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NJ Guidance on State Tax Addback: Refund Opportunity for Taxpayers Adding Back Capital Stock or Bank Taxes

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Home Perspectives NJ Guidance on State Tax Addback: Refund Opportunity for Taxpayers Adding Back Capital Stock or Bank Taxes

For purposes of computing New Jersey corporation business tax, the statute requires a taxpayer to add back any taxes paid to other states on or measured by profits or income, or business presence or activity.1 Yesterday, the Division released a technical bulletin that, for the first time, explains its policy concerning which taxes are subject to addback.2 In general, the technical bulletin provides that a tax is not required to be added back if it is measured by the value of the taxpayer’s assets or akin to a property tax, excise tax, payroll tax, or sales tax.

For purposes of computing New Jersey corporation business tax, the statute requires a taxpayer to add back any taxes paid to other states on or measured by profits or income, or business presence or activity.1 Yesterday, the Division released a technical bulletin that, for the first time, explains its policy concerning which taxes are subject to addback.2 In general, the technical bulletin provides that a tax is not required to be added back if it is measured by the value of the taxpayer’s assets or akin to a property tax, excise tax, payroll tax, or sales tax.

Potential Refund Opportunity for Banks in Particular

Interestingly, the technical bulletin states that taxpayers shouldn’t add back Pennsylvania Bank Shares Tax. This might surprise some taxpayers. The Division’s regulations specifically identify Pennsylvania Bank Shares Tax as a “business presence or business activity” tax.3 In addition, in Duke Energy Corporation v. Director,4 the New Jersey Tax Court suggested that taxes imposed by other states in lieu of income taxes—such as the Pennsylvania Bank Shares Tax—ought to be added back when computing the corporation business tax. Based on this prior guidance, some banks may have been adding back their Pennsylvania tax.

Under the Division’s new technical bulletin, however, Pennsylvania Bank Shares Tax should not be added back. If your company added back this tax on its originally filed New Jersey returns, it has a refund opportunity. A refund opportunity may also exist for other bank taxes, such as the Ohio Financial Institutions Tax and the Virginia Bank Franchise Tax.

  1. N.J.S.A. 54:10A-4(k)(2)(C).
  2. Corporation Business Tax, Add back of Other States’ Taxes, TB–80 (March 15, 2017).
  3. See N.J.A.C. § 18:7–5.2(a)1.v. and –8.7(f).
  4. Duke Energy Corporation v. Director, Division of Taxation, 28 N.J. Tax 226 (2014) citing Ross Fogg Fuel Oil Co. v. Director, 22 N.J. Tax 372 (2005).

Client Alert 2017-084