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July 5, 2023

New Jersey Governor signs bill overhauling Corporation Business Tax

On Monday, July 3, 2023, New Jersey Governor Phil Murphy signed into law Senate Bill 3737/Assembly Bill 5323 (the Legislation), which significantly overhauls key aspects of the Corporation Business Tax Act (the CBT Act).  The Legislation is the latest of several CBT Act reform bills enacted since the adoption of combined reporting for tax years ending after July 31, 2019. 

Key provisions

Retroactively effective for tax years beginning after December 31, 2017

The Legislation requires taxpayers to compute the IRC Section 163(j) interest deduction limitation on a federal consolidated basis, which includes federal consolidated filing affiliates not included in a New Jersey return. If a New Jersey combined group includes affiliates not included in the federal consolidated return, the Legislation requires taxpayers to compute the IRC Section 163(j) interest deduction limitation on a New Jersey combined basis.

Retroactively effective for tax years beginning on or after January 1, 2022

The Legislation modified decoupling from the IRC Section 174 amortization requirement for research and experimental expenditures by allowing a current year deduction for expenses incurred during the same privilege period for which a New Jersey research and development credit is claimed.

Retroactively effective for tax years ending on or after July 31, 2022

Worldwide filing groups The Legislation establishes worldwide filing to require inclusion of income from all sources (not limited to US effectively connected income (ECI) or limited by treaty).

Water’s edge and affiliated group filing Foreign affiliates includable under either a water’s edge or an affiliated group filing are included only to the extent of ECI, subject to treaty limitations. The Legislation does not allow expense items associated with any excluded income as deductions. It also eliminates receipts not included in taxable income under this provision from the receipts factor.

Net operating loss (NOL) adjustments in tax years closed for assessment The New Jersey Director of Taxation (Director) may make adjustments to NOLs in closed years to determine the correct tax liability in tax years still open under the statute of limitations. The Director may go as far back as 10 years to make the NOL adjustments.

Effective for tax years beginning on or after January 1, 2023

Nonresident taxpayers subject to the Gross Income Tax (i.e., individuals and trusts) who own a trade or business or who receive distributive shares from a trade or business (operating as a partnership, limited liability company, or subchapter S corporation) may be required to determine New Jersey source income via the CBT Act (i.e., using a single sales factor with different income sourcing methodologies).

Effective for tax years ending on or after July 31, 2023

Intercompany interest and royalty payments The Legislation repeals the intercompany interest and royalty expense disallowance provisions.

Dividend-related provisions — The Legislation makes the following changes:

  • The dividend received exclusion for dividends received from an 80% or greater owned subsidiary is increased from 95% to 100%, with a corresponding expense deduction disallowance in the amount of 5% of the excluded dividend.
  • Global Intangible low-taxed income (GILTI) is treated as dividend income that is eligible for the dividend exclusion.
  • The 50% GILTI deduction under IRC Section 250 is required to be added back to the entire net income.
  • The dividend received exclusion is determined before the deduction of NOL carryforwards. 
  • The dividend received exclusion may not create an NOL.

NOL provisions — The Legislation conforms to the 80% limitation on utilization of NOLs under IRC Section 172 NOL. It also allows sharing of NOL and prior NOL (PNOL) carryforwards among combined group members, regardless of whether such NOL or PNOL carryforwards were created within a combined filing with the sharing members.

Combined reporting provisions — The Legislation repeals the provision pertaining to water’s edge filing that required members (wherever organized) with New Jersey taxing nexus to be included in the water’s edge combined return. Other changes made by the Legislation include:

  • A partnership that is unitary with a combined group is not required to pay the tax on the distributive share of income belonging to a company with a regular place of business in New Jersey.
  • The numerator and the denominator of the combined group will be computed as if the group was one taxpayer.
  • The “Finnigan” approach to sourcing receipts to New Jersey replaces the “Joyce” approach for water’s edge and worldwide combined filing methods.  Under Finnigan, all New Jersey-sourced receipts of combined group members are includable in the receipts factor numerator, regardless of whether the member has New Jersey nexus.
  • The managerial member period is reduced from 10 to six years.
  • Real estate investment trusts (REIT), regulated investment companies (RIC) and investment companies (IC) that are regarded as “captive” are required to be included in a combined filing as regular corporations, and all federal deductions and exclusions specific to REITs, RICs and ICs are inapplicable.

These REIT, RIC and IC provisions do not apply to REITs, RICs and ICs for which at least 50% of the shares, by vote or value, is owned or controlled, directly or indirectly, by a state or federally chartered bank, savings bank, or savings and loan association with assets that do not exceed $15 billion. The Legislation establishes an exception for any voting stock held in a segregated account of a life insurance company.

Nexus standard The Legislation adopts the Wayfair nexus standard for CBT purposes (i.e., New Jersey sales of $100,000 or 200 separate New Jersey customer transactions).

Administrative — The Legislation makes the following administrative changes:

  • Establishes the due date of the New Jersey return is the 15th day of the month immediately following the month of the original/extended federal corporate return filing due date
  • Increases the installment payment exemption to $1,500 (from $500) of annual tax liability
  • Empowers the Director to waive installment underpayment interest

Items of note

The New Jersey Legislature did not extend the 2.5% CBT surtax beyond 2023, nor did it grant the Director certain broad authority to redetermine combined income.

The Office of Legislative Services (OLS) scored the Legislation as being revenue neutral on a long-term basis. The most prominent provisions from a revenue standpoint, as determined by the OLS, include:

  • Joyce-to-Finnigan rule switch — Increases annual revenue by at least $45.4 million
  • Treatment of certain REITs, RICs, and ICs — Increases annual revenue by $60.5 million
  • Nexus clarification — Increases annual revenue by at least $25.5 million
  • GILTI/FDII reform — Decreases annual revenue by at most $122.8 million


Given the breadth of the changes included in the Legislation, it is likely that the New Jersey CBT filings of virtually all taxpayers will be impacted to some degree.  Taxpayers with NOL carryforwards, GILTI and dividend income and New Jersey research expenses stand to benefit from the legislation.  Conversely, taxpayers may be disadvantaged if they (1) rely on the Joyce apportionment method, (2) have significant deferred tax deduction balances or (3) have substantial income from captive REITs, RICs and ICs.  Taxpayers that file in combination, particularly those with foreign members, should reevaluate their combined filing postures.  Those taxpayers with pass-through income should analyze the impact of potentially sourcing income under the CBT rules.  All taxpayers should determine the impact of the legislation on their estimated tax obligations.


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

Published by NTD’s Tax Technical Knowledge Services group; Jennifer A Brittenham, legal editor