On July 30, the New Jersey Division of Taxation (the “Division”) issued a new technical bulletin (TB-79) concerning corporate income tax nexus and the scope of federal immunity under 15 U.S.C.A section 381 (“P.L. 86-272”). That guidance closely mirrored the Division’s regulations—except that in the very last sentence, the Division advised that “[d]elivering goods sold in own vehicles” is outside the protection of P.L. 86-272.
This change would have represented a complete reversal of the Division’s longstanding policy. Nearly 20 years ago, the Division advised taxpayers that a manufacturer or wholesaler that delivered goods in its own trucks “would be protected” under P.L. 86-272 and subject only to the minimum tax—as long as the company did not go beyond mere delivery and perform unprotected activities such as a pick-up, set-up, and installation.1 That informal guidance was specifically referenced by the New Jersey Tax Court in Asher v. Director, Div. of Taxation.2 Asher involved a corporation business tax assessment issued by the Division against a manufacturer that picked up damaged goods in its own trucks from New Jersey customers. Because the manufacturer’s activities in New Jersey exceeded “mere delivery,” the court upheld the assessment. However, citing the Division’s own guidance, the court noted that “the New Jersey Division of Taxation has joined those states in which delivery by company drivers in company trucks does not jeopardize P.L. 86-272 tax immunity.”
After taxpayers complained about the July 30 technical bulletin, the Division, to its credit, reverted back to its longstanding policy that delivery using a company’s own vehicles does not result in an automatic loss of immunity under P.L. 86-272. Accordingly, the Division published a revised version of its technical bulletin with the offending language removed. A copy of TB-79 (as revised) is available here.
Although most states do not treat a taxpayer’s delivery of goods in its own trucks as exceeding the scope of P.L. 86-272 immunity, it is possible that the Division could revisit its policy on this issue. But any such policy change would need to be advanced through a prospective regulation.3 As recently explained by the New Jersey appellate court in Kassner v. Director, Div. of Taxation,4 taxpayers “must be able to reliably engage in tax planning and, to do so, they must know what the rules are.”
Despite the Division’s correction to its technical bulletin, this does not necessarily preclude a company from being audited and assessed—even if its New Jersey activities do not exceed mere solicitation and delivery. If a taxpayer is immune from income tax under P.L. 86-272 but nonetheless derives receipts from New Jersey, the statute requires the taxpayer to file a return and pay the alternative gross receipts tax (known as the “AMA”).5
Historically, the potential AMA liability for most corporations was negligible, but AMA exposures increased significantly after 2010 because of the repeal of New Jersey’s so-called throwout rule. (The throwout rule increased the New Jersey sales fraction of taxpayers that were P.L. 86-272-protected in other states. And, somewhat paradoxically, AMA liability tends to decrease as a taxpayer’s New Jersey sales fraction increases.) After 2006, the AMA applies only to corporations that are immune from tax on their income under P.L. 86-272. By definition, therefore, the AMA applies only to out-of-state corporations (and not to New Jersey corporations). Because the AMA, in its current form, facially discriminates against interstate commerce, corporations that find themselves subject to the AMA should consider taking the position that the AMA does not apply. For more information on this position, please see our October 2012 Alert.
If you have questions about filing options for P.L. 86-272-protected corporations in New Jersey or other New Jersey tax issues, please contact the authors of this Alert, or the Reed Smith attorney with whom you usually work. For more information on Reed Smith’s New Jersey tax practice, visit www.reedsmith.com/njtax/.
- New Jersey Division of Taxation, State Tax News 4 (Spring 1996).
- 22 N.J. Tax 582 (Tax 2006).
- See Metromedia, Inc. v. Director, 97 N.J. 313 (1984). See also AccuZIP, Inc. v. Director, Div. of Taxation, 25 N.J. Tax 158 (Tax 2009) (stating that if the Director wants to adopt a new position concerning P.L. 86-272, she must do so formally in accordance with the New Jersey Administrative Procedures Act).
- Docket No. 0A-3636-12T1 (App. Div. 2015).
- N.J.S.A. 54: 10A-5a.
Client Alert 2015-233