On October 5, 2018, the New Jersey Division of Taxation released Form CBT-DIV 2017 (the Form), which addresses the retroactive changes to the Corporation Business Tax (CBT) Act by two acts adopted by the New Jersey Legislature and signed into law on July 1, 2018 and October 4, 2018, respectively (see Tax Alerts 2018-1342, and 2018-1977, discussing the many changes to the CBT brought about through enactment of Assembly Bills 4202 and 4495, respectively.) The Form specifically addresses changes to New Jersey's dividend received deduction (DRD) rules, which reduced the deduction from 100% to 95% for dividends (including the deemed IRC Section 965 dividends (the Transition Tax Dividends)),received from 80%-or-more-owned subsidiaries, and the attendant apportionment changes specific to these dividends and other dividends received.

The Form effectively operates to amend a CBT taxpayer's 2017 return for these retroactive changes. Complicating matters, this Form must be manually prepared and filed (i.e., it is exempt from the general requirement to file returns electronically).

Summary of form elements and instructions

Form elements

The Form consists of the following four parts: (1) a tax computation; (2) revisions to Schedule A of a taxpayer's originally filed Form CBT-100 (generally filed by non-financial institutions and certain financial institutions); (3) revisions to Schedule A of a taxpayer's originally filed Form BFC-1 (generally filed by certain financial institutions); and (4) the "tiered dividend" computation. Taxpayers must complete part (1) and either part (2) (CBT-100 filers) or part (3) (BFC-1 filers). Finally, taxpayers that are claiming a tiered dividend exclusion must complete part (4).

Part (1), the tax computation, is completed after parts (2), (3) and (4). This part computes additional tax attributable to the DRD reduction for dividends received from 80%-or-more-owned subsidiaries and the Transition Tax Dividends. Part (1) applies a specific methodology to source the reported additional taxable dividend amount (i.e., the lower of 3.5% or the taxpayer's average 2014 through 2016 New Jersey apportionment allowed by the amended tax law.¹)

Parts (2) and (3) - the revisions to Schedule A - capture changes from a taxpayer's originally filed Form CBT-100 or BFC-1 pertaining to the application of the DRD as amended by the new laws. Taxpayers must complete these parts before completing parts (1) and/or (4).

Part (4) - the tiered dividend computation - is used to compute an exclusion for dividends that were previously taxed by New Jersey at the subsidiary level. Part (4) limits the application of the tiered dividend exclusion to dividends received from 80%-or-more-owned subsidiaries.

Additional documentation requirements

Taxpayers must enclose the following schedules or forms with the Form:

• 2017 Form CBT-100 or BFC-1  
• Schedule A; Schedule A-3 and supporting tax credit forms; Schedule G
• Schedule J
• Schedule O
• Schedule P
• Schedule R
• Schedule S
• Form 500
• Any tax credit transfer certificate or tax certificate (if electing to use a tax credit to reduce any additional tax liability).

Taxpayers must file these schedules or forms (i.e., Schedules A, A-3, J, O, P, R, S, and Form 500) if they were filed or should have been filed with the original return.

Due date

The Form must be filed with the New Jersey Division of Taxation by January 31, 2019. The instructions do not provide for extensions beyond this date. The Form may only be submitted after filing Form CBT-100 or BFC-1.

Filing instructions

The Form and all supporting schedules must be mailed to:

New Jersey Division of Taxation
Office Audit
PO Box 240
Trenton, NJ 08695–0240

No electronic filing option is provided.

Implications

The Form represents perhaps the most complex response by any state to IRC Section 965 conformity, and creates a significant taxpayer filing burden outside of the scope of regular state compliance engagements.

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ENDNOTES

¹ Taxpayers that filed only 2015 and 2016 returns should instead use a two-year average, whereas taxpayers that filed only a 2016 return should compare 2016 apportionment against 3.5%. Short period return apportionment percentages are applied towards the three-year average computation.