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April 14, 2022

New Jersey Division of Taxation changes its policy on the application of P.L. 86-272 to combined group members claiming its protection

The New Jersey Division of Taxation (NJ DOT) announced1 a significant change in its policy for members of combined groups claiming protection from New Jersey Corporation Business Tax (NJ CBT) under P.L. 86-272. P.L. 86-272 is a federal law that prohibits states from imposing state income tax on out-of-state sellers whose in-state activities do not exceed soliciting orders of tangible personal property.

The NJ DOT said it will now determine eligibility for such protections on an entity-by-entity basis. This change in policy affects 2019–2021 NJ CBT returns filed on a combined basis on the NJ Form CBT-100U and could result in significant refunds for certain taxpayers that joined in filing an elective or mandatory combined group NJ CBT return.


In the instructions for the 2019, 2020 and 2021 NJ Form CBT-100U returns and in multiple technical bulletins, including TB-89R,2 the NJ DOT stated:

If one member in the combined group has nexus and sufficient activities in New Jersey to be taxed based on income, no member (i.e., a corporation filing as a member of the combined group) that has nexus with New Jersey may claim P.L. 86-272. (emphasis added)

Under the new policy announced by the NJ DOT on April 12, 2022, P.L. 86-272 protection for a member will be determined on an entity-by-entity basis for each member of the combined group.


The significance of this change in policy may be very significant for affected taxpayers. New Jersey has, by statute, adopted the Joyce method of apportionment for groups filing under the "waters-edge" or "world-wide" group elections3 (taxpayers filing under the "affiliated group" election may not use the Joyce method, so this change in policy does not affect their returns).4 Under the Joyce method, only taxable members (i.e., corporate members of the group with New Jersey nexus) must report New Jersey-sourced receipts. This change in policy will allow some entities to change their status from being a taxable member of the group to being a non-taxable member of the group by giving them protection under P.L. 86-272.5 Accordingly, any New Jersey-sourced receipts from the non-taxable members can be eliminated from the combined group apportionment formula. While the apportionment factors of a non-taxable entity claiming P.L. 86-272 protection will change under this guidance, its taxable income will remain included in the New Jersey combined group's taxable income.

According to the latest NJ DOT guidance, the managerial member of a New Jersey combined group may amend the group's 2019, 2020 and 2021 Form CBT-100U returns to reflect the change in policy, if the group followed the NJ DOT's return instructions and/or guidance in its various technical bulletins on this matter when filing its 2019, 2020 or 2021 Forms CBT-100U.


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


1 N.J. Div. of Tax., "Revision to Division Policy on Combined Groups and P.L. 86-272" (last updated April 12, 2022).

2 N.J. Div. of Tax., TB-89R Combined Group Filing Methods; Revised January 13, 2021 (see Tax Alert 2021-0150).

3 See N.J.S.A. Section 54:10A-4.7.

4 N.J.S.A. Section 54:10A-4.11(c).

5 This policy change does not change the NJ DOT's position on imposing the fixed-dollar minimum tax on members protected by P.L. 86-272.