On July 3, 2023, the Governor of New Jersey signed into law a bill (the “Bill”) that provided for several important changes related to the NJ Corporation Business Tax (CBT). Some of the more relevant changes are included in this alert. Unless otherwise indicated, the changes described are effective for tax years ending on or after July 31, 2023.
Combines reporting – inclusion of investment companies, REITs, and RICs
The Bill requires all “captive” NJ investment companies, REITs, and RICs to be included as members of the combined group’s combined tax return. Because of this, the tax rate benefits that had been provided to these entities will be eliminated. There is an important exception to this change. Any investment company, REIT, or RIC that has at least 50 percent of its shares owned or controlled by a state or federally chartered bank, savings bank, or savings and loan association, with assets that do not exceed $15 billion, can still be excluded from the combined group and may continue to file as a separate entity.
Bright-line threshold for economic nexus
Under the Bill, any non-New Jersey corporation will be deemed to have substantial nexus with New Jersey if it derives New Jersey receipts in excess of $100,000 or has 200 or more separate transactions delivered to customers in New Jersey. This new threshold is in addition to the other ways a corporation may have nexus with New Jersey.
Net operating loss deduction allowed
For purposes of computing taxable net income, the federal 80 percent limitation under IRC §172(a)(2) applies to the net operating loss calculated in arriving at taxable net income.
Combined groups sharing of net operating losses
The Bill allows for previously unused net operating loss deductions to be used by the combined group rather than be limited to the taxable income of the member responsible for the loss.
Combined group sourcing of receipts
Previous to the passage of the Bill, New Jersey applied the separate company approach (the “Joyce” methodology) when sourcing receipts to New Jersey, unless the affiliated group method is elected. Under the Bill, all combined groups are required to use the “Finnigan” methodology when sourcing receipts. Under this methodology, a combined group is treated as one taxpayer for sourcing the receipts of the combined group.
50 percent installment payment threshold
The Bill raises the 50 percent installment payment threshold to $1,500 from $500.
Clarification for corporation business tax due dates
The Bill clarifies that the due date of the New Jersey corporate tax return is the 15th day of the month following the month of the original due date of the federal tax return, or the 15th day of the month following the month of the extended due date of the federal tax return if an extension has been granted.
The 2.5 percent surtax has not been extended
One provision that was not included in the Bill was any extension of the 2.5 percent CBT surtax for businesses with taxable income in excess of $1 million. Therefore, unless future legislation is passed, the 2.5 percent surtax will not extend beyond 2023.