The release of New Jersey Technical Bulletin 861 clarifies the nexus policy to be followed in the state’s new combined reporting regime, effective for privilege periods ending on or after July 31, 2019. Each member that has nexus with New Jersey is subject to the $2,000 minimum tax. If one member in the 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 P.L. 86-272 protection.
This policy appears to violate the intent of P.L. 86-272, which prohibits a state from imposing an income tax on an entity whose only activities in the state involve solicitation of tangible personal property. This will result in the New Jersey sales of a member that was immune from the Corporation Business Tax under separate reporting rules now being included in the numerator of the sales fraction used to apportion income of the combined group.
Business entities that are disregarded for federal purposes will also be treated as disregarded for purposes of the New Jersey Corporation Business Tax. The tax attributes of the disregarded entity are reported by the member of the combined group that owns the entity. The disregarded entity is not subject to the $2,000 minimum tax.
In addition, New Jersey S Corporations that do not elect inclusion in the combined group will be required to pay the minimum tax if they are part of an affiliated or controlled group that has a total payroll of $5,000,000 or more.
1 New Jersey, Division of Taxation, Technical Bulletin 86, Included and Excluded Business Entities in a Combined Group and the Minimum Tax of a Taxpayer That Is a Member of a Combined Group (Issued January 3, 2019).
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