United States

New Jersey enacts GILTI legislation, provides guidance on 965

TAX ALERT  | 

On Oct. 4, 2018, New Jersey Gov. Phil Murphy signed Assembly Bill 4495 into law making a number of technical corrections and other changes to the state’s tax code.

Technical corrections and additions

Assembly Bill 4495 provides additions and technical changes to legislation enacted earlier in the year through Assembly Bill 4202. Some of those changes and additions are highlighted below:

  • Updates the corporate business tax (CBT) surtax tax base to provide that “allocated entire net income” means entire net income for privilege periods ending before July 31, 2019, and taxable net income for privilege periods ending on and after July 31, 2019. Clarifies that the term “taxpayer” means a business entity that is subject to the CBT.
  • The addback modification related to intercompany intangible and interest payments does not apply to transactions between related members included in a New Jersey combined return
  • Previously enacted, Assembly Bill 4202 reduced the dividends received deduction from 100 percent to 95 percent for CBT taxpayers that owned 80 percent or more of the stock of a subsidiary. Assembly Bill 4495 provides additional guidance to calculate the non-deductible portion of the dividend for periods beginning on or after Dec. 31, 2016 and before Jan. 1, 2019
  • The combined filing mandate and net operating loss (NOL) carryforward rules apply to privilege periods ending on or after July 31, 2019
  • CBT allowable reductions for investment in capital stock for purposes of calculating “net worth” is reduced to 50 percent
  • The CBT minimum tax for each member of a combined group filing a mandatory or elective combined CBT return will be $2,000
  • New Jersey conforms to section 250 of the Internal Revenue Code allowing taxpayers to claim a New Jersey corporation business tax (CBT) deduction equal to 50 percent of global intangible low-taxed income (GILTI) or foreign derived intangible income (FDII)
  • For privilege periods beginning after Dec. 31, 2016 and before Jan. 1, 2019, taxpayers with paid or deemed paid dividends, including repatriated income under section 965, included in entire net income, shall use (1) the average of the taxpayers’ three-year allocation factor for tax years 2014 through 2016 or (2) 3.5 percent, whichever is lower.
  • Changes to net operating loss deductions, carryovers periods, deduction limitations, and application of pre-allocated net operating losses
  • Changes to effective dates of a number of the provisions amended by Assembly Bill 4202, including the DRD, combined filing, and market-based sourcing

New Jersey tax credits

Under Assembly Bill 4495, if a taxable member of a combined group earns a tax credit in a privilege period beginning on or after the first day of the initial privilege period for which a combined unitary tax return is required, then the taxable member may share the credit with other taxable members of the combined group. Any amount of credit that is utilized by another taxable member of the combined group shall reduce the amount of credit carryover that may be carried over by the taxable member that originally earned the credit. This is specific to credits and may not be applicable to other attributes.

Assembly Bill 4495 also states that credit carryover that was generated by a member of the combined group prior to the first day of the privilege period for which a combined unitary tax return is required then the taxable member may share the carryover credit with other taxable members of the combined group.

Finally, the bill clarifies that “gross income” under the gross income tax does not include gains or income from the sale or assignment of a tax credit transfer certificate under the Grow New Jersey Assistance Program, for any sale or assignment of a tax credit approved by the EDA on or prior to July 1, 2018, irrespective of the date the sale or assignment occurs.

Other recent New Jersey tax developments

Section 965 guidance

On Oct. 5, 2018, the New Jersey Division of Taxation released long-anticipated guidance on section 965. Recall that the state previously decoupled from section 965 and now allows a dividend exclusion of 95 percent for certain taxpayers. The guidance explains that the law permits exclusion of dividends if the taxpayer’s subsidiary received those same dividends from other lower-tiered subsidiaries that filed and paid tax to New Jersey in the same tax year. Businesses affected by the changes must amend their 2017 Form CBT-100 or Form BFC-1 by filing Form CBT-DIV 2017. The form is due by Jan. 31, 2019

“Wayfair standards”

New Jersey also followed up on recent division guidance by enacting several provisions related to remote sellers. Read more about those provisions here.

Takeaways

In the past three months, New Jersey has enacted sweeping changes to the corporation business tax, gross income tax and sales and use tax. Please read our alert, New Jersey fiscal year 2019 budget enacted for more information on some of those earlier changes. Taxpayers with various tax obligations should consult with their state tax advisers. 

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