You are not taxed on all of your income in New Jersey. However, New Jersey pretends that all of your income is taxable in New Jersey to determine New Jersey tax. After the hypothetical tax is calculated, your NJ tax is then prorated to the amount of income actually earned in New Jersey. Your other income is not taxed in New Jersey, but it is factored in to report NJ tax. The NJ return makes it look like your other income is taxed there, but it isn't.
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