The New Jersey Superior Court, Appellate Division, has affirmed the Tax Court’s decision in Kraft Foods Global Inc., in which a taxpayer’s deduction for related-party interest expense was disallowed for corporation business tax purposes (decision available here).
The only issue before the court was whether the Division of Taxation (the “Division”) properly added back interest that the taxpayer had paid to its corporate parent. The taxpayer’s position was that it qualified for the so-called “unreasonableness exception” to New Jersey’s related-party interest expense addback, because the interest paid by the taxpayer to its parent was effectively funding the parent’s third-party interest expense. At the trial court level, the Tax Court ruled in favor of the Division, reasoning that the taxpayer had not guaranteed the parent’s third-party debt. (For our analysis of the Tax Court’s decision, see our prior alert.) In today’s unpublished decision, the appellate court affirmed the Tax Court’s ruling without providing any further analysis of the issue.