Corporate income and franchise taxes
How is taxable income determined in your state? To what extent is the state income tax base aligned with the federal income tax base?
The starting point for computation of taxable income is federal taxable income before net operating losses and special deductions. This amount is then subject to several New Jersey-specific adjustments (N.J. Stat. Ann. § 54:10A-4(k)).
How is in-state income apportioned for multi-state businesses? Does your state regulate transfer pricing?
For tax years beginning on or after January 1, 2014, income is generally apportioned using a single sales factor (N.J. Stat. Ann. § 54:10A-6). The sales factor is equal to the taxpayer’s receipts earned in New Jersey divided by the taxpayer’s total receipts (N.J. Stat. Ann. § 54:10A-6(B)).
New Jersey does regulate transfer pricing. The New Jersey Division of Taxation’s regulations define the term “fair and reasonable tax” as “the tax that would have been payable by a taxpayer reporting the same transaction(s) on a separate entity basis where the parties to the transaction(s) had independent economic interests.” N.J. Admin. Code § 18:7-5.10(a)(3). Determining a “fair and reasonable tax” is similar to determining arm’s-length pricing (i.e., transfer pricing) under the requirements of I.R.C. § 482. The arm’s-length analysis provided in N.J. Admin. Code § 18:7-5.10 incorporates certain standards of I.R.C. § 482. See also N.J. Div. of Taxation, TAM 2012-1, “Intercompany Transfer Pricing and Advanced Pricing Agreements” (February 16, 2012).
How is nexus determined for corporate income tax purposes?
New Jersey employs a subjectivity standard for nexus under which a corporation will have nexus if it:
- derives receipts from sources within New Jersey;
- engages in contacts within New Jersey;
- does business in New Jersey;
- employs or owns capital or property in New Jersey; or
- maintains an office in New Jersey (N.J. Stat. Ann. § 54:10A-2; N.J. Admin. Code § 18:7-1.8; N.J. Div. of Taxation, TB-79(R), “Nexus for Corporation Business Tax” (August 13, 2015); N.J. Div. of Taxation, TAM 2011-6, “Foreign Corporations Subject to Tax” (January 10, 2011)).
The determination of whether a corporation is doing business in New Jersey is determined by the facts in each case, with consideration being given to:
- the nature and extent of the activities of the corporation in New Jersey;
- the location of its offices and other places of business;
- the continuity, frequency, and regularity of the activities of the corporation in New Jersey;
- the employment in New Jersey of agents, officers, and employees; and
- the location of the actual seat of management or control of the corporation (N.J. Admin. Code § 18:7-1.9(b)).
Is affiliate nexus recognized in your state? If so, to what extent? Has there been any notable case law in this area?
Affiliate nexus is recognized, to the extent that the subjectivity standard for nexus is otherwise satisfied. In Lanco Inc. v. Director, Division of Taxation, 188 N.J. 380 (2006), the New Jersey Supreme Court upheld the imposition of corporation business tax on a foreign corporation that did not have a physical presence in New Jersey, but derived income in New Jersey through a licensing agreement with a company conducting retail operations in the state. In AccuZIP Inc. v. Director, Division of Taxation, 25 N.J. Tax 158 (2009), the New Jersey Tax Court distinguished Lanco and held that sales of prewritten computer software to end users who signed a software license agreement constituted the sale of tangible property, not the licensing of intangible property, and was subject to P.L. 86-272 protection.
What are the applicable corporate income tax rates?
As of January 1, 2018 the base rate is:
- 9% on entire net income (ENI), or on the portion attributable to New Jersey, of more than $100,000;
- 7.5% for taxpayers with ENI of $100,000 or less but more than $50,000; and
- 6.5% for taxpayers with ENI of $50,000 or less (N.J. Stat. Ann. § 54:10A-5(c)(1)).
Temporary corporate surtax
For tax years beginning on or after January 1, 2018 and before January 1, 2022 there is also a corporate surtax, imposed as follows:
- 2.5% for taxpayers with allocated net income of over $1 million for periods beginning on or after January 1, 2018 through December 31, 2019 (11.5% effective rate); and
- 1.5% for taxpayers with allocated net income of over $1 million for periods beginning on or after January 1, 2020 through December 31, 2021 (10.5% effective rate).
Exemptions, deductions and credits
What exemptions, deductions, and credits are available?
Available credits include the following:
- Urban Enterprise Zone Tax Credit (Forms 300 and 301);
- Redevelopment Authority Project Tax Credit (Form 302);
- Recycling Equipment Tax Credit (Form 303);
- New Jobs Investment Tax Credit (Form 304);
- Manufacturing Equipment and Employment Investment Tax Credit (Form 305);
- Research and Development Tax Credit (Form 306);
- Small New Jersey-Based High-Technology Business Investment Tax Credit (Form 308);
- Health Maintenance Organization Assistance Fund Tax Credit (Form 310);
- Neighborhood Revitalization State Tax Credit (Form 311);
- Effluent Equipment Tax Credit (Form 312);
- Economic Recovery Tax Credit (Form 313);
- Alternative Minimum Assessment Tax Credit (Form 315);
- Business Retention and Relocation Tax Credit (Form 316);
- Sheltered Workshop Tax Credit (Form 317).
- Film and Digital Media Tax Credit;
- Urban Transit Hub Tax Credit (Form 319)
- Grow New Jersey Assistance Tax Credit (Form 320);
- Angel Investor Tax Credit (Form 321);
- Wind Energy Facility Tax Credit (Form 322);
- Residential Economic Redevelopment and Growth Tax Credit (Form 323);
- Business Employment Incentive Program Tax Credit (Form 324); and
- Public Infrastructure Tax Credit (Form 325)
The starting point for computation of taxable income is federal taxable income before net operating losses and special deductions (N.J. Stat. Ann. § 54:10A-4(k)). After certain enumerated additions are made to this amount, as set forth in N.J. Admin. Code § 18:7-5.2(a)(1), certain amounts are then deducted, including:
- the taxpayer’s New Jersey net operating loss carryover (N.J. Stat. Ann. § 54:10A-4(k)(6));
- 95% of dividends received from subsidiaries in which the taxpayer has an 80% or more ownership interest (N.J. Stat. Ann. § 54:10A-4(k)(5)(A));
- 50% of the dividends described in N.J. Admin. Code § 18:7-5.2(a)(2)(ii);
- depreciation on property as described in N.J. Admin. Code § 18:7-5.2(a)(2)(iii) and (iv);
- gain or loss on the physical disposal of recovery property as described in N.J. Admin. Code § 18:7-5.2(a)(2)(v);
- certain income included in federal taxable income solely as a result of a “safe harbor leasing” election made under I.R.C. § 168(f)(8), as described in N.J. Admin. Code § 18:7-5.2(a)(2)(vi);
- certain amounts by banking corporations that are operating an international banking facility as part of their business, as described in N.J. Admin. Code § 18:7-5.2(a)(2)(vii); and
- for tax periods beginning on or after January 1, 2014 and before January 1, 2019, the amount of discharge of indebtedness income included for federal income tax purposes, pursuant to I.R.C. § 108(i) (N.J. Admin. Code § 18:7-5.2(a)(2)(viii)).
See generally N.J. Stat. Ann. § 54:10A-4(k).
Exemptions are not separately provided for under the corporation business tax.
What filing requirements and procedures apply? Are there special filing requirements for groups of company?
Filing requirements and procedures
C corporations must file returns on an annual basis. The filing deadline is on or before the 15th day of the fourth month after the close of the corporation’s tax year (N.J. Stat. Ann. § 54:10A-15). Taxpayers must make estimated tax payments in four installments of 25% of the total estimated tax due for the tax year (N.J. Stat. Ann. § 54:10A-15(f)). For tax years beginning on or after January 1, 2016 all taxpayers and tax preparers must file corporation business tax returns and make payments electronically (N.J. Admin. Code § 18:7-11.19).
Mandatory combined reporting effective January 1, 2019
For tax years beginning before January 1, 2019 corporations are not generally permitted or required to file combined returns or consolidated returns in New Jersey, except under certain circumstances (N.J. Stat. Ann. § 54:10A-10(c)).
For tax years beginning on or after January 1, 2019, New Jersey corporations with 50% or more common ownership that are engaged in a unitary business must file on a combined basis. The combined group is generally determined on a “water’s-edge” basis, but the managerial member of the combined group may instead elect to have the combined group be determined on a worldwide or affiliated group basis. Insurance companies, other than certain combinable captive insurance companies, need not be included in the combined return (A. 4202, 218th Leg., Reg. Sess. (N.J. 2018)).
Corporate franchise tax
Does your state impose a corporate franchise tax? If so, is it imposed in lieu of or in addition to corporate income tax?
If your state imposes a corporate franchise tax, please stipulate:
(a) The applicable tax base.
(b) Tax rates.
(c) Any exemptions or deductions.
(d) Filing formalities.
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