United States: New Jersey Amends Combined Reporting, Adopts Marketplace Facilitator Law

As part of Governor Murphy's efforts to "modernize" business taxes,1 New Jersey enacted sweeping changes to its corporation business tax ("CBT"), including combined reporting and market sourcing for services.2 Yesterday, Governor Murphy signed two bills into law that further change the business tax landscape: A4495, which provides additional changes to the CBT; and A4496, which imposes sales and use tax on remote sellers and marketplace facilitators in light of the Supreme Court's decision in South Dakota v. Wayfair.3


As originally enacted, New Jersey's combined reporting law contained a number of ambiguities. The New Jersey Legislature addressed some of these ambiguities by passing a "technical corrections" bill, which was designated as A4495. Yesterday, Governor Murphy signed A4495 into law. The new law provides more than mere technical corrections, however, and includes a number of substantive changes. Below is an overview of A4495's substantive and technical corrections, as well as a summary of the marketplace facilitator bill (A4496) that Governor Murphy also signed into law.

Substantive corporate tax changes

New Jersey Taxes Global Intangible Low-Taxed Income ("GILTI"). A summer that saw New Jersey switch from a separate reporting state to a combined reporting state—see our prior coverage—is now capped off by New Jersey enacting a law whereby it becomes the first state to tax GILTI.4

As a result of last year's federal Tax Cuts and Jobs Act, I.R.C. § 951A requires shareholders of controlled foreign corporations ("CFCs") to include any GILTI for a taxable year in their federal gross income.5 GILTI is defined as: the shareholder's net CFC tested income for a taxable year over the shareholder's net deemed tangible income return for the taxable year.6 Essentially, GILTI is included in gross income if the shareholder's income from CFCs is greater than a 10% return on depreciable CFC assets.

At the federal level, there is a corresponding foreign-derived intangible income deduction ("FDII").7 Specifically, section 250 of the I.R.C. permits taxpayers to deduct 50% of GILTI included in gross income for a taxable year.8 Through A4495, New Jersey has coupled to the federal treatment of GILTI and the FDII deduction. Taxpayers must include GILTI in their line 28 taxable income, but are allowed a corresponding deduction "in the amount of the full value of the deduction" that they were allowed for federal income tax purposes.9

It is unclear from the plain language of the statute whether GILTI is included in the numerator or denominator of the taxpayer's sales fraction for apportionment purposes and, if it is included, whether it is included on a gross or net basis. But in his statement accompanying A4495, Governor Murphy noted that GILTI "may disproportionately impact certain New Jersey taxpayers."10 To assuage those concerns of taxpayers, Governor Murphy stated that the Division "assured" him that the Director "maintains the discretion under existing law to provide relief to individual CBT taxpayers when appropriate to ensure the taxpayer's CBT obligation fairly reflects its liability."11 This discretion follows from N.J.S.A. 54:10A–8, which allows the Director to adjust a taxpayer's allocation factor to properly reflect the activity, business, receipts, capital, or entire net income of a taxpayer reasonably attributable to New Jersey.12 Any taxpayer impacted by the GILTI inclusion should consider seeking apportionment relief under N.J.S.A. 54:10A–8.

Net Operating Loss and Dividend Received Deduction. Historically, in computing their CBT, taxpayers had to apply any available net operating losses ("NOLs") before the dividends received deduction ("DRD").13 In effect, the receipt of a dividend reduced the amount of a taxpayer's NOL carryforwards. New Jersey taxpayers and tax practitioners rejoiced upon seeing the provision in P.L. 2018, c.48 that reversed this decades-old NOL policy.

Unfortunately, as a result of A4495, New Jersey will revert back to its prior NOL policy in that taxpayers must again apply NOLs before their DRD. While this change is disappointing, New Jersey has very taxpayer-friendly case law on the scope of the unitary business principle.14 Therefore, despite this change, taxpayers may be able to take the position that their dividends are nonunitary and thus excludable from the CBT tax base entirely.

Utility Exclusion from Combined Reporting Broadened. P.L. 2018, c.48 specifies how taxable members of combined groups determine their share of the group's income. The law provides an exclusion for electric or gas companies whose rates are regulated, in whole or in part, by the Federal Energy Regulatory Commission, the New Jersey Board of Public Utilities or a similar regulatory body of another state.15 That is, corporations regulated for rates charged to customers for electric or gas are not allocated a share of the group's income. Regulated water and wastewater companies were not specifically exempted, however, despite the fact that those companies are exempt from CBT.16 It was thus ambiguous whether regulated water and wastewater companies could be taxed on their share of a combined group's income. A4495 resolves this ambiguity by extending the exclusion for regulated utilities to corporations that provide "water and wastewater services."17

Technical corrections

Dividends Received Deduction. As signed into law, P.L. 2018, c.48 did not allow fiscal year taxpayers whose privilege period began before 12/31/2016 but ended after 12/31/2016 a DRD. A4495 corrects this inequity.18

Net Operating Losses. It was unclear under P.L. 2018, c.48 whether taxpayers were entitled to an NOL deduction in 2018. (Reading the statute literally, they were not.)19 A4495 makes clear that taxpayers can claim an NOL deduction in 2018.20

Prior Net Operating Loss Conversion Carryover ("PNOLCC"). Prior to P.L. 2018, c.48, taxpayers computed their NOL carryforward and deduction on a pre-apportioned basis.21 After combined reporting goes into effect for tax years ending on and after July 31, 2019, NOLs will be computed on a post-apportioned basis.22 To implement this switch, P.L. 2018, c.48 permits two NOL deductions: a PNOLCC and an NOL.

The PNOLCC is a "net operating loss incurred in a privilege period prior to the effective date of P.L. 2018, c.48 . . . converted from a pre-allocation net operating loss to a post-allocation net operating loss."23 In converting an NOL from a pre-allocation NOL to a post-allocation NOL, the statute provides a formula:

The taxpayer shall first calculate the tax value of its UNOL for the base year and for each preceding privilege period for which there is a UNOL. The value of the UNOL for each privilege period is equal to the product of (I) the amount of the taxpayer's UNOL for a privilege period, and (II) the taxpayer's base year BAF. This result shall equal the taxpayer's prior net operating loss conversion carryover.24

As originally enacted, it was unclear whether the base year for calculating the unabsorbed NOL ("UNOL") was 2017 or 2018. A4495 resolves this ambiguity by clearly specifying that 2018 is the UNOL base year.25

Effective Dates. A4495 changes the operative dates for certain sections of P.L. 2018, c.48. Most importantly, A4495 specifies that combined reporting is effective for tax years ending on and after July 31, 2019.26

Remote seller & marketplace facilitator law

With the passage of A4496, New Jersey expanded its sales and use tax collection power in two important ways. First, A4496 imposes a tax collection obligation on remote sellers satisfying one of two economic indicia:

  1. Exceeding $100,000 in "gross revenue" from the sale of tangible personal property, specified digital products, or taxable services;27 or
  2. Making 200 or more "separate transactions" for the sale of tangible personal property, specified digital products, or taxable services for delivery to New Jersey.28
    This change in law comes on the heels of the United States Supreme Court's decision in South Dakota v. Wayfair,29 which upheld South Dakota's "economic nexus" standard and abrogated the "physical presence" standard previously required under National Bellas Hess v. Illinois30 and Quill Corp. v. North Dakota.31 New Jersey's economic nexus standard is identical to South Dakota's.

The second change—which involves a situation not addressed in any way by the Wayfair decision—is to impose a tax collection obligation on "marketplace facilitators."32 A "marketplace facilitator" is a person who "facilitates a retail sale of tangible personal property, specified digital products, or taxable services" by, among other things, providing a platform for sellers to list items for sale and collecting payment for those sales.33 With this law change, New Jersey joins several other states that seek to impose a tax collection obligation on platforms.


  1. New Jersey, Budget in Brief, Phillip D. Murphy, p. 21, available at nj.gov ("Fiscal 2019 revenues are projected to grow . . . . Included in this growth are revenues resulting from several anticipated tax law changes. These changes will modernize and broaden New Jersey's tax base . . . .").
  2. See P.L. 2018, c.48.
  3. 138 S.Ct. 2080 (2018).
  4. See A4495, sec. 1 (signed into law Oct. 4, 2018).
  5. See I.R.C. § 951A (providing inclusion of GILTI in federal gross income).
  6. See id., § 951A(b)(1)(A)–(B).
  7. See I.R.C. § 250(a)(1)(A)–(B).
  8. See id., § 250(a)(1)(B).
  9. See A4495, section 1.
  10. See New Jersey Governor's Office, Governor Murphy Takes Action on Legislation, Copy of Statement on A4495, available at https://nj.gov/governor/news/news/562018/approved/20181004b.shtml.
  11. See id.
  12. N.J.S.A. 54:10A–8.
  13. N.J.S.A. 54:10A–4(k)(6)(C) (as in effect prior to July 1, 2018).
  14. See BIS LP, Inc. v. Director, Division of Taxation, 26 N.J. Tax 489 (N.J. Super. Ct. App. Div. 2011).
  15. See N.J.S.A. 54:10A–4.6k.(2).
  16. See N.J.S.A. 54:10A–3(f).
  17. See A4495 (amending N.J.S.A. 54:10A–4.6k.(2)).
  18. See A4495 (amending N.J.S.A. 54:10A–4(k)(5)(A)(i)–(ii)).
  19. See N.J.S.A. 54:10A–4(k)(6)(A) ("For privilege periods before the effective date of P.L. 2018, c.48, there shall be allowed as a deduction for the privilege period the net operating loss carryover to that period."). The effective date of P.L. 2018, c.48 generally was July 1, 2018. The privilege period ending December 31, 2018 is not before July 1, 2018. Thus, under P.L. 2018, c.48, taxpayers were not entitled to an NOL for 2018.
  20. See A4495, sec. 2 (amending N.J.S.A. 54:10A–4(k)(6)(A) ("For privilege periods ending before July 31, 2019, there shall be allowed as a deduction for the privilege period the net operating loss carryover to that period.")).
  21. See N.J.S.A. 54:10A–4(k)(6) (as in effect prior to July 1, 2018).
  22. See N.J.S.A. 54:10A–4(v)(2).
  23. N.J.S.A. 54:10A–4(u). The statute contains a method for calculating the PNOLCC. See id.
  24. See N.J.S.A. 54:10A–4(u)(2)(A) (emphasis added)
  25. See A4495, section 2 (amending N.J.S.A. 54:10A–4(u)(1) ("'Base year' means the last privilege period ending prior to July 31, 2019.")).
  26. See A4495, section 9.
  27. See A4496, section 1(a)(1).
  28. See A4496, section 1(a)(2).
  29. 138 S. Ct. 2080 (2018).
  30. 386 U.S. 753 (1967).
  31. 504 U.S. 298 (1992).
  32. See A4496, section 2(b).
  33. See A4496, section 2(a)

This article is presented for informational purposes only and is not intended to constitute legal advice.

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