Yesterday, the New Jersey Tax Court of New Jersey issued yet another decision involving the taxation of partnerships and their nonresident limited partners in National Auto Dealers Exchange, L.P. v. Director, Div. of Taxation.1 The court found that a partnership is not a taxable entity for purposes of New Jersey’s corporate income tax (known as the corporation business tax or “CBT”).
The court’s decision is consistent with the result in a prior Tax Court decision, BIS L.P., Inc. v. Director, Div. of Taxation.2 But the court’s reasoning in National Auto Dealers goes far beyond its prior guidance and creates further uncertainty concerning the application of statutory amendments made in 2014.
National Auto Dealers Exchange, L.P. (“NADE”) was a Delaware limited partnership that did business in New Jersey. Its limited partner Manheim NJ Investments, Inc.(“Manheim”) provided NADE with the Division’s Form NJ-1065E, consenting to nexus with New Jersey. Consistent with that form, Manheim filed CBT returns and paid tax on its distributive share of NADE’s income. Manheim subsequently filed a refund claim in light of the appellate court’s decision in BIS,3 which held that a corporate limited partner was not subject to CBT if its only connection to the state was through a non-unitary limited partnership. After Manheim asserted that it lacked nexus with New Jersey, the Division issued an assessment to NADE.
NADE protested the assessment, arguing that its CBT obligations were extinguished when it filed a copy of Form NJ-1065E with its original return. According to NADE, it was improper to assess tax on the partnership just because the partner files a refund claim.