February 11, 2019
This is a status report provided by the New Jersey State Bar Association on recently passed and pending legislation, regulations, gubernatorial nominations and/or appointments of interest to lawyers, as well as the involvement of the NJSBA as amicus in appellate court matters.
Governor vetoes NJSBA double taxation legislation, cites budget woes
Governor Phil Murphy vetoed legislation that would end the double taxation of attorneys’ fees for prevailing plaintiffs in connection with certain unlawful discrimination, unlawful retaliation and qui tam claims or actions. The New Jersey State Bar Association drafted the legislation in order to end the practice, keeping in line with federal tax laws that only tax the receiving entity of attorneys’ fees and costs.
Under S-784 (Sarlo)/A-3614 (Burzichelli), the state would be precluded from taxing both the attorney and the plaintiff for the same attorneys’ fees and costs recovered relative to certain unlawful discrimination claims. As an example, a person receiving a $1 million award with $200,000 in attorneys’ fees would be taxed by the state for the full $1 million, even though that person never receives the $200,000 in attorneys’ fees. The attorney who receives the $200,000 would also be taxed on that same amount. Under federal taxation law, only the attorney would be taxed on attorneys’ fees and the plaintiff would be taxed on the $800,000.
An amendment to the bill was made to include qui tam recoveries following a decision by the Division of Taxation that upheld a decision to tax the first qui tam relator for the entire recovery, even though there were two other qui tam relators. In Kite v. Division of Taxation, the other two relators not only escaped taxation for their portion of the recovery, but also for attorneys’ fees, which were taxed both to the first qui tam relator and the attorney. The bill amended the law to tax only the receiving entities for their portion of the recovery.
The bill was unopposed throughout the committee process, and passed unanimously in the Senate and Assembly. The bill was second-referenced to both the Assembly Appropriations Committee and the Senate Budget and Appropriations Committee, where the fiscal estimate was “indeterminate,” and cited to the total recovery of qui tam claims as $1.56 million in 2016. The NJSBA urged the bill’s passage as a fairness bill, citing only the loss of taxes on the attorneys’ fees portion of the recovery as de minimis to the state.
In his veto message, Governor Murphy cited to a Division of Taxation estimate that the state would lose $56 million in the current fiscal year and $245 million over the next four years as a result of the bill. The NJSBA continues to pursue the legislation, and has met with legislators and administrative officials to resolve the issues and pass the legislation.
The governor vetoed two other bills as well, including one that would allow certain individuals to receive lifetime emergency assistance. S-1965 (Sweeney)/A-1887 (Muoio) would permit a person to apply for emergency benefits without penalty for prior receipt of the benefit if the prior benefit was received more than 84 months earlier. Benefits include emergency assistance to contribute to emergency shelter arrangements. The governor cited to budget constraints for his veto of the bill.