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As originally enacted, New Jersey's combined reporting law contained a number of ambiguities.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 statesee our prior coverageis 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...