On appeal from the Tax Court of New Jersey.
Michels and Baime. The opinion of the court was delivered by Baime, J.A.D.
This is an appeal from a judgment entered by the Tax Court upholding the Director's deficiency assessment under the New Jersey Gross Income Tax Act. Plaintiff is a New Jersey resident whose income is derived primarily from his participation and interest in a New York City law partnership. These earnings are subject to taxation in New York. The sole question presented pertains to the treatment of alimony payments and Keogh plan contributions in the calculation of the credit for taxes paid to another state pursuant to N.J.S.A. 54A:4-1. That statute provides in pertinent part as follows:
(a) A resident taxpayer shall be allowed a credit against the tax otherwise due under this act for the amount of any income tax . . . imposed for the taxable year by another state of the United States or political subdivision of such state . . . with respect to income which is also subject to tax under this act.
(b) The credit provided under this section shall not exceed the proportion of the tax otherwise due under this act that the amount of the taxpayer's income subject to tax by the other jurisdiction bears to his entire New Jersey income.
The statutory credit provision is further defined by N.J.A.C. 18:35-1.12(a)(4)(i) to 1.12(a)(4)(ii) which state:
(i) Income subject to tax by the other jurisdiction means those categories before the allowance of personal exemptions and standard and/or other itemized deductions and which are subject to tax under the New Jersey Gross Income Tax Act.
(ii) Entire New Jersey income means the categories of New Jersey gross income subject to tax before allowances for personal exemptions and deductions.
At issue here is whether the Director properly excluded plaintiff's alimony payments and Keogh plan contributions in determining his New York taxable income. Because these amounts were included in calculating plaintiff's "entire New Jersey income" under N.J.S.A. 54A:4-1(b), the effect of the Director's decision was to reduce the taxpayer's foreign tax credit. Cross motions for summary judgment were filed. Judge Lasser concluded that the Director's construction of N.J.S.A. 54A:4-1 fully comported with the statutory purpose of minimizing or avoiding the prospect of double taxation. We agree and affirm
substantially for the reasons set forth in Judge Lasser's opinion.
The facts are not in dispute. Plaintiff filed his New Jersey gross income tax resident return for the year 1978 reporting $94,939.47 of partnership earnings and $1,697.37 in interest. From the total gross income of $96,636.84, plaintiff subtracted $4,000 comprised of personal exemptions and $11,250 for alimony payments. He reported his New Jersey taxable income, which is computed by subtracting exemptions and deductions from the gross amount, as $71,383.89.*fn1
Applying the applicable rate to the amount of taxable income, plaintiff arrived at a figure of $1,684.67 representing the amount of tax owed. As noted previously, plaintiff also paid an income tax on his law partnership earnings to the State of New York. Therefore, plaintiff claimed a foreign tax credit pursuant to N.J.S.A. 54A:4-1(b). Under that provision, the statutory credit is determined by multiplying the sum due by a ratio consisting of "the amount of the taxpayer's income ...