New Jersey provides guidance on its unitary business test and combined reporting requirement

    The New Jersey Division of Taxation has provided technical guidance (TB- 93) regarding its unitary business test. As previously discussed, for tax periods ending on or after July 31, 2019, New Jersey will require business entities that meet the unitary business test to be included in a combined income tax return.

    Compared with other states, New Jersey has a much broader definition of what entities are included in the unitary business definition, i.e., passive holding companies.

    Unitary business definition

    Pursuant to the guidance, a unitary business is defined to mean “a single economic enterprise that is made up either of separate parts of a single business entity or of a group of business entities under common ownership that are sufficiently interdependent, integrated, and interrelated through their activities so as to provide a synergy and mutual benefit that produces a sharing or exchange of value among them and a significant flow of value among the separate parts". The unitary business definition “will be construed to the broadest extent permitted” under the U.S. Constitution.

    A taxpayer that meets either the “Interdependence of Functions Test” or the “Unity of Operations and Use Tests” is part of the unitary business.

    Interdependence of Functions Test

    The presence of any of the following factors indicates an interdependence of function exists:

    - Same line of business, e.g., wholesaling, retailing, and manufacturing.

    - The entities’ primary activities comprise steps of a vertically structured business.

    - Central management.

    - Goods or services among entities are not provided at an arm’s-length price. (However, the mere existence of arm’s length pricing between entities does not indicate lack of unity.)

    - Existence of benefits from joint, shared, or common activity.

    - Relationship of joint, shared, or common activity to income-producing operations.

    - Exercise of control by one entity over another.

    Unity of Operations and Use Tests

    Unity of operation is defined to mean that there is functional integration that is evidenced by shared support functions. Unity of use “is evidenced generally by centralized management or use of centralized policies.” The unities are present if each entity “benefits or receives goods, services, support, guidance, or direction arising from the actions of common staff resources or common executive resources, personnel, third-party providers,” etc.

    Factors to be considered include:

    - Common purchasing

    - Common advertising

    - Common employees, including sales force

    - Common accounting or legal

    - Common retirement plan

    - Common insurance coverage

    - Common marketing

    - Common cash management or financing support

    - Common research and development

    - Common offices, manufacturing, warehousing, or transportation facilities

    - Common computer systems and support

    - Common management (i.e., one or more officers or directors of the parent are also officers or directors of the subsidiary)

    - Control of major policies (e.g., the parent corporation’s board of directors requires that it approve any acquisition by either the parent or subsidiary of any interest in any other company; or the parent corporation’s board of directors requires that it approve any lending in excess of a minimum amount to any one or more of either the parent or subsidiary’s suppliers.)

    - Inter-entity transactions

    - Common policy or training manuals

    - Required budgetary approval

    - Required capital asset purchases approval

    Holding companies

    The unitary test applies to the determination of whether a holding company is excluded or included in a unitary business of a combined group. “A passive holding company that is in a commonly controlled economic enterprise and holds intangible assets that are used by the enterprise in a unitary business is deemed to be engaged in the unitary business, even though the holding company’s activities are primarily passive,” the bulletin says.

    What does CohnReznick think?

    The determination of whether a group of related companies is considered a unitary business requires a critical review of an enterprise’s unique facts and circumstances. Taxpayers potentially impacted by the enactment of New Jersey’s combined reporting rules should consult with their tax advisors for further assistance.


    Harry Golematis, Director, State and Local Tax Services


    Corey Rosenthal, Practice Leader, State and Local Tax Services


    Subject matter expertise

    • corey rosenthal
      Contact Corey Corey+Rosenthal
      Corey Rosenthal

      JD, Principal, Practice Leader, State and Local Tax (SALT) 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.