Combined-reporting legislation continues to make its way through New Jersey’s Senate. Taxpayers should closely follow developments concerning this legislation to determine the impact on their companies.

In January, we reported that New Jersey Senators Lesniak (D), Sarlo (D), and Greenstein (D) were introducing combined-reporting legislation. The bill (S 982) included a waters-edge election; however, any foreign member doing business in a jurisdiction determined by the Director to be a “tax haven” had to be included in the combined group. The bill gave the Director significant discretion in determining whether a particular jurisdiction constituted a “tax haven.” (Read our prior coverage.)

Last week, the bill was voted out of the Senate Budget Committee, paving the way for the bill to be considered by the entire Senate. The Committee made some important amendments to the bill, including the following:

• Limited the discretion of the Director by excluding from the definition of a “tax haven,” any jurisdiction that has entered into a comprehensive income tax treaty with the United States
• Clarified that New Jersey will not tax the income of an includable member organized outside the United States to the extent that the income is exempt from federal income tax by virtue of a federal income tax treaty

It remains unclear whether the full Senate will act on the bill, but New Jersey taxpayers should follow any developments closely.

If you have questions on how the proposed New Jersey combined-reporting legislation would affect your business, please contact one of the authors of this Alert or another member of the Reed Smith State Tax Group. For more information on Reed Smith’s New Jersey tax practice, visit http://www.reedsmith.com/njtax/.

Client Alert 2016-150