NEW JERSEY: CORPORATE INCOME TAX COMPLIANCE INITIATIVE ANNOUNCED

The New Jersey Division of Taxation (Division) on June 3, 2021 unveiled a new combined reporting initiative, designed to help companies voluntarily comply with their historic separate-company return filing requirements for periods prior to 2019. The initiative will run from June 15, 2021 to October 15, 2021.

Background on New Jersey Filing Requirements

New Jersey switched from separate-company reporting to mandatory unitary combined reporting for corporate business taxpayers starting with tax years ending on or after July 31, 2019. Combined reporting procedure in New Jersey requires the managerial member to list and describe the New Jersey activity of each member of the group. New Jersey is now in the process of identifying each combined group member that has indicated they currently have nexus in the state but did not file separate returns for years ending before August 1, 2019.

Compliance Initiative Program and Eligibility

Members of a New Jersey combined group with nexus in New Jersey during a tax year ending before August 1, 2019 that come forward voluntarily are eligible for consideration by the Division to enter into an agreement. Applicants of this initiative are not eligible for New Jersey’s standard voluntary disclosure program. To be approved for an agreement, a company must not have been incorporated in New Jersey, authorized to do business in New Jersey or have registered for Corporation Business Tax prior to being included in the 2019 or 2020 New Jersey combined return. The taxpayer must also provide the New Jersey registration number of the managing member.

The lookback period will be limited to periods after June 30, 2016 or the date nexus was established in New Jersey, whichever is later. If approved, the taxpayer then has 45 days from the execution of the agreement to file the required returns and pay all tax due. The taxpayer must remit interest payment within 30 days of assessment. Returns remain subject to routine audits. However, the Division will waive all penalties of taxpayers that participate in the initiative.

Insights

  • Even before the U.S. Supreme Court’s Wayfair decision, the New Jersey Supreme Court had held that a physical presence with New Jersey was not a constitutional requirement for “substantial nexus” for corporation business tax purposes. It is now clear that the Division is using information gleaned from New Jersey combined report filings to identify prior-year non-filers.
  • The Division specified that failure to take advantage of this initiative will result in the lookback period going beyond return periods ending after June 30, 2016 and all applicable penalties and interest being assessed.

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