N.J. Admin. Code § 18:7-8.3

Current through Register Vol. 56, No. 21, November 4, 2024

Section 18:7-8.3 - Right of Director to independently compute allocation factor

(a) If it appears that the business allocation factor computed on the basis of all or any of the property-receipts-payroll fractions does not properly reflect the activity, business, receipts, capital, entire net worth, or entire net income of the taxpayer in New Jersey, the Director may adjust or the taxpayer may request an adjustment of the business allocation factor.

(b) Reduction in tax for income duplicated on a return filed with another State pursuant to N.J.S.A. 54:10A-8 and this rule--100 percent allocation factor:

1. Eligibility:

i. Where the business allocation factor under N.J.S.A. 54:10A-6 is 100 percent and the taxpayer in fact paid a tax based on or measured by income to a foreign state, resulting in a duplication of income being taxed, the taxpayer may, under N.J.S.A. 54:10A-8, apply for a reduction in the amount of its tax. The reduction is available only where the taxpayer in its own right acquired a taxable status in the foreign state by reference to at least one of the criteria described at N.J.A.C. 18:7-1.6.

Example: Corporation A does not maintain a regular place of business outside New Jersey, other than a statutory office. Corporation A was not a domestic corporation in State X, nor did Corporation A meet any of the other criteria described at N.J.A.C. 18:7-1.6 in State X which would have created a taxable status in New Jersey. Although it was not itself doing business in State X, Corporation A was a member of an affiliated group of corporations which conducted a unitary business in State X and as such is permitted or required to join in filing a combined or consolidated return in State X. In fact, Corporation A did so.

Any duplication of income being reported to New Jersey and to State X may not form the basis for a reduction in the tax.

2. Method:

i. An eligible taxpayer computes its reduction on a rider attached to its return by demonstrating that a part of entire net income is duplicated on a return filed with another state. The eligible taxpayer must attach a copy of all relevant portions of the return filed with the foreign state relating to income reported, the computation of all components of its apportionment fractions, and the computation of the tax paid to the foreign state. The eligible taxpayer must also submit a schedule apportioning all property, receipts, and payroll to a common denominator defined consistent with the return. For purposes of calculating the reduction:

(1) The business allocation factor may be based upon only so much of adjusted entire net income appearing on its corporation business tax return as is reported to the foreign state;

(2) The formula apportionment used in the foreign state may not exceed the business allocation factor as determined under N.J.S.A. 54:10A-6 and these rules;

(3) The business allocation factor must be computed by using the lesser of the tax rates of the foreign state or the tax rate under the New Jersey Corporation Business Tax Act.

Example 1: Corporation A does not maintain a regular place of business outside New Jersey other than a statutory office. As a consequence, Corporation A's business allocation factor is 100 percent. Corporation A sold land for $ 250,000 which had a tax basis and book value of $ 100,000 and was situated in State Y. Under the laws of State Y, the entire gain is directly allocable to State Y and is taxed at an eight percent rate. Corporation A may determine the portion of its tax which is measured by net income as follows:

New Jersey Tax Income Base	Duplicated in State Y
Gross income exclusive of gain on sale of land	$ 500,000
Net gain on sale of land	+150,000	$ 150,000
Total income	650,000
Deductions	-447,778
Taxable income before net operating deductions and special deductions	202,222
Adjustments-- NJ Corporation Business Tax Deducted--add back	+20,000
Entire net income	$ 222,222
Tax at 9% -- before reduction	$ 20,000
Formula apportionment not used in State Y	100%
Duplication of income	150,000
Reduction--may not exceed 9%	.08
Tax paid to State Y	$ 12,000
Reduction	-12,000
Paid with return	$ 8,000

Example 2: Corporation B does not maintain a regular place of business outside New Jersey other than a statutory office. Corporation B's business allocation factor is 100 percent. Corporation B did however start and complete a construction job in State Z and paid an income tax to State Z at a 10 1/2 percent rate. Corporation B may determine the portion of its corporation business tax measured by net income as follows:

For accounting periods beginning before July 1, 1996:

New Jersey Tax Income Base	Duplicated in State Z
Taxable income before net operating loss deduction and special deductions	$227,500	$227,500
Add ACRS	$15,000
Less NJ depreciation	12,000	3,000
Add ACRS	15,000
Less State Z Depreciation	15,000	-0-
+Add back of NJ CBT, other States, Political Subdivisions, etc. tax paid or accrued	52,000	52,000
Taxes imposed or measured by income from State Z return	28,800	28,000
Municipal bond interest add back--NJ	7,000	7,000
Municipal Bond Interest add back--State Z	-0-	-0-
Net Operating Loss--NJ	4,500	(4,500)
Net Operating Loss--State Z	5,000	(5,000)
Dividend Exclusion--NJ	10,000	(10,000)	(10,000)
Dividend Exclusion--State Z	-0-
Entire Net Income	$275,000
Portion of ENI duplicated	$241,300
Apportionment (computed below)	.250000
Apportioned duplicated ENI	$60,325
Tax at 9% on New Jersey Income Base	$24,750
Tax at State Z rate (10 1/2%) on	$6,334
Apportionated duplicated ENI
Reduction--at 9% of Apportioned duplicated	$5,429
ENI ($ 60,325)
New Jersey tax after credit	$19,321

+ For accounting periods beginning on or before July 7, 1993 only, New Jersey CBT was required to be added back in computing New Jersey ENI.

For accounting periods beginning on or after July 1, 1996:

New Jersey Tax Income Base	Duplicated in State Z
Taxable income before net operating loss deduction and special deductions	$227,500	$227,500
Add ACRS	$15,000
Less NJ depreciation	15,000	3,000
Add ACRS	15,000
Less State Z Depreciation	15,000	-0-
Add back of NJ CBT, other States, l Polotical Subdivisions, etc. tax paid or accrued	52,000	52,000
Taxes imposed or measured by income from State Z return	28,800	28,000
Municipal bond interest add back--NJ	7,000	7,000
Municipal Bond Interest add back--State Z	-0-	-0-
Net Operating Loss--NJ	4,500	(4,500)
Net Operating Loss--State Z	5,000	(5,000)
Dividend Exclusion--NJ	10,000	(10,000)	(10,000)
Dividend Exclusion--State Z	-0-
Entire Net Income	$275,000
Portion of ENI duplicated	$241,300
Apportionment (computed below)	.245000
Apportioned duplicated ENI	$59,118
Tax at 9% on New Jersey Income Base	$24,750
Tax at State Z rate (10 1/2%) on Apportioned duplicated ENI	$6,207
Reduction--at 9% of Apportioned duplicated ENI ($ 59,118)	$5,321
New Jersey tax after credit	$19,429

Corporation B computed the apportionment on its State Z return as follows:

State Z	Everywhere	Portion in State Z
Property Fraction	$140,000	$500,000
Owned (Valued under State Z law and regulation)
Leased (at 8 times annual rentals)	$40,000	$100,000
Total Property Fraction	$180,000	$600,000	0.300000
Receipts Fraction	$200,000	$1,000,000	0.200000
Double Weighting of Receipts Fraction	0.200000
Payroll Fraction	$90,000	$300,000	0.300000
Total of Fractions	1.000000
Allocation Factor using State Z Law and	0.250000

Regulation (Total divided by four)

For accounting periods beginning before July 1, 1996, if the formula apportionment had been determined in State Z consistent with the NJ Corporation Business Tax Act, it would have been:

Property Fraction
Owned (Valued under NJ CBT Act)	$100,000	$400,000
Leased (at 8 times rentals)	$40,000	$100,000
Total Property Fraction	$140,000	$500,000	0.280000
Receipts Fraction	$200,000	$1,000,000	0.200000
Payroll Fraction	$90,000	$300,000	0.300000
Total of Fractions	0.780000
Allocation Factor using NJ CBT Act (Total divided by three)	0.260000

For accounting periods beginning on or after July 1, 1996, if the formula apportionment has been determined in State Z consistent with the N.J. Corporation Business Tax Act, it would have been:

Property Fraction
Owned (Valued under NJ CBT Act)	$100,000	$400,000
Leased (at 8 times rentals)	$40,000	$100,000
Total Property Fraction	$140,000	$500,000	0.280000
Receipts Fraction	$200,000	$1,000,000	0.200000
Double Weighting of Receipts Fraction	0.200000
Payroll Fraction	$90,000	$300,000	0.300000
Total of Fractions	0.980000
Allocation Factor using NJ CBT Act (Total divided by four)	0.245000

For the period beginning prior to July 1, 1996, since the apportionment fraction (.250000) used in State Z does not exceed the business allocation factor as it would have been determined under the Act and this subchapter, it is used for purposes of determining the reduction.

For the period beginning on or after July 1, 1996, since the apportionment fraction (.250000) used in state Z exceeds the business allocation factor as it would have been determined under the Act and this subchapter, the New Jersey business allocation factor (.245000) would be used for purposes of determining the reduction.

(c) For privilege periods ending on and after July 31, 2019, if it appears that the allocation factor(s) computed on the basis of the receipts fraction does not properly reflect the activity, business, receipts, capital, entire net worth, or entire net income of the combined group (as a whole or the members thereof) in New Jersey, the Director may adjust or the managerial member of a combined group filing a New Jersey combined return may request an adjustment of the allocation factor(s), of either the managerial member or the other members of the combined group included on the same New Jersey combined return, in accordance with N.J.S.A. 54:10A-4.8 and 54:10A-4.10.

N.J. Admin. Code § 18:7-8.3

Amended by 49 N.J.R. 1694(a), effective 6/19/2017

Amended by 54 N.J.R. 1819(a), effective 9/19/2022