New Jersey: Division Issues Revised Guidance on Sourcing GILTI and FDII

Recently, the New Jersey Division of Taxation released a new technical bulletin, TB-92 issued August 22, 2019, addressing New Jersey’s treatment of FDII and GILTI.  TB-92 replaces TB-85(R) which was issued earlier this year and sets forth a substantially revised policy on the apportionment of GILTI and FDII. As background, under New Jersey law, the IRC section 250(a) deductions for GILTI and FDII are allowed for Corporation Business Tax (CBT) purposes. However, both the original and revised bulletins confirm that the section 250 deductions are allowed only to the specific taxpayer that included the respective GILTI and FDII income on its federal and New Jersey CBT returns, and that actually took the deductions for federal tax purposes. If a taxpayer is not allowed the IRC section 250(a) deduction for federal tax purposes, it cannot take the deduction for New Jersey CBT purposes.

With respect to apportioning GILTI, TB-85(R) provided that to prevent distortion, all corporation business taxpayers filing a CBT-100 or BFC-1 would calculate the portion of GILTI and FDII that was subject to New Jersey tax based on a separate special accounting method.  The portion of GILTI to be apportioned to New Jersey was to be equal to the ratio of New Jersey’s gross domestic product (GDP) over the total GDP of every U.S. state (including the District of Columbia) in which the taxpayer had economic nexus. Assuming economic nexus everywhere, this would generally result in a 3.1 percent apportionment factor for GILTI purposes. TB- 92 revises the apportionment method for GILTI and FDII and provides that the net amount of GILTI and the net FDII income amounts are included in the numerator (if applicable) and the denominator. Per the Bulletin, this will help prevent distortion to the allocation factor and arrive at a reasonable and equitable determination of New Jersey tax. TB-92 notes that taxpayers are not permitted to look through to the underlying sales of the controlled foreign corporations (CFCs) that generated the GILTI in determining how to allocate GILTI. The only exception to this general rule is when the CFC and the taxpayer that is required to include GILTI in income are members of the same combined group filing a New Jersey combined return.  The Bulletin provides specific instructions for sourcing GILTI and FDII under the combined reporting rules that are applicable for tax periods ending on and after July 31, 2019. Furthermore, TB-92 recognizes that there may be instances where a portion of a group member’s business can be independent of the overall unitary business activity of the combined group. If the income from non-unitary business operations results in GILTI or FDII, the group member must report the GILTI or FDII on the Schedule X. Finally, TB-92 provides filing instructions for taxpayers in lieu of the Division’s revised position. Please contact Jim Venere at (973) 912-6349 with questions on TB-92.