New Jersey issues guidance on combined filing methods

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June 2019

UPDATE: The Tax Bulletin was updated on June 28, 2019, to clarify that as long as one member in a combined group has nexus and sufficient activities in New Jersey to be taxed based on income, no member that has nexus with the state may claim protection under the federal Interstate Income Act of 1959 (P.L. 86-272).


The New Jersey Division of Taxation on May 21 issued TB-89, Combined group filing methods, which provides reporting guidance for the three types of combined return filing methods required for taxpayers with tax years ending on and after July 31, 2019: water’s-edge, world-wide, and affiliated groups.

The guidance includes Joyce vs. Finnigan allocation methodologies, disregarded entity attributions when determining group members, nexus considerations, foreign entity treatment, and other group filing matters.

The takeaway

The Division is expected to codify the guidance in TB-89, as well as the guidance in its other recently issued TB’s, in draft regulations (possibly first in the form of emergency/temporary regulations). In the meantime, taxpayers should evaluate their New Jersey filing positions and determine which combined filing method is most advantageous, keeping in mind the nuances associated with each method.

One unsettled matter expected to generate controversy relates to what extent a foreign (non-US) entity’s activities are subject to tax in combined reporting years (e.g., effectively connected income vs. worldwide treatment).  More specifically, where a non-US entity is included in a water’s-edge combined return or has a stand-alone New Jersey filing obligation, application of the Infosys and IBM decisions is unsettled. As regulations are proposed, this matter is expected to receive greater attention.

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Peter Michalowski

Peter Michalowski

State and Local Tax Leader, PwC US

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