New Jersey Issues Guidance for Mandatory Unitary Combined Reporting

June 25, 2019

As part of a major corporate tax overhaul, New Jersey enacted mandatory combined unitary reporting for taxable years ending on or after July 31, 2019, and taxpayers should take time to familiarize themselves with these rules and plan for the potential impact to their state tax liability.

By Jeff Glickman, SALT Partner

In the second half of 2018, New Jersey Governor Murphy signed two pieces of legislation that, among other things, enacted mandatory unitary combined reporting for the state’s Corporation Business Tax (“CBT”) for tax periods ending on or after July 31, 2019.[1]  Since then, the Division of Taxation has issued several tax bulletins explaining the combined reporting rules.[2]  This article provides a high-level summary of some of the key reporting features of the state’s combined reporting regime.

A “combined group” consists of all companies that have common ownership and are engaged in a unitary business, where at least one company is subject to the CBT (i.e., has nexus).  Common ownership is set at more than 50 percent direct or indirect voting control, and ownership attribution rules under Internal Revenue Code section 318 are applicable.

A “unitary business” means a single economic enterprise that is made up either of separate parts of a single business entity or of a group of business entities under common ownership that are sufficiently interdependent, integrated and interrelated through their activities so as to provide a synergy and mutual benefit that produces a sharing or exchange of value among them and a significant flow of value among the separate parts.”

Generally, entities included in the combined group are C-corporation and entities treated as C-corporations for CBT purposes, including certain captive insurance companies.  In addition, New Jersey S-corporations and qualified subchapter S subsidiaries may elect to be included in the combined group.

Partnerships and entities treated as partnerships that are conducting a business that is unitary with the combined group are not considered members of the combined group, but their corporate partners will report the income from the partnership activity.  In addition, entities that are treated as disregarded entities are not members of the combined group, but the tax attributes of such disregarded entity are reported by its member that is part of a combined group.

TB-86(R) notes that the legislation was silent on whether or not Real Estate Investment Trusts, Regulated Investment Companies, and Investment Companies are eligible to be included in a combined report, and therefore the bulletin requires that for 2019, these entities are required to report on a separate entity basis.

The default combined reporting methodology is water’s-edge group reporting, which generally includes the following entities:

  • members formed under the laws of the United States or of any state unless 80 percent or more of such corporation’s property and payroll are outside the United States for such tax year;
  • any member, wherever formed, if 20 percent or more of such corporation’s property and payroll are located in the United States for such tax year;
  • Any member that earns more than 20 percent of its income, directly or indirectly, from intangible property or related service activities that are deductible against the income of other members of the combined group; and,
  • Each member that has income as defined under the CBT and has sufficient nexus in New Jersey.

The group may elect to one of two alternative combined reporting methodologies: “world-wide group” and “affiliated group.”  Elections are binding for the tax year in which they are made and the five subsequent tax years.

For purposes of the CBT’s singles sales factor apportionment method, both the water’s-edge and world-wide group reporting follow the Joyce method, meaning that the numerator of the group’s sales factor includes only the New Jersey-sourced receipts of taxable members (i.e., those members of the group that have nexus with New Jersey).  However, under the affiliated-group reporting election, members follow the Finnigan method, meaning that the sales factor numerator includes the New Jersey-sourced receipts of all of the members, regardless of nexus.

The legislation that enacted New Jersey’s combined reporting rules were part of a comprehensive overhaul of the state’s corporate tax rules, which include a shift from cost-of-performance to market-based sourcing of service revenues for apportionment purposes as well as a change in the computation of net operating losses from pre-apportionment to post-apportionment.  In addition, there are plenty of additional details regarding New Jersey’s combined reporting rules, and taxpayers should become familiar with all of these revisions in order to understand and plan for any changes to their New Jersey corporate income tax liability.

Aprio’s SALT team has experience with these new rules and can assist taxpayers in their review and make recommendations for mitigating any unfavorable impact.  We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at for more information.

This article was featured in the June 2019 SALT Newsletter.

[1] See Assembly Bill No. 4202 (P.L. 2018, c.48) and Assembly Bill No. 4495 (P.L. 2018, c.131).

[2] See TB-86(R): Included and Excluded Business Entities in a Combined Group and the Minimum Tax of a Taxpayer that is a Member of a Combined Group (Revised May 15, 2019); TB-89: Combined Group Filing Methods (May 21, 2019); and TB-90: Tax Credits and Combined Returns (June 21, 2019).

Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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About the Author

Jeff Glickman

Jeff Glickman is the partner-in-charge of Aprio, LLP’s State and Local Tax (SALT) practice. He has over 18 years of SALT consulting experience, advising domestic and international companies in all industries on minimizing their multistate liabilities and risks. He puts cash back into his clients’ businesses by identifying their eligibility for and assisting them in claiming various tax credits, including jobs/investment, retraining, and film/entertainment tax credits. Jeff also maintains a multistate administrative tax dispute and negotiations practice, including obtaining private letter rulings, preparing and negotiating voluntary disclosure agreements, pursuing refund claims, and assisting clients during audits.