Publicly-traded companies and their affiliates whose deferred tax positions are adversely affected because of New Jersey's transition to mandatory combined reporting can claim a Net Deferred Tax Liability Deduction. In order to be able to claim the deduction, New Jersey Form DT-1 must be filed by July 1, 2020.
Background
New Jersey legislation enacted in 2018 mandated combined reporting for privilege periods ending on and after July 31, 2019, or beginning on and after Aug. 1, 2018, if a full 12-month privilege period of the managerial member begins Aug. 1, 2018, and ends July 31, 2019.
Some public company financial statements may be negatively impacted because of the transition from separate reporting to combined reporting. In recognition of those taxpayers, New Jersey has implemented relief in the form of a Net Deferred Tax Liability Deduction. The deduction is available to publicly-traded companies with deferred tax positions negatively affected by the transition to combined reporting.
A deferred tax position is considered negatively affected if it results in an aggregate increase to the members’ net deferred tax liability, an aggregate decrease to the members’ deferred tax assets, or an aggregate change from a net deferred tax asset to a net deferred tax liability. If the change negatively affects the deferred tax positions of publicly-traded companies, the combined group will be entitled to a deduction to be taken in equal amounts over a 10-year period beginning on or after Jan. 1, 2023.
Claiming the deduction
In order to claim the deduction, taxpayers must complete Form DT-1, New Jersey Corporation Business Tax Statement of Net Deferred Tax Liability Deduction, on or before July 1, 2020. The New Jersey Division of Taxation will not allow an extension of time to file Form DT-1. The form and any riders must be electronically submitted. The division will not accept Form DT-1 through the mail.
Takeaways
Because of New Jersey’s transition to combined reporting, public companies may have an increase in net deferred tax liabilities, or a decrease in net deferred tax assets. The state is offering a one-time opportunity to account for those changes, but taxpayers must act quickly to preserve their right to the deduction. Affected taxpayers should carefully review Form DT-1 and the accompanying instructions as important nuances exist for calculating the total eligible deduction. The Net Deferred Tax Liability Deduction will not be available if a properly completed Form DT-1 is not timely filed by July 1, 2020. Taxpayers should reach out to their New Jersey tax advisers with questions.
