Reed Smith's State Tax Group has extensive experience with New Jersey’s sales and use tax and corporation business tax. We are litigating and also have settled some of the lead cases on interest addbacks, right to apportion, and throwout. We are also dealing with important issues related to the usefulness of New Jersey NOLs. If your company has significant NOLs you thought expired, contact one of our lawyers. In addition, we routinely evaluate the risks and the options available regarding New Jersey's aggressive nexus positions for our clients. Specifically, our team has completed dozens of New Jersey VDAs and closing agreements and can help you negotiate the best deal possible if your company is facing a decision related to nexus.
Please contact Kyle Sollie (+1 215 851 8852), David Gutowski (+1 215 851 8874) or Lee Zoeller (+1 215 851 8850) to discuss our New Jersey State Tax practice.
Here is a brief summary of some New Jersey opportunities:
Net Operating Losses, 11 not 7: If your company carried a loss into the four-year suspension period during 2002 – 2005, the seven-year carryover period for that net operating loss is extended. So for example, any loss from 2001 has an eleven-year carryover. The Division’s position is that in many situations, the carryover is only seven years. We believe the Division is wrong in that regard.
NOLs and Dividends: Under New Jersey law, dividends absorb NOLs, even if the dividend qualifies for a full DRD. Yet taxpayers should carefully review the dividends that they receive. If they were paid from non-unitary subsidiaries, they do not absorb NOLs. (New Jersey law has gotten significantly better in this regard as a result of the BIS case.) Moreover, even if a dividend is paid by a unitary subsidiary, you are entitled to factor representation. We encourage all taxpayers to review their NOL schedule and identify dividends they have received in any year, from the year of an NOL forward.
Corporate partners: If you are a corporate partner whose only connection with New Jersey is an interest in a partnership or LLC, you should file a refund claim as a result of the recent BIS case. If you are a partnership that has paid tax with respect to your non-resident corporate partners, you too should file a refund claim.
Nexus for Financial Businesses: New Jersey has recently adopted expansive and retroactive regulations providing that receiving interest from a New Jersey borrower is sufficient for nexus, even if the lender has no physical presence in New Jersey. These regulations are contrary to the Division’s prior practice and should be challenged. Affected financial businesses should consider either challenging the regulation or negotiating favorable voluntary disclosure terms.
Throwout: The Supreme Court of New Jersey recently ruled that the throwout rule can only apply with respect to states where your company is not “subject to a tax.” But under New Jersey’s economic nexus approach, your company is “subject to a tax” wherever it makes sales. Thus, throw-out cannot apply to any sales—including sales into states where your are protected by P.L. 86-272. If your company has paid any more tax as a result of throwout, it should file a refund claim to preserve its rights.
Addbacks: We are involved in litigation and settlement negotiations involving the addback of deductions for related party expenses. Current litigation issues include the "three percentage point safe harbor," the "unreasonableness exception," and the "conduit" exception.
Click here to view an article about the NJ Appellate Court's decision in BIS LP, Inc. v. Director, Div of Taxation.
Download the slides and audio from our September 19, 2013 teleseminar, "NJ Tax Court Guts Throwout Statute - Does This Mean Throwout Never Applies?"
Download the slides and audio from our November 29, 2012 teleseminar, "New Jersey's CBT: Is It Now Voluntary?"