On July 3, 2023, New Jersey Governor Phil Murphy signed A.B. 5323 into law to amend New Jersey’s Corporation Business Tax (CBT). The 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.