Authors
Key takeaways
- The New Jersey Division of Taxation (the “Division”) has published proposed amendments to its corporation business tax (“CBT”) regulations. The proposed amendments, which are available for download, are intended to reflect various statutory changes that were adopted as part of P.L. 2022, c. 133; P.L. 2023, c. 50; and P.L. 2023, c. 96.
Key provisions of the proposed amendments include:
- Nexus. The proposal reflects New Jersey’s bright-line nexus standard (New Jersey-source receipts exceeding $100,000 or at least 200 separate transactions to New Jersey-based customers). The proposal also provides a number of new examples for financial services companies and clarifies that in determining whether a member of combined group has nexus, intercompany transactions are considered even if eliminated.
- P.L. 86-272. Effective for the 2023 privilege period, New Jersey switched from Joyce to Finnigan. The proposal further narrows the scope of P.L. 86-272 immunity by incorporating various parts of the MTC’s guidelines. In some ways, the proposal goes beyond the MTC’s guidelines by addressing web-connected devices, consumer data sales, and electronic payments. Under the Division’s proposed changes, merely using web-based platforms for accepting job applications or providing post-sales assistance may subject an out-of-state corporation to CBT.
- NOLs. The proposal provides detailed guidance concerning the sharing of PNOLs and NOLs among members of a combined group. There are also new provisions concerning the ordering of the NOL deduction relative to the dividend exclusion.
- Carryovers of tax attributes. Consistent with New Jersey statutory amendments, the proposal states that the ability to adjust NOL carryovers from closed years is limited to 10 years after the return was filed. In a departure from federal law, the Division’s proposal also suggests that credit carryovers will be disallowed unless the taxpayer filed a credit form with an original or amended return.
- Sales fraction. New Jersey adopted market sourcing effective for the 2019 privilege period and the proposal provides additional examples concerning sourcing of receipts from services. In particular, the proposal describes situations in which a taxpayer may be entitled to estimate their New Jersey receipts using reasonable approximation. The existing and proposed regulations provide taxpayers with significant flexibility—even compared to other market sourcing states—and allow taxpayers to use census, GDP, IP address, and third-party datasets. If your company makes sales of services or technology, it should evaluate its customary sourcing method and whether it would benefit from an alternative method.
- Net deferred tax liability deduction. The proposal confirms that taxpayers have flexibility to postpone indefinitely the timing of their net deferred tax liability deduction. This may be helpful for taxpayers that might otherwise need to establish a valuation allowance for other types of attributes.
The deadline for submitting written comments concerning the Division’s proposal is April 19.
Client Alert 2025-054