Jul 24 New Jersey Enacts Changes to the Corporation Business Tax
On July 3rd, 2023, New Jersey Governor Phil Murphy signed Senate Bill 3737 (Assembly Bill 5323), enacting significant changes to the New Jersey Corporation Business Tax (“CBT”). Some of the changes are retroactive.
Economic Nexus Implementation
New Jersey Adopts Economic Nexus effective for Tax Years ending on or after July 31, 2023. Similar to the sales and use tax nexus provisions for remote sellers, New Jersey has adopted a bright line test for CBT nexus. The CBT nexus threshold is satisfied for entities having receipts in New Jersey of more than $100,000 or more than 200 transactions delivered to New Jersey customers during the corporation’s fiscal or calendar year.
These provisions do not apply if the entity is otherwise protected from income taxation under PL 86-272. This provision is effective for tax years ending on or after July 31, 2023.
CBT Due Date Change
The revised due date for the CBT return is on the 15th day of the month following the original or extended federal corporate tax return due date. For example, for-calendar year taxpayers who have not filed for an extension, the CBT return would be due May 15. This provision is effective for tax years ending on or after July 31, 2023.
Net Operating Loss (“NOL”) Changes
Statute of Limitations for Net Operating Losses
The Division of Taxation and the taxpayer now have the authority to adjust NOLs in closed periods (up to 10 years) to compute the taxpayer’s liability for tax years that are open under the statute of limitations. This provision is effective for tax years ending on or after July 31, 2022.
Net Operating Loss Federal Conformity
New Jersey now conforms to the federal 80% limitation on NOL utilization against taxable income. This provision is effective for tax years ending on or after July 31, 2023.
NOL and Prior NOL Carry-forward Sharing
The new law permits combined group members to share NOLs and Prior NOLs (“PNOL”) regardless of whether the same group generated the NOL or PNOL carry-forward as the sharing member within the combined group. This provision is effective for tax years ending on or after July 31, 2023.
Changes to Income Sourcing and Apportionment
Combined Reporting Groups
New Jersey has adopted the “Finnigan Rule” for combined group sourcing. This means that all New Jersey receipts from all members of the combined group are included in the receipts factor numerator whether or not the member has New Jersey nexus. This provision is effective for tax years ending on or after July 31, 2023.
Worldwide and Water’s-Edge Affiliated Group Filing Requirements
The enacted legislation establishes the worldwide filing requirement to include income from all sources for members of an affiliated business group. Foreign affiliates includable in a water’s edge or an affiliated group filing are included only to the extent of ECI and subject to treaty limitations. Effective for tax years ending on or after July 31, 2022.
Sole Proprietor and Partnership Sales Factor Sourcing
While not a CBT amendment, it is notable that New Jersey appears to have adopted single sales factor apportionment and the CBT rules pertaining thereto. This includes market-based sourcing rules. There is confusing language in the law qualifying this change only when a taxpayer cannot readily ascertain income from New Jersey Sources.
The Division of Taxation is expected to issue clarifying guidance. Since this provision is effective retroactively to tax years beginning on or after January 1, 2023, qualified interest and penalty relief is available provided that for tax periods.
Dividend Received Deduction
The Dividends received deduction for 80%, or greater owned subsidiaries, is increased to 100%. The exclusion is decreased by five percent for expenses attributable to the dividends or deemed dividends (i.e., a 5% addback). This provision is effective for tax years ending on or after July 31, 2023.
Global Intangible Low Taxed Income (“GILTI”)
GILTI will be treated as a dividend. GILTI from an 80% or more owned CFC would qualify for the 100% dividends received deduction and is subject to a 5% addback. Effective for tax years ending on and after July 31, 2023.
IRC Section 174 R&D Expenditures
A deduction for research and experimental expenditures is allowed during the same tax period for which a New Jersey research and development credit is claimed. Effective retroactively for tax periods beginning on or after January 1, 2022.
Interest and Intangible Addbacks Repealed
Related party interest and intangible expense addback is repealed. This provision is effective for tax years ending on or after July 31, 2023.
Sax will continue to update you regarding corporation business tax changes. To contact a member of our tax team, click here.
Richard Goldstein, JD, Partner and SALT Practice Leader
Mat Giordano, CPA, MST, Senior Tax Manager
Alison Iavarone, CPA, CFE, CGMA, Senior Tax Manager