New Jersey: Division issues guidance on treatment of combined group as a taxpayer

On January 25, 2021, the New Jersey Division of Taxation issued a Technical Bulletin (TB-100) explaining recent technical corrections to the Corporation Business Tax (CBT) Act and their impact on the treatment of combined groups. Notably, many of the technical corrections were intended to make clear that the New Jersey combined group is treated as a single taxpayer. For privilege periods ending on and after July 31, 2020, rather than compute the tax on an entity-by-entity basis, CBT liability is computed at the group level. Further, for purposes of the CBT surtax, the combined group is taxed as one taxpayer. However, it should be noted that a taxable member is also taxed on the portion of the tax attributable to the activities that are independent from the unitary business of the combined group. Taxable members are jointly and severally liable for the tax due from any taxable member. The decision as to whether the taxable member reimburses the combined group for the portion of the tax attributable to the portion of a taxable member’s activities that are independent from the unitary business of the combined group is a matter to be worked out by the members of the combined group. The treatment of the combined group as a single taxpayer also has P.L. 86-272 implications. If one group member exceeds the protections of P.L. 86-272, in the Division’s view, the entire group loses P.L. 86-272 protections. For privilege periods ending on and after July 31, 2020, tax credits can be applied against the group tax liability instead of being applied on an entity-by-entity basis (unless a specific credit statute restricts sharing), and the dividend exclusion applies at the group level. One area in which the group is arguably not treated as one taxpayer is with respect to the $2,000 minimum tax.  The tax applies to each taxable group member, and the minimum tax of the taxable members is to be added together for privilege periods ending on and after July 31, 2020. Please contact Jim Venere at 973-912-6349 with questions on TB-100.