The New Jersey Division of Taxation on August 10 adopted new regulation N.J.A.C. 18:7-8.10A, which implements market-based sourcing provisions for the sale of services. Those provisions had taken effect for privilege periods ending on or after July 31, 2019. [N.J.A.C 18:7-8.10A, NJ Register, Vol, 52, Issue 17, (09/08/20)]
The new regulation provides several examples where a “look through” approach is used to source receipts to a customer’s customer (broadcasters, payroll service providers, prescription fulfillment services, etc.). The application of “look through” in other contexts remains uncertain.
Like most states that have adopted market-based sourcing, New Jersey provides that sourcing can be based upon the information contained in the contract with the customer. Consideration should be given as to whether contractual language can appropriately be modified to include where the benefit of the service is received.
Lastly, New Jersey’s requirement that a business customer have a “regular place of business” in order for receipts to be sourced to New Jersey may bring back prior New Jersey controversies regarding the definition and application of the regular place of business concept. Recall that for tax years beginning prior to July 1, 2010, New Jersey used the regular place as business as the prerequisite to apportionment.