News and Insights

Important Reversal Creates New Jersey Refund Opportunity

Tax Development Apr 22, 2022

Important Reversal Creates New Jersey Refund Opportunity

When New Jersey moved to implement combined reporting in 2018, the Division of Taxation (“the Division”) interpreted the statute to allow determination of P.L. 86-272 protections1 on a group level, not on an individual member level. This led the department to establish a policy of denying the protections of an 86-272 position to the entire group, if one member of the group exceeded the protected activities. 

The Division had stated in the instructions for the 2019, 2020, and 2021 CBT-100U returns and in multiple Technical Bulletins that “[i]f 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 New Jersey may claim P.L. 86-272 protection.” This approach was viewed as an end run around the Interstate Income Act, which protected businesses from state taxation where the only business activity is the solicitation of sales of tangible personal property.

On April 12, 2022, in response to public pushback, New Jersey reversed this position and stated that it will retroactively determine P.L. 86-272 status on a member-by-member basis, not on the group level. Following a Joyce2 method of determining nexus more closely follows the statute enabling combined reporting. 

Instructions and guidance in Technical Bulletins will be revised to state the following: Although a combined group is a taxpayer and taxed as one taxpayer pursuant to N.J.S.A. 54:10A-4(h) and N.J.S.A. 54:10A-4(z), for the purposes of N.J.S.A. 54:10A-4.7(a), P.L. 86-272 protection for a member will be determined on an entity-by-entity basis.

Who Can Benefit from This Development?

This reversal of position opens refund opportunities for all corporate income tax returns filed for years reported under the new combined reporting regime, beginning with the tax year ended on or after July 31, 2019.

How Ryan Can Help

Ryan experts can assist in determining whether a member of your unitary group would be protected from New Jersey income tax pursuant to P.L. 86-272, possibly providing an opportunity for a refund claim. Please contact the Ryan expert listed below who can help you determine if you’re eligible for a refund claim.


William Pardue

1 P.L. 86-272 (15 U.S.C. § 381–384 provides that a state cannot impose an income tax on a seller of tangible personal property if that seller’s contact with the state is only the solicitation of the sale. See Wisconsin Department of Revenue v. William Wrigley, Jr. Co. 505 U.S. 214 (1992)).
2 In the Matter of the Appeal of Joyce, Inc., 66-SBE-070, November 23, 1966.

The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at