Reed Smith Client Alerts

Autores: David J. Gutowski Kyle O. Sollie Matthew L. Setzer

On February 22, 2017, the Tax Court issued its decision in General Foods Credit Investors # 3 Corporation v. Director.1 The primary issue involved whether certain sale-leaseback assets belonged in the taxpayer’s property factor for corporation business tax purposes. But the decision has broader significance in that the court—in apparent conflict with the Division’s regulation and the Division’s long-standing policy2 —allowed the taxpayer to adjust its apportionment factor for years that were closed under New Jersey’s four-year statute of limitations. If that approach were to be sustained on appeal, any company that filed a federal change within the past four years and didn’t make a corresponding adjustment to its apportionment factor, may have a refund opportunity.

New Jersey's statute requires a taxpayer to report any changes in federal taxable income made by the Internal Revenue Service.3 If the federal change results in a decrease to the taxpayer’s New Jersey corporation business tax, the taxpayer has an additional four years from the date of the change to request a refund. Under the Division’s long-standing policy, this additional limitations period applied only to reporting the tax effect of changing the base: if the federal change occurred more than four years after the taxpayer filed its original return, the Division prohibited a taxpayer from making any reduction to its apportionment factor resulting from the federal change.4

In General Foods, the Tax Court adjusted the taxpayer’s factors despite the Division’s policy. The Division had increased the taxpayer’s entire net income based on the results of a federal audit (under which taxpayer was deemed not to be the owner of certain sale-leaseback assets). But the Division applied the New Jersey apportionment factor that the taxpayer had reported on its original CBT returns to the taxpayer’s increased entire net income. The court ruled that this was improper, and ordered the Division to adjust the taxpayer’s apportionment factor to reflect the results of the federal audit. In other words, to the extent that General Foods was considered not to be the owner of certain assets for purposes of computing the tax base, the court ruled that General Foods was not the owner of those assets for apportionment purposes either.

If your company reported a federal change to New Jersey and computed the resulting tax based on its apportionment factor as originally filed, you may have a refund opportunity based on making a corresponding adjustment to your apportionment factor. Of course, if the federal change increases your New Jersey apportionment, you may have an audit exposure.

If you have questions about the court’s decision in General Foods, please contact one of the authors of this Alert or the Reed Smith attorney with whom you usually work.


  1. Docket No. 011330–2015 (N.J. Tax Feb. 22, 2017).
  2. N.J.A.C. 18:7-11.8(c). This regulation provides, in relevant part “but neither the Director nor the taxpayer may change the allocation of entire net income … as theretofore computed.” The court did not acknowledge the conflict with N.J.A.C. 18:7-11.8(c) or even cite it.
  3. See N.J.S.A. 54:10–13.
  4. See N.J.A.C. 18:7–11.8(c).

Client Alert 2017-062