New Jersey adopts new rules on combined reporting and other significant tax issues

UPDATE: On December 1, 2022, the Division posted the following on its website: “For taxpayers filing on a world-wide group basis, the income from foreign corporations and foreign non-corporate entities is included in entire net income without regard to any treaty protections. The application of treaty protections to a world-wide group is contrary to the legislative intent in providing a world-wide election which was to tax the world-wide group on all of its global income regardless of whether or not the jurisdiction where the income is earned is subject to a tax treaty with the United States.”

In brief

New Jersey on September 19 adopted several regulatory amendments and new rules involving combined reporting, net operating losses, GILTI, and other tax issues. Significant changes are summarized below.

The regulatory changes generally follow certain New Jersey law changes and formally adopt guidance that had been provided in a series of Technical Bulletins published after enactment of the legislative changes. The primary law changes involve the following:

• P.L. 2018, c. 48; A.4202 (enacted 7/1/18). Click here for our Insight. 
• P.L. 2018, c. 131; A.4495 (enacted 10/4/18). Click here for our Insight.
• P.L. 2020, c. 118; A.4809 (enacted 11/4/20). Click here for our Insight.

Observation: While the stated effective date of the new regulations is September 19, 2022, additional guidance is needed as to whether changes are intended to apply on that date, to tax years beginning or ending after that date, retroactively to the beginning of combined reporting, or some other date. In certain cases the associated statute may provide some guidance (as in the case for certain NOL rules), but other issues are not as clear (such as treaty conformity). Taxpayers should consider potential uncertainty of effective dates as they evaluate how they are impacted by the regulations. 

The takeaway: Taxpayers benefiting from New Jersey’s change in policy to follow federal treaty protection may wish to consider filing refund claims if treaty protected income was added back on their original New Jersey CBT return. Taxpayers negatively impacted by this change in policy should consider requesting a change in filing method or discretionary apportionment relief from the Division. Finally, taxpayers should analyze issues not specifically addressed by the regulations or other guidance, such as how federal NOL limitations apply to New Jersey unitary combined groups.