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On March 30, 2020, the New Jersey Division of Taxation (DOT) released Form DT-1, which all taxpayers claiming a net deferred tax liability deduction (NDTLD)¹ on their Corporation Business Tax (CBT) returns are separately required to submit on or before July 1, 2020.² Form DT-1 incorporates the guidance the DOT published in Technical Bulletin 96 (TB-96) on February 24, 2020. In addition to providing instructions on how to mechanically compute the NDTLD, Form DT-1 and TB-96 provide significant substantive guidance that was not included in the July 1, 2018 revision of the CBT Act (see Tax Alert 2018-1342), including the following:

• The combined group's net Deferred Tax Asset (DTA) or net Deferred Tax Liability (DTL) should be computed as of the last day of the privilege period³ ending before July 31, 2019.
• The tax rate used to calculate the NDTLD (which is a function of a decrease in the net DTA, an increase in the net DTL, or change from a net DTA to a net DTL that was previously recognized upon the enactment of the CBT Act) should include the 2.5% surtax.
• Publicly-held foreign corporations that are listed on any stock exchange or over-the-counter market that is regulated by a regulatory authority of a foreign nation that has a reciprocal agreement with the US government or US regulatory authority may file for the NDTLD.
• The net DTA or net DTL should be calculated based upon either US Generally Accepted Accounting Principles (US GAAP) or International Financial Reporting Standards (IFRS) — applying the accounting model the taxpayer used when preparing financial statements that are filed with the US or foreign regulatory authorities.
• Subsidiaries of a public US or foreign corporation that file on a consolidated basis with the corporation are eligible for the NDTLD, even if they do not file a combined return with the public parent corporation.

Implications

The DOT's recent guidance fills numerous substantive gaps left by the sweeping changes made to the CBT Act during 2018. The DOT's interpretation of the CBT Act's NDTLD provisions may result in NDTLD calculations that substantially differ from the amounts previously recognized by taxpayers. When completing and submitting Form DT-1 on or before July 1, 2020, taxpayers will need to consider the DOT's new guidance released in TB-96 and the effects to their financial statement reporting (i.e., remeasurement of DTAs and DTLs) and disclosures.

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¹ Per N.J. Rev. Stat. § 54:10A-4(k), a combined group is eligible for a NDTLD if, in addition to being part of a publicly-traded company's consolidated financial statement, it incurs an "increase in the net deferred tax liability or decrease in the net deferred tax asset, or aggregate change from a net deferred tax asset to a net deferred tax liability" solely as a result of combined filing.

² Form DT-1 states that "[f]ailure to file this statement by this date will result in a loss of the NDTLD" and "[n]o extensions of time to file this statement will be granted." In addition, Form DT-1 instructions state the following: "Form DT-1 and any accompanying riders must be electronically uploaded at https://www.njportal. com/DOR/TCM/#/. The system will be available on or before May 15, [2020]. Use 'Business Tax' for the account type and select PO Box 258 '-Net Deferred Tax Liability — Form DT-1.['] This is a virtual PO Box and cannot be used to mail documents to the [DOT]. The [DOT] will not accept paper copies through the mail. Submission of Form DT-1 does not guarantee the [NDTLD] will be granted."

³ New Jersey statutes refer to a taxpayer's tax year as a "privilege period."