On December 19, 2008, New Jersey Governor Jon Corzine signed Assembly Bill A2722 (Senate Bill No. 3) into law, repealing the Throwout Rule for New Jersey corporation business tax apportionment purposes, effective for tax years beginning after June 30, 2010. The Throwout Rule increased the New Jersey receipts factor by requiring corporations with a taxable presence in New Jersey to exclude any sales from the denominator of their sales apportionment factor if the sales originated in New Jersey and were attributable to any state, the District of Columbia, or a foreign country in which the taxpayer was not subject to tax measured by profits, income, business presence, or business activity, consequently increasing the taxpayer’s income apportioned to New Jersey. This included both states without a corporate income tax and states where taxpayers had no taxable presence. Tax years 2002 through 2010 are open years for potential “Throwout” cases. Corporate taxpayers who believe that application of the Throwout Rule resulted in improper apportionment should request a discretionary adjustment of the apportionment formula, provided it can be shown an unfair distortion of taxable income has resulted.
In addition to ending the Throwout Rule, the legislation also eliminated the “regular place of business” requirement, a provision that required a corporation to have a regular place of business in another state in order to apportion less than 100% of its income to New Jersey. For tax years beginning after June 30, 2010, corporate taxpayers will be able to apportion their income to other states where they have sales and/or personnel working, even if they have no formal place of business or physical presence in those states.
In another piece of legislation passed prior to the repeal of the Throwout Rule and “regular place of business” requirement, net operating losses can be carried forward 20 years instead of seven on Corporation Business Tax returns for full or stub-period tax years ending after June 30, 2009. This change to the law brings New Jersey in line with the practices of the nearby states of New York, Pennsylvania, Delaware, and Connecticut. As under the old law, losses may not be carried back.
Ryan can assist clients in compliance and planning issues arising from changes to the laws concerning corporate taxation in New Jersey and will continue to monitor any changes to the laws and regulations as they occur.
