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February 9, 2021

New Jersey clarifies how state law change redefining "taxpayer" to include a combined group will impact Corporation Business Tax returns

The New Jersey Division of Taxation (NJ DOT) has released another in a series of technical bulletins on November 2020 law changes1 that made technical corrections and substantive changes to reform legislation enacted in 2018 under the Corporation Business Tax Act (CBTA). 2 Technical Bulletin 100, The Combined Group as a Taxpayer under the Corporation Business Tax Act (TB-100) (January 25, 2021), highlights the impact on Corporation Business Tax returns of the change to the CBTA's definition of "taxpayer." The change, which adds a combined filing group (along with each constituent taxable member of the group) to the definition of taxpayer, took immediate effect and applies retroactively to privilege periods (tax years) ending on and after July 31, 2019.

TB-100 also includes the NJ DOT's view on how the new definition of "taxpayer" will affect the application of P.L. 86-272, which limits the imposition of state taxes on net income of a taxpayer that has nexus with a state, if certain conditions are met.3

Application of certain CBTA changes related to combined groups

The NJ DOT clarified certain changes that apply to privilege periods ending on or after July 31, 2019, including:

  • Redefining the term "taxpayer" to include (1) any corporation, (2) any combined group filing a mandatory or elective New Jersey combined return and (3) any partnership required, or consenting, to report or to pay taxes, interest or penalties under the CBTA
  • Applying the CBT rate against the aggregate of a member's taxable net income, non-unitary income and non-operational income assigned to New Jersey
  • Expanding eligibility for the international banking facility deduction to the combined group itself if the group includes a taxable member that is a banking corporation with an international banking facility

The NJ DOT also clarified certain changes that apply to privilege periods ending on or after July 31, 2020, including:

  • Treating members of a combined group as a single taxpayer for purposes of the dividend received exclusion (although applicable to privilege periods ending on or after July 31, 2020, the NJ DOT is administratively applying this change retroactively to privilege periods ended on or after July 31, 2019 (See Tax Alert 2020-2648))
  • Treating a combined group as a single taxpayer for purposes of the Tiered Subsidiary Dividend Pyramid Tax Credit
  • Calculating and applying the CBT rate and surtax using the combined group's income (except for income attributable to a public utility member exempt from the surtax)
    • For this change, the NJ DOT explained that members of the combined group must work out whether a taxable member must reimburse the combined group for the portion of the tax attributable to the portion of a taxable member's activities that are independent of the unitary business of the combined group
  • Adding the statutory minimum tax of each group member together when computing the tax due for the combined group
  • Allowing tax credits to be applied against the group tax liability instead of being applied on an entity-by-entity basis, unless a specific New Jersey state tax credit statute explicitly restricts the sharing of credits with group members
    • Refundable credits are refundable to the member that earned the credit
    • Members can share refundable credits with other members

Combined groups and P.L. 86-272

The NJ DOT stated that the inclusion of a combined group in the definition of a "taxpayer" means that the entire combined group will be deemed to have exceeded the protections of P.L. 86-272 if the activities of a single group member exceed those protections. In the NJ DOT's view, the activities of one or more members in furtherance of the combined group's unitary business must be used to determine whether the combined group itself exceeds the protections of P.L. 86-272. The NJ DOT's interpretation in TB-100 is consistent with the policy it has previously stated in TB-86(R) and TB-89(R).

Managerial member responsibilities

The NJ DOT made clear that the managerial member must be the party that can act on behalf of the combined group and its members to address any inquiries on refunds, the procedures involving closing agreements, Section 8 relief requests (New Jersey's version of alternative apportionment relief) and other matters.


Although several substantive changes to the CBTA are clarified in TB-100, the most significant and controversial is NJ DOT's determination of how P.L. 86-272 will apply in the context of a combined group report. The NJ DOT's broad interpretation of the application of this federal law to expand the test not only to the actual member but to the entire combined group may conflict with federal law, raising possible constitutional questions under the Supremacy Clause. Moreover, the NJ DOT's interpretation of P.L. 86-272 will likely limit (and perhaps entirely eliminate) any sales factor benefit an individual group member may derive from the so-called Joyce4 rule, which is explicitly codified into the CBTA in N.J.S.A. 54:10A-4.75 The NJ DOT's guidance in this part of TB-100 may go beyond, and be inconsistent with, the statute's language.


Contact Information
For additional information concerning this Alert, please contact:
State and Local Taxation
   • Bill Korman (
   • Michael Puzyk (


1 S3007/A4809 was enacted on November 4, 2020. See Tax Alert 2020-2648.

2 Prior NJ DOT guidance on the November 2020 law change is discussed in Tax Alert 2021-0150.

3 P.L. 86-272 prohibits a state from imposing a net income tax on an out-of-state corporation if its only in-state activity is the solicitation of orders by an employee or representative for sales of tangible personal property, and the orders are sent outside the state for approval and filled by shipment from a point outside the state.

4 The "Joyce" rule was first set out in a ruling by the California State Board of Equalization (SBE). In that ruling, the SBE determined that only sales of taxable members of the unitary group (i.e., those companies that individually have nexus in California and are not protected by the benefits of P.L. 86-272) are included in the sales factor numerator when applying California's throwback rule for sales factor apportionment purposes,. In re Joyce, Inc., No. 66-SBE-070, 1966 WL 1411 (Cal. State Bd. of Equalization Nov. 23, 1966). This position contrasts with the subsequent Finnigan rule in which the SBE ruled differently on the same issue and found that all sales into the taxing state made by group members are included in the sales factor numerator so long as any member of the unitary group has nexus within the taxing state, even if the selling entity is not independently taxable in the jurisdiction. In re Finnigan Corp., No. 88-SBE-022-A, 1990 WL 15164 (Cal. State Bd. of Equalization Jan. 24, 1990). The Joyce/Finnigan debate continues to this day and many states refer directly or indirectly to the provisions in the application of their combined reporting rules.

5 N.J.S.A. 54:10A-4.7(a) ("A taxable member of a [New Jersey] combined group shall determine its allocation factor for determining its share of the entire net income of the combined group, … provided however: a. In computing its denominator for the sales fraction, the taxable member shall use the combined group's denominator for that fraction. In computing the numerator of its sales fraction, each taxable member shall be treated as a separate taxpayer and that taxable member's numerator will include only that taxable member's receipts assignable to this State. … " (emphasis added)).