United States

New Jersey to revise GILTI and FDII guidance

TAX ALERT  | 

On Aug. 20, 2019, the New Jersey Division of Taxation rescinded Technical Bulletin TB-85, guidance relating to the state’s conformity to section 951A, global intangible low-taxed income (GILTI), and section 250, foreign derived intangible income (FDII).

The division replaced the bulletin with a message explaining that taxpayers must report the GILTI income and the FDII income and corresponding section 250(a) deductions on Schedule A – taxes paid to other jurisdictions. The division further explains that Schedule J must include the net amount of the GILTI in the denominator and the net FDII income amounts in the numerator and denominator in order to “prevent distortion to the allocation factor and arrive at a reasonable and equitable level of New Jersey tax.”

TB-85, originally issued Dec. 21, 2018, would have required corporate taxpayers filing a CBT-100 or BFC-1 to calculate the portion of GILTI and FDII subject to New Jersey tax based on a separate special accounting method. The allocation factor for computing the tax on net GILTI and net FDII amounts would have been equal to the ratio of New Jersey's gross domestic product (GDP) over the total GDP of every U.S. state (and the District of Columbia) in which the taxpayer has economic nexus.

Many observers considered the now obsolete guidance controversial and unlike any other state approach. Several tax policy groups and taxpayers advocated for the state to review its position, arguing that the ratio of New Jersey’s GDP to the GDP of all states in which the taxpayer has economic nexus did not accurately reflect the activity producing the GILTI or its relation to New Jersey.

Takeaway

It is anticipated that the state will issue new guidance within the week. The announcement should be a relief to taxpayers as the GILTI income and corresponding deduction under section 250(a) will no longer be reported and taxed as separately apportioned items. It is unclear whether the state will issue an updated CBT return to reflect the revised treatment of GILTI and the 250(a) deduction. Taxpayers may consider waiting for additional guidance from the state in order to reduce the burden of filing additional forms for the current tax year or amended returns. Taxpayers conducting business in New Jersey that could be affected by the announcement are encouraged to contact their state and local tax adviser.

For RSM’s previous coverage of New Jersey international tax developments, please read our articles, New Jersey enacts GILTI legislation, provides guidance on 965 and New Jersey ends 2018 with simplified process for section 965 reporting.

Please read this recent article on the federal proposed GILTI regulations, IRS releases final and new proposed GILTI and Subpart F regulations.

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