New Jersey: Division Issues Guidance on CBT Corrections and Revised Affiliated Group Election

The New Jersey Division of Taxation has issued guidance, TB-97, on recently-enacted technical corrections to the Corporation Business Tax (CBT) law. The technical corrections included clarifying and procedural changes, as well as certain substantive CBT law changes. TB-97 addresses the law changes based on the privilege periods for which they are effective. Importantly, certain changes were effective retroactively to privilege periods ending on or after July 31, 2019, including that an affiliated group includes certain non-US entities.  Recall, a New Jersey taxpayer can elect to treat its federal affiliated group as the reporting entity. 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. Under the revised law, “U.S. domestic corporations” is defined to include 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. TB-97 notes that the change may affect a combined group’s filing method decision and that the Division will be issuing a notice to address this dilemma shortly. With respect to the change to the definition of affiliated group, the Bulletin notes that “only in extremely rare situations where there is a non-U.S. corporation that does not file federal returns but has nexus with New Jersey would a non-U.S. corporation have to file a separate return, otherwise no other returns would have to be filed.”  The Bulletin also addresses numerous other technical corrections, including changes to the NOL provisions, dividend exclusion, and more. Please stay tuned to TWIST for additional New Jersey updates.