New Jersey Applies Economic Nexus Back to 2002?
Last month, New Jersey issued a Technical Advisory Memorandum (TAM-6) which essentially imposes an economic nexus standard for privilege periods beginning on or after January 1, 2002 for the New Jersey corporation business tax (CBT).
The TAM states:Corporations that derive receipts from sources within New Jersey or engage in contacts within New Jersey are subject to tax in New Jersey, provided that the taxpayer’s business activity in New Jersey is sufficient to give this State jurisdiction to impose the tax under the constitution and statutes of the United States.It also states:Applying the principles of the statute as amended and the above-referenced court decisions, taxpayers performing services and domiciled outside the State that solicit business within the State or derive receipts from sources within the State must file a Corporation Business Tax return and pay the applicable tax to New Jersey. This principle applies to all corporations, including financial corporations. A financial business corporation, a banking corporation, a credit card company or similar business that has its commercial domicile in another state is subject to tax in this State if during any year it obtains or solicits business or receives gross receipts from sources within this State.Relief AvailableTaxpayers may continue to request an adjustment under N.J.S.A. 54:10A-8. Pursuant to N.J.S.A. 54:10A-8 and N.J.A.C.18:7-8.3, if it appears that the business allocation factor computed on the basis of all or any of the property-receipts-payroll fractions does not properly reflect the activity, business, receipts, capital, entire net worth or entire net income of the taxpayer in New Jersey, the Director may adjust or taxpayer may request an adjustment of the business allocation factor.
If you are deriving income from New Jersey sources, and not filing a New Jersey corporation business tax return, you might have exposure. If you would like assistance in mitigating your exposure, please contact me.
Brian Strahle is the owner of LEVERAGE SALT, LLC where he provides state and local tax technical services to accounting firms, law firms and tax research organizations across the United States. He also writes a weekly column in Tax Analysts State Tax Notes entitled, "The SALT Effect." For more info, visit his website: www.leveragestateandlocaltax.com
You can reach Brian at firstname.lastname@example.org.
Because state and local taxes are deceptively simple and endlessly complicated.