New Jersey has made a number of significant changes to their tax law. Importantly, upon passing Assembly Bill A4202 last July, the state of New Jersey will soon require a combined taxpayer group to file one singular state return. The new filing requirement begins for tax years ending on or after July 31, 2019. In addition, the state has made changes to important tax rates as well as to its receipts factor sourcing rules. Below outlines what taxpayers need to know.
Combined New Jersey Filing
What Is a Combined Group Under New Jersey’s New Law?
A combined group is one in which:
- There is common ownership, represented by 50% or more voting control for each member either directly or indirectly, and
- Unitary group members are sufficiently interdependent, integrated and have interrelated activities that provide synergies and mutual benefit.
Who Should Be Included in the Combined Tax Return?
A combined return should include the following entities:
- LLCs (those not treated as partnerships)
- Federal S Corporations and Qualified Subchapter S Subsidiaries (QSSS) that have not made a separate New Jersey S Election
- New Jersey S Corporations and QSSSs that have made a separate New Jersey S Election but elect to be treated as part of the combined group.
Additional Facts for Combined Filing
- Each member of the group is subject to the $2,000 minimum tax, unless the member does not have nexus.
- A managerial member of the group must be chosen and will register online. A managerial member will most often be the common parent of the combined group. If a common parent is not part of the group, then the managerial member selected should be a taxable member of the combined group, i.e., subject to New Jersey tax.
- Registration may be completed on the New Jersey Division of Revenue’s website.
- During the registration process, the managerial member will be assigned a New Jersey tax identification number specific to combined reporting. This identification number must be used by the managerial member to file returns and pay estimates and extensions for the combined group.
- The managerial member is responsible for making payments on behalf of the taxable members; however, “each taxable member of a combined group will be held jointly and severally liable for the corporation business tax due from any taxable member, whether or not that tax has been self-assessed, and for any interest, penalties or additions to tax due” (N.J. Rev. Stat. 54:10A-4.8(c)).
- A water’s edge election will be presumed to be made by the group unless specified otherwise by the managerial member.
- The following entities are required to file separate New Jersey returns, as the statute does not specifically address them: Real Estate Investment Trusts (REITs), Regulated Investment Companies (RICs) and investment companies.
Other Important New Jersey Tax Changes
New Jersey Tax Rate Changes
- Effective for tax year 2018, the top tax rate is 10.75%, which is up from 8.97% in 2017. The top rate is also applied to income reported on non-resident New Jersey composite tax returns.
- C Corporations will be assessed a surcharge of 2.5% on New Jersey taxable net income in excess of $1 million for tax years beginning on or after January 1, 2018, through December 31, 2019. The surcharge is then reduced to 1.5% for tax years beginning on or after January 1, 2020, through December 31, 2021.
New Jersey Receipts Factor Sourcing
- New Jersey has traditionally sourced services using a cost of performance method or where the service was performed.
- Effective for tax years beginning after 2018, sales of services will be sourced to New Jersey if the benefit of the service is received in the state, also known as the market-based sourcing method.
- If the state in which the benefit is received cannot be determined, New Jersey provides the following:
- For individual customers, the benefit of the service is deemed to be received at the customer’s billing address;
- For any other customer, the benefit of the service is deemed received at the location from which the services were ordered in the customer’s regular course of operations; and
- If the location from which the services were ordered in the customer’s regular course of operations cannot be determined, the benefit of the service is deemed to be received at the customer’s billing address.
- Receipts from the services of a registered securities or commodities broker or dealer and receipts from asset management services are sourced to New Jersey if the customer is in New Jersey.
Please contact a member of your service team or Hannah Prengler at firstname.lastname@example.org for further discussion.
Cohen & Company is not rendering legal, accounting or other professional advice. Information contained in this post is considered accurate as of the date of publishing. Any action taken based on information in this blog should be taken only after a detailed review of the specific facts, circumstances and current law.