jurisdictions, and used in computing the resident credit. Part VI of the return provides for computation of the credit as follows:
62. Income subject to tax by other 62.
jurisdiction(s) after July 1, 1976
63. Income subject to tax by New Jersey 63.
64. Maximum allowable credit 64.
(Divide Line 63 into Line 62)
Pursuant to these instructions, plaintiffs arrived at a credit of $775.12 as follows: $36,033.01 (income subject to tax by other jurisdictions) divided by $53,744.71 (income subject to tax by New Jersey), multiplied by $1,156.12 (New Jersey tax due).
The only area of dispute is the proper amount to be attributed to "income subject to tax by other jurisdictions." The parties disagree on the treatment of the capital gain of $13,393.60 that plaintiffs realized from the sale of real property located in New York. According to New York law, plaintiffs were entitled to deduct 40% of the capital gain in their computation of taxable income for New York income tax purposes. Defendant asserts that only 60% of the capital gain, the amount included in plaintiffs' New York taxable income, should be used in computing the resident credit. Defendant therefore maintains that $5,357.44 (40% of the $13,393.60 capital gain) should be subtracted from plaintiffs' "income subject to tax by other jurisdictions," resulting in a credit of $658.99:
$30,675.57/$53,744.71 X $1,156.12 = $658.99*fn2
Defendant determined that plaintiffs underpaid their income tax by $116.13, and imposed and a penalty of $5.81 and interest to July 31, 1979 of ...