New Jersey accelerates combined reporting, taxes GILTI

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October 2018

Overview

Enacted on October 4, A4495 implements several changes to the New Jersey Corporation Business Tax (CBT), including:

  • accelerating combined reporting and market-based sourcing to privilege periods ending on and after July 31, 2019
  • adopting IRC Section 250 deductions for GILTI and FDII
  • modifying the dividend received deduction (DRD) to extend the special apportionment provisions to the 2018 tax year 
  • reinstating the provision that DRDs do not enter into the computation of net operating losses (NOLs).

Several items summarized below reflect changes to A4202, enacted on July 1, 2018, which imposed mandatory combined reporting, created a temporary surtax, and decoupled  from certain federal tax reform provisions. 

Unless otherwise noted, the provisions of A4495 apply to tax years beginning on and after January 1, 2018.

The takeaway

After months of speculation regarding how New Jersey will treat GILTI, it appears with the acknowledgment of the IRC Section 250 deduction that the state will include GILTI in the CBT tax base.

Notably, the legislation did not address whether GILTI should be included in the receipts factor. However, the governor instructed the Division to provide discretionary relief to avoid distortion. It is not clear what form of discretionary relief will be provided, leaving taxpayers unsure how much CBT will be due on their GILTI. Permitting the IRC Section 250 deduction is a step in the right direction for taxpayers.  

Taxpayers should consider whether the IRC Section 250 deduction limitation to taxable income is measured on a separate-company or combined basis.  If the Division does not apply the limitation to the combined group, the IRC Section 250 deduction taken on the federal consolidated return may differ from the amount permitted in New Jersey.

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Peter Michalowski

Peter Michalowski

State and Local Tax Leader, PwC US

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