New Jersey provides Section 965 and GILTI/FDII guidance

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January 2019

Overview

Guidance for reporting IRC Section 965 amounts in New Jersey has changed following the December 31, 2018, introduction of Form CBT-DIV 2017 Supplemental. Prior to the Supplemental, taxpayers had been required to file an amended CBT-100 along with a CBT-DIV 2017 to account for recent law changes regarding the state’s dividends received deduction and its application to IRC Section 965. Taxpayers that have not filed the CBT-DIV 2017 now may file only the CBT-DIV 2017 Supplemental without having to file an amended CBT-100. The CBT-DIV 2017 Supplemental is due by January 31, 2019, or within 30 days of an extension, whichever is later.

The New Jersey Division of Taxation also released guidance regarding GILTI and FDII, concluding that neither GILTI nor FDII qualify for the state’s dividends received deduction and that taxable GILTI and FDII amounts are subject to a special allocation factor. It remains uncertain how the Division intends for taxpayers to report FDII.

The takeaway

Regarding the treatment of FDII, the Division appears to view FDII as a “new category of gross income for federal tax purposes” and will subject FDII to the CBT.  It remains unclear how the state will require taxpayers to report the amount of FDII income since FDII is not a new category of gross income, but rather is an estimate of a taxpayer’s deemed foreign derived intangible income for purposes of providing a deduction under Section 250.   

Moreover, the requirement that a taxpayer must actually take the Section 250 deduction for federal tax purposes should not be overlooked and is fraught with uncertainties, especially for 2018, a year for which separate returns are required. 

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Peter Michalowski

Peter Michalowski

State and Local Tax Leader, PwC US

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