Reed Smith Client Alerts

In a decision released today in Rockland Electric,1 the Tax Court of New Jersey ruled that taxpayers must add back the New Jersey Transitional Energy Facility Assessment (“TEFA”) when computing taxable income for corporation business tax (“CBT”) purposes.

Authors: David J. Gutowski Matthew L. Setzer

Type: Client Alerts

Background

The starting point for computing the CBT is a taxpayer’s federal taxable income before the subtraction of any net operating loss deduction and special deductions. Under N.J.S.A. 54:10A–4(K)(2)(C), however, state taxes “on or measured by profits or income, or business presence or business activity” must be added back.2 The issue in Rockland Electric was whether the TEFA was a tax subject to addback. The TEFA was a temporary surcharge imposed by New Jersey on utilities following energy deregulation. Prior to its phase out in 2013, the TEFA was designed to offset the revenue loss that resulted from New Jersey’s elimination of gross receipts and franchise taxes on utilities.3 When the TEFA was enacted, the legislature added a separate statutory provision to the CBT that deemed the TEFA to be a “State tax” and that required the amount paid under TEFA to be added back to entire net income “pursuant to” N.J.S.A. 54:10A–4(K)(2)(C).4