New Jersey passes major changes for corporate business tax, partnerships

On July 3, 2023, Gov. Phil Murphy signed into law New Jersey’s fiscal year budget A.B. 5669, alongside A.B. 5323 (“the Bill”), substantial amendments to the New Jersey Corporate Business Tax laws and partnership tax laws. The state has been working on releasing additional guidance, as many of the changes under the Bill have the potential to drastically change taxpayers’ New Jersey returns. The state recently released the first round of such guidance through TB-107. Read on for a summary of the key changes from the Bill as well as currently available guidance.

Corporate business tax changes

Joyce or Finnigan?

Prior to the Bill, generally for combined corporate tax filers that elected into water’s-edge or worldwide filing, the Joyce rules would apply. Joyce rules generally provide that a business looks at each corporation in a combined group separately in determining if it is subject to tax in the state. Contrast that with the Finnigan rule, which generally provides that the entire group is taxable if one member of the group is taxable in the state. (See both In re Joyce, Inc. NO 66-SBE-070, 1966, CA, and In re Finnigan Corp No. 88-SBE-022, 1990, CA.)

Now, due to the changes under the Bill for tax years ending on or after July 31, 2023, New Jersey has adopted Finnigan reporting rules for all combined taxpayers. As a result, a combined group will compute its apportionment numerator and denominator as one taxpayer, which will take into account all unitary receipts of all members of the New Jersey combined group.

Global intangible low-taxed income (GILTI)

The Bill has amended provisions related to GILTI, and as a result GILTI will now be considered a dividend. Additionally, the state’s GILTI deduction will increase from 50% to 95%. Adopting a 95% GILTI deduction puts New Jersey in line with the majority of states that tax GILTI. These provisions go into effect for tax years ending on or after July 31, 2023.


The Bill also changes New Jersey’s economic nexus rule for income tax purposes by copying its economic nexus thresholds used for sales tax purposes. Effective for tax years ending on or after July 31, 2023, out-of-state businesses with 200 or more in-state transactions (delivered to New Jersey customers) or New Jersey receipts of more than $100,000 will be deemed to have nexus for income tax purposes. Adopting this Wayfair threshold provides out-of-state businesses with more certainty about when they may have nexus in New Jersey for income tax purposes. Prior to the Bill, New Jersey had a rule stating that an out-of-state business had income tax nexus in the state for the privilege of deriving receipts from sources within New Jersey.

Please note that this economic nexus rule created by the Bill is being established in addition to the other methods by which a business can trigger nexus within the state based on various in-state activities. Note also that corporations protected under Public Law 86-272 will still be required to file a CBT return and pay the CBT minimum tax to the extent they have nexus with New Jersey.

Net operating losses (NOLs)

Effective for tax years beginning on or after July 31, 2023, the Bill will allow businesses to use an NOL before taking a dividend exclusion. Prior to this change, New Jersey required businesses to take their dividend exclusion before the NOL deduction, thus resulting in the dividends effectively reducing the amount of an NOL that a business could use.

Another aspect of the Bill impacts the use of NOLs for New Jersey combined reporting taxpayers. Prior to the Bill, New Jersey required pre-apportioned NOL carryovers to be converted to this post-apportionment scheme (PNOLs). (See N.J.S.A. 54:10A–4.) These PNOLs were generally only permitted to be utilized by the taxpayer who originated the PNOL. Under the Bill, members of a combined group are now permitted to share their PNOLs across the members of the group. This could result in substantial changes for combined filers, or could entice taxpayers into combined reporting in order to spread around these PNOLs, something that prior to the Bill was not permitted by the Division.

New Jersey Research and Development Expenditures

The Bill provides that businesses will be permitted to deduct the full value of New Jersey qualified research expenditures in the same year that taxpayers are permitted to take the New Jersey Research and Development Credit. This retroactive change is effective for tax years ending on or after July 31, 2022. This will allow taxpayers to take a full deduction of their federal IRC Section 174 expenses to the extent those expenses were generated in New Jersey if a New Jersey Research and Development Credit is also being claimed.

Partnership tax changes

Partnership sourcing

The Bill provided for some significant changes to how partnerships and sole proprietors are required to source income. Those taxpayers are now required to utilize single-sales factor apportionment sourcing. Thus, taxpayers who are generally subject to the Gross Income Tax will now utilize the single-sales factor sourcing methodology of CBT taxpayers. While CBT filers have been utilizing single-sales factor apportionment for some time, Gross Income Tax filers were subject to three-factor sourcing.

Due to this change, Gross Income Tax filers who are service providers will now utilize market-based sourcing, which is the same method CBT filers are required to use. Under market-based sourcing, a taxpayer sources income based on the location where the benefit of the service is received. Under the previous rule, GIT taxpayers were required to source income based on where the work was performed (cost of performance basis). This may be a significant change for Gross Income Tax filers, and it is expected that the Division will be releasing guidance in the coming weeks to discuss the impact of this change, which is retroactive and applicable as of Jan. 1, 2023. Accordingly, some affected taxpayers may need to make adjustments relative to their New Jersey estimated tax payments.

Other key changes

The Bill also provides a retroactive NOL change effective for tax years ending on or after July 31, 2022, that provides that the New Jersey Director of Taxation is now permitted to make adjustments to taxpayers’ NOLs for closed tax years, going back as far as 10 years.

What does CohnReznick think? 

This new legislation provides significant changes to corporate and partnership taxpayers doing business in New Jersey. As such, it is important for such businesses to review these changes and consider their implications. We recommend you consult with your tax advisor to confirm how these new changes might impact your business. 


Cassandra Baubie, JD, State and Local Tax Services


Harry Golematis, CPA, Director, State and Local Tax Services


Corey L. Rosenthal, JD, Principal, Practice Leader, State and Local Tax Services



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Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute legal or professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice specific to, among other things, your individual facts, circumstances and jurisdiction. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its partners, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.