New Jersey Enacts Additional Corporation Business Tax Reforms
The deduction would be claimed over a ten-year period, beginning with the combined group’s first privilege period beginning on or after January 1 of the fifth year after the effective date of New Jersey’s combined reporting rules.
An affected combined group would deduct from the combined group’s entire net income an amount equal to one-tenth of the amount necessary to offset the resulting aggregate increase in deferred tax liabilities or aggregate decrease in deferred tax assets.
In other words, publicly traded businesses seeing an increase in NJ CBT due to this change will be able to offset at least some of this additional cost.
Note that a combined group intending to take this new deduction must file a statement with the Division of Taxation on or before July 1 of the year after the first privilege period for which a New Jersey combined return is required (e.g., for calendar year taxpayers, this form is due on July 1, 2021). This statement must specify the total amount of the group’s deduction.
- Pursuant to the October legislation, combined reporting is now required for tax years ending after July 31, 2019. The prior amendments originally required combined reporting for tax years beginning on or after January 1, 2019.
- The minimum tax of each member of a combined group filing a mandatory or elective New Jersey combined return shall be $2,000 for the group privilege period.
- The July legislation permitted taxpayers to allocate their IRC Section 965 repatriated income using the lower of the average allocation factors for the 2015, 2016, and 2017 tax years or 3.5%. This was corrected to the lower of the average allocation factors for the 2014, 2015, and 2016 tax years or 3.5%.
- In signing the federal Tax Cuts and Jobs Act of 2017 (TCJA), Congress sought to incentivize U.S. companies to keep intangible income in the U.S. and not overseas. In essence, the TCJA enacted new Section 951A to impose federal income tax on certain global intangible low tax income (GILTI), and new Section 250 to provide for a corresponding federal deduction for certain foreign derived intangible income (FDII). The New Jersey October 4, 2018 legislation now separately provides a New Jersey CBT deduction that mirrors the federal FDII deduction relative to the tax on GILTI income for privilege periods beginning on or after January 1, 2018.
- In a signing statement, Governor Murphy acknowledged concerns that certain taxpayers may be disproportionately impacted by the new tax on GILTI. In his statement, the governor further sought to assure the business community that the Division of Taxation has discretion to provide relief where appropriate and would monitor the roll-out of the new tax.
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