February 1, 2010
CHARLES A. CINO, PLAINTIFF-APPELLANT,
DIRECTOR, DIVISION OF TAXATION, DEFENDANT-RESPONDENT.
On appeal from the Tax Court of New Jersey, Docket No. 8453-2006.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued January 6, 2010
Before Judges Sabatino and Newman.
Plaintiff Charles A. Cino appeals from the Tax Court's determination affirming the Director of Taxation's assessment of additional gross income tax in the amount of $1,263.02 for 2001, $1,523.27 for 2002, and $1,004.08 for 2003 with interest calculated to May 15, 2006, under the New Jersey Gross Income Tax Act.*fn1 The assessments arise out of alimony payments to his former wife who was then a New York resident. New York State taxes gross income differently from New Jersey. New York allows a taxpayer who pays alimony to subtract that sum from his gross earnings, which we do not. Under N.J.S.A. 54A:4-1, a credit is limited to income actually taxed by a foreign state prior to personal exemptions and standard deductions. Because alimony is not taxed and is reduced from the adjusted gross income prior to personal exemptions and deductions, the numerator in the tax credit formula applicable in this State does not include alimony paid in New York because it is not taxed to the taxpayer in that jurisdiction.
Plaintiff argues that alimony should be subtracted out of both the numerator and denominator in the fraction used to determine the New York credit to avoid double taxation.
We rejected plaintiff's argument in Ambrose v. Director, Division of Taxation, 198 N.J. Super. 546 (App. Div. 1985), where we held that the Director of Taxation properly excluded taxpayer's alimony payments in determining his New York taxable income. Consequently, the alimony paid in New York, but not taxed there, was excluded from the numerator of the fraction utilized in calculating the resident tax credit in this State. Id. at 549-50.
Plaintiff maintains that Ambrose was wrongly decided. We disagree. As we pointed out in Ambrose, "[a]lthough income may be treated differently by New Jersey and the foreign jurisdiction, multiple taxation does not result. The effect of the regulations is to shield only that portion of the taxpayer's income which is subject to tax in the other state." Id. at 553. That is exactly what was accomplished here by excluding from the numerator of the fraction the alimony payments to the former wife which were not subject to taxation in New York as part of plaintiff's income.
Plaintiff makes much of a hypothetical illustration in support of his argument. Plaintiff posits a hypothetical taxpayer earning $100,000 who paid $50,000 in alimony to his ex-spouse in New York. His effective tax rate using the method prescribed by the taxing authority in New Jersey would result in an effective tax rate for the two jurisdictions of over ten percent, thus subjecting a taxpayer to considerable "double taxation," since neither New York nor New Jersey has an income tax bracket above seven percent.
In addressing this hypothetical, the Tax Court Judge noted that plaintiff was still receiving an offset here that reduced his taxes below the almost fourteen percent that would be otherwise achieved if New Jersey did not provide any credit for the New York taxes.
Moreover, there is nothing under our Gross Income Tax Act that suggests the operation of the credit should insulate plaintiff from results developed in plaintiff's hypothetical calculations. The Legislature did not provide for a dollar-for-dollar credit against New Jersey gross income tax for taxes paid to other jurisdictions. If that had been the statutory intention, there would be no need for the proportional language in N.J.S.A. 54A:4-1 requiring a fraction to be multiplied against the New Jersey tax due to determine the extent of the credit. If income included in either the numerator or the denominator had to be included in the other, then the fraction established in the resident credit provision would always equal one.
As we observed in Ambrose, the purpose of the credit in N.J.S.A. 54A:4-1(a) is to minimize or avoid double taxation of the same income by New Jersey and another State. That is viewed as an appropriate limit on the credit. Ambrose, supra, 198 N.J. Super. at 552. That is what plaintiff has received. He is not entitled to anything more.