New Jersey: Guidance Issued on the Unitary Business Principle

The New Jersey Division of Taxation has issued a new Technical Bulletin (TB-93) addressing the unitary business principle to guide taxpayers in determining the entities to be included in the combined reports that will be filed for privilege periods ending on and after July 31, 2019. Under New Jersey law, the term “unitary business” will be construed to the broadest extent permitted under the U.S. Constitution. The Bulletin notes that New Jersey will look to the Multistate Tax Commission’s model regulation for guidance on the existence of a unitary business, and will also follow a number of court decisions setting forth criteria for determining whether a unitary business exists. The Division then sets forth two “tests”—the “Interdependence of Functions Test” and the “Unity of Operations and Use Test” for determining whether a taxpayer is engaged in a unitary business with its affiliates. The tests include lists of circumstances indicating “interdependence of functions” or “unity of operations or use.” With respect to holding companies, the Bulletin provides that “a passive holding company that is in a commonly controlled economic enterprise and holds intangible assets that are used by the enterprise in a unitary business is deemed to be engaged in the unitary business, even though the holding company’s activities are primarily passive.”  Sharing or transferring technical information or intellectual property, per the Bulletin, provides evidence of a unitary relationship when the information or property transferred or shared is significant to the operations of the businesses. Similarly, a unitary relationship is indicated when there is significant common or intercompany financing, including the guarantee by, or the pledging of the credit of, one or more business entities for the benefit of another business entity or entities, if the financing activity serves an operational purpose. Please stay tuned to TWIST for additional updates on New Jersey combined reporting.