Gov. Phil Murphy signed legislation into law July 3 that reforms New Jersey’s corporate tax policies, including changing the way global intangible low-taxed income (GILTI) and net operating losses (NOLs) are treated under state law.

The legislation, which NJBIZ has reported on, was negotiated by business groups, the Legislature and the Treasury Department.

Senate Bill 3737/Assembly Bill 5323 passed the Legislature last week following an amendment to deal with a community bank threshold provision, which NJBIZ noted in its June 13 coverage, as the bill moved through committee.

Supporters of the measure say the reforms make New Jersey’s corporate tax policies more competitive with other states.

Key points include:

• Changes to the method for apportioning the taxable income on unitary combined reporting groups to New Jersey from the so-called Joyce Rule to the Finnigan Rule;
• Ending special treatment, including net income exclusions, of Real Estate Investment Trusts (REIT), regulated investment companies and investment companies;
• Eliminating the 37.5% foreign-derived intangible income deduction;
• Increasing from 50% to 95% the exclusion from New Jersey taxable income of GILTI;
• Establishing new nexus standards by determining that an out-of-state business is subject to the corporate business tax if it derives more than $100,000 of its receipts from sales to New Jersey or makes more than 200 sales in the state;
• Shifting the net deferred tax liability deduction from a 10-year amortization schedule to a 27-year amortization schedule.

Following the bill signing Monday, the New Jersey Business & Industry Association (NJBIA) put out a statement crediting all those involved with completing the complex legislation “to bring more fairness and competitiveness within our corporate tax structure.”

“This was complicated, but compromise, legislation that we worked on with the administration since last summer. We appreciate that partnership over the past year and the amount of time dedicated to working on this important bill,” said NJBIA Chief Government Affairs Officer Christopher Emigholz. “Most states do not tax income earned abroad by U.S.-controlled corporations as aggressively as New Jersey had.

“Neighboring Pennsylvania does not tax GILTI at all, while New York and Connecticut only tax 5% of GILTI,” he continued. “New Jersey, however, was a national outlier that only allowed corporations to deduct 50% of GILTI from their tax base.”

Emigholz also noted that, aside from the questions of the appropriateness of states taxing foreign income at all, it was always NJBIA’s opinion that New Jersey should not be more aggressive on this tax than any other state in the nation.

“Especially when we are fortunate to have as many multinational corporations located and creating great jobs here,” said Emigholz. “Another bonus to the business community is the law also makes the tax code more taxpayer friendly in the way it treats net operating losses by allowing the sharing of NOL’s by combined businesses so that they are not locked away or captured.”

The pros behind it all

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