Detailed New Jersey Development
Two technical corrections bills (S. 3007, A. 4809) have been introduced in the New Jersey legislature and were recently reported from their respective committees with amendments. The technical corrections generally relate to the Corporation Business Tax (CBT) law changes enacted in 2018 that became effective for privilege periods ending on or after July 31, 2019, including the implementation of unitary combined reporting. If enacted, the bills would make clarifying and procedural changes, as well as certain substantive changes, to the CBT law. For example, the bills would clarify that the $2,000 minimum tax applies only to taxable members of the New Jersey combined group. Recognizing the challenges of having the New Jersey CBT return due on the same date as the federal return, the bills would provide that for privilege periods ending on and after July 31, 2020, the due date of the New Jersey return will be 30 days after the original due date for filing the taxpayer’s federal corporate income tax return for such privilege period. Recall, this year the Governor has already extended the CBT due date to November 16, 2020. The bills would also require the Director of the Division of Taxation to create a standardized simplified tax return for New Jersey CBT filers, including combined groups.
In terms of more substantive changes, the bills would provide that for privilege periods ending on and after July 31, 2020, for purposes of the exclusion from entire net income for dividends , the members of a combined group filing a New Jersey combined return shall be treated as one taxpayer with regard to dividends and deemed dividends that were received as part of the unitary business of the combined group.
Another substantive change relates to the affiliated group election. Under New Jersey law, taxpayers can make an affiliated group election. The term affiliated group is defined with reference to IRC section 1504, except that the New Jersey affiliate group includes all U.S. domestic corporations that are commonly owned. The bills would define “U.S. domestic corporations” to mean: (1) business entities wherever incorporated or formed that are U.S. domestic corporations, are deemed to be, or are treated as U.S. domestic corporations under the IRC; or (2) any entities incorporated or formed under the laws of a foreign nation that are required to file federal tax returns if such entities have effectively connected income within the meaning of the IRC. “Commonly owned” would be defined to mean that more than 50 percent of the voting control of each member of an affiliated group is directly or indirectly owned by a common owner or owners, either corporate or non-corporate, whether or not the owner or owners are members of the affiliated group. Whether voting control is indirectly owned is determined in accordance with IRC section 318. This proposed change, which would be retroactive to privilege periods ending on and after July 31, 2019, would pull non-U.S. companies with effectively connected income into the New Jersey affiliated group.
The bills would make certain changes governing NOLs and affecting NOL and prior NOL conversion carryover usage, including allowing combined group members to sell prior NOL conversation carryovers to other members of the combined group, as long as the sale is made at an arm’s length price. Further, for privilege periods beginning on and after January 1, 2020, to the extent consistent with the CBT, the federal rules and regulations governing consolidated return net operating losses and net operating loss carryovers would apply to the New Jersey net operating loss carryover provisions as though the combined group filed a federal consolidated return, regardless of how the members of the combined group filed for federal purposes. The principles and provisions set forth in federal regulations promulgated pursuant to IRC section 1502 would apply to the extent consistent with the CBT Act and other New Jersey authorities.
A new section of the law would allow the Director to promulgate regulations implementing the bills immediately upon filing them with the Office of Administrative Law. Another provision would provide that penalties for underpayments of estimated taxes will not be imposed if additional tax liabilities are created as a result of the bills if the catch-up payments are made with the next estimated tax payment due after the enactment of the bills. There are numerous other amendments in the bills, including, but not limited to, provisions providing that the state’s realty transfer fee and the controlling interest transfer tax do not apply to intercompany transfers between combined group members. Please contact Jim Venere at 973-912-6349 with questions on the technical corrections bills.
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