Income/Franchise:
New Jersey: New and Updated Bulletins Reflect CBT Law Changes Involving Combined Reporting and Banks

Tax Bulletin No. TB-113: Captive Investment Companies, Real Estate Investment Trusts, and Regulated Investment Companies and Combined Groups, N.J. Div. of Tax. (11/1/23); Tax Bulletin No. TB-91 (R): Banking Corporations and Combined Returns, N.J. Div. of Tax. (rev. 11/1/23); Tax Bulletin No. TB-99(R): Income Reporting and Returns for Banking Corporations for Privilege Periods Ending on and after July 31, 2020, N.J. Div. of Tax. (rev. 11/1/23); Tax Bulletin No. TB-86 (R): Included and Excluded Business Entities in a Combined Group and the Minimum Tax of a Taxpayer that is a Member of a Combined Group, N.J. Div. of Tax. (rev. 11/1/23). The New Jersey Division of Taxation (Division) posted new and updated bulletins reflecting recently enacted legislation that made significant changes to New Jersey’s corporation business tax (CBT) for privilege periods ending on and after July 31, 2023 [see A.B. 5323 (2023) and previously issued Multistate Tax Alert for more details on these recent law changes]. One new bulletin addresses:

1. Changes to the CBT treatment for certain investment companies, real estate investment trusts (REITs), and regulated investment companies (RICs) in relation to combined groups,
2. The exclusion of such entities from the group if they are owned by a bank or a savings and loan association with $15 billion or less in assets, and
3. Related return filing procedures.

This bulletin explains that, effective for privilege periods ending on and after July 31, 2023, the CBT Act was amended to require the inclusion of investment companies, RICs, and REITs meeting the statutory definition of “captive” versions of those entities as members of the combined group and taxed as C corporations; additionally, these “captives” must add back any deductions and expenses that are only permitted to investment companies, RICs, and REITs under the Internal Revenue Code. Other recently updated bulletins reflect how, beginning with tax year 2023, a certain form (Form BFC-1) is discontinued and that banking corporations and financial business corporations that are members of a combined group must be included as a member reported on the Form CBT-100U, “so the discontinuation of the form does not impact combined filers.”

Another updated bulletin explains which business entities are (and are not) included in a New Jersey combined group, clarifying that for periods ending on and after July 31, 2023 (i.e., the “Finnigan Years”) for purposes of N.J.S.A. 54:10A-4.7.e, the group is one taxpayer so that although one member may have P.L. 86-272 protection, the combined group will not have P.L. 86-272 protection if any other member(s) exceeds the protections of P.L. 86-272 or if one of the other members has activities in New Jersey that are not protected by P.L. 86-272. The bulletin lists some activities that are not “P.L. 86-272 protected,” including sales of services, sales of intangibles, sales of real estate, or sales of financial products. Please contact us with any questions.