Written by: Cesar Grullon, Kelley Chartier, Mike Rowe
On July 3, 2023, New Jersey Governor Phil Murphy signed into law Senate Bill 3737/Assembly Bill 5323, which amends certain central provisions of the Corporation Business Tax (CBT) statute. Here are some key tax law changes that corporations doing business in New Jersey – including banks and financial institutions – should be aware of:
- Under the new provisions, certain “Captive” Real Estate Investment Trusts (REIT), Regulated Investment Companies (RIC), and Investment Companies (IC) are required to be included in a New Jersey combined group filing as a regular corporation and do not receive the benefit of federal deductions and exclusions for REITs, RICs and ICs for New Jersey CBT purposes. These new provisions (effective for tax years ending on or after July 31, 2023) DO NOT apply to REITs, RICs, and ICs that are at least 50% owned or controlled directly or indirectly by a state or federally chartered bank, savings bank, or a savings and loan association with assets that do not exceed $15 billion.
- The 2.5% corporate surtax was not extended beyond 2023. This is welcome news for corporate taxpayers.
- Clarification is provided on the New Jersey nexus standard, whereby a corporation is deemed to have substantial nexus and is subject to New Jersey Corporation Business Tax if gross receipts of more than $100,000 are derived from New Jersey sources or 200 or more separate transactions are delivered to customers in the State during the corporation’s tax year.
- The dividend received deduction (DRD) for 80% or greater owned subsidiaries increased from 95% to 100%. In addition, the DRD is subject to a 5% expense disallowance add-back. These changes are effective for tax periods ending on or after July 31, 2023.
- Net Operating Loss (NOL) changes include:
- Limitation on the annual NOL deduction to 80% of taxable income (echoing the federal NOL rules),
- A provision allowing sharing Prior NOL (PNOL) carryforwards among combined group members, regardless of whether the PNOL was created within the combined filing or through separate filings,
- An update to the NOL and DRD ordering rules in which the dividends received deduction is applied BEFORE the NOL carryforward utilization.
- For tax periods ending on or after July 31, 2023, New Jersey CBT return due date shall be the 15th day of the month immediately following the month of the original/extended federal corporate return filing due date (i.e., May 15th for calendar year taxpayers).
For more information, please refer to the Tax Bill S3737 and A5323 on the New Jersey Legislature’s Website or reach out to a member of the Wolf Tax Team.
