New Jersey Enacts Significant Changes to Corporation Business Tax Law

On July 3, 2023, New Jersey Governor Phil Murphy signed A.B. 5323 into law to amend New Jersey’s Corporation Business Tax (CBT). seal-of-new-jersey_800-300x300The bill enacted a variety of clarifications, corrections and modifications to the CBT.

The bill includes substantive amendments to CBT provisions, such as:

  • Economic Nexus Threshold: The bill enacts a new nexus provision imposing tax on corporations deriving more than $100,000 New Jersey source receipts or 200 transactions delivered to New Jersey customers.
  • Revisions to the New Jersey Corporate Income Tax Base:
    • Increased GILTI subtraction: The bill increases the subtraction for Global Intangible Low-Taxed Income (GILTI) by defining gross GILTI (before the 50% deduction under IRC § 250) as a dividend for purposes of New Jersey’s 95% dividends received deduction (DRD). Taxpayers could previously subtract 50% of net GILTI (after the IRC § 250 deduction).
    • Exemption for treaty-protected income: The bill exempts income of corporations formed in countries with a comprehensive tax treaty with the United States that exempts such corporations from federal income tax.
    • Prioritizing Net Operating Losses over DRDs: The bill allows taxpayers to deduct net operating losses (NOLs) before New Jersey’s DRD, thus accelerating NOL deductions and allowing DRDs to generate NOLs.
    • Eliminating related party addbacks: The bill sunsets the related party addback provisions for related party interest and income from intangibles.
  • Revisions to Combined Reporting Rules:
    • Expand Water’s-Edge Group Membership: Under the bill, New Jersey combined groups include non-United States corporations to the extent of their United States effectively connected income.
    • Adopt Finnigan Combined Group Apportionment: The bill requires combined groups to include all group members’ New Jersey sales in the sales factor numerator (i.e., a Finnigan apportionment approach).
    • Pooling of prior NOL conversion and NOLs: The bill enacts provisions allowing combined groups to track and apply NOLs on a combined basis, which permits group members to share and accelerate utilization of NOLs.

The bill is A. 5323, 220th Leg., Reg. Sess. (N.J. 2023) and can be found here. The bill is summarized in New Jersey Technical Bulletin TB-107 (July 11, 2023), which can be found here.