N.J. Admin. Code § 14:3-8.6

Current through Register Vol. 56, No. 11, June 3, 2024

Section 14:3-8.6 - Deposits, contributions, and refunds-Internal Revenue Code gross up for income taxes

(a) This section applies to a regulated entity that:

1. Collects a deposit or non-refundable contribution that is taxable in whole, or in part, pursuant to the Internal Revenue Code; and

2. Includes in the deposit or non-refundable contribution the associated tax consequences incurred by the regulated entity pursuant to the Internal Revenue Code.

(b) If a regulated entity includes in a deposit or non-refundable contribution the tax consequences incurred pursuant to the Internal Revenue Code, all deposit refunds shall also include the associated tax consequences incurred pursuant to the Internal Revenue Code. These tax consequences shall be determined in accordance with this section.

(c) The Internal Revenue Code gross-up factor shall be:

1. Designed to incorporate the impact on the regulated entity of the initial tax payment on the deposit or non-refundable contribution;

2. Designed to incorporate the impact on the regulated entity of the future tax depreciation deductions that are associated with the extension; and

3. For a gas, electric, water, or wastewater regulated entity, calculated using the Internal Revenue Code (IRC) Gross-up Factor Template posted on the Board's website, http://www.nj.gov/bpu/about/divisions/energy/.

(d) To determine the amount of a deposit or non-refundable contribution that includes the associated tax consequences incurred pursuant to the Internal Revenue Code, the regulated entity shall:

1. Determine the base amount of the deposit or non-refundable contribution, before including the tax consequences of the Internal Revenue Code;

2. Determine the portion of the base deposit or non-refundable contribution that is taxable pursuant to the Internal Revenue Code. This is the "taxable amount";

3. Multiply the taxable amount determined pursuant to (d)2 above by the regulated entity's Internal Revenue Code gross-up factor determined pursuant to (c) above. The result is the "grossed up" portion of the deposit or non-refundable contribution;

4. Add the grossed up amount determined pursuant to (d)3 above to any non-taxable portion of the base deposit or non-refundable contribution. The result is the total deposit or non-refundable contribution that the applicant will pay, inclusive of the regulated entity's associated tax consequences incurred pursuant to the Internal Revenue Code; and

5. To determine the dollar amount of the regulated entity's associated tax consequences incurred pursuant to the Internal Revenue Code, subtract the base amount of the deposit or non-refundable contribution, determined pursuant to (d)1 above, from the total deposit or non-refundable contribution that the applicant will pay, determined pursuant to (d)4 above.

(e) In determining the amount of a refund associated with a deposit that includes the associated tax consequences incurred pursuant to the Internal Revenue Code, the regulated entity shall ensure that the percentage of the refund that is grossed up for taxes shall be equal to the percentage of the deposit that was grossed up for taxes. To do this, the regulated entity shall:

1. Determine the base amount of the refund (before considering the tax consequences of the Internal Revenue Code), using the suggested formula at N.J.A.C. 14:3-8.9 or 8.11, as applicable;

2. Determine what percentage of the base deposit (from (d)1 above) is represented by the taxable amount of the deposit (from (d)2 above);

3. Multiply the percentage determined at (e)2 above by the base amount of the refund determined at (e)1 above. The result is the dollar amount of the refund that must be grossed up to include the tax consequences that the regulated entity incurred pursuant to the Internal Revenue Code;

4. Multiply the dollar amount determined pursuant to (e)3 above by the same gross-up factor that was applied to the original deposit when it was collected, regardless of when the deposit was collected. The result is the grossed up portion of the refund; and

5. Add the grossed up amount determined pursuant to (e)4 above to the remainder of the base refund amount, that is, the amount that was not grossed up for the tax consequences of the Internal Revenue Code. The sum is the refund amount.

(f) Each regulated entity that collects deposits and non-refundable contributions that are taxable pursuant to the Internal Revenue Code shall comply with all of the following:

1. As of June 17, 2024, each regulated entity that utilizes electric and/or gas depreciation rates shall calculate its Internal Revenue Code gross-up factor pursuant to (c) above and file this factor, along with the completed IRC Gross-up Factor Template, with the Board Secretary and the Director of the Board's Division of Energy. A regulated entity that utilizes both electric and gas depreciation rates shall file both of its gross-up factors and accompanying completed templates;

2. As of June 17, 2024, each regulated entity that utilizes water and/or wastewater depreciation rates shall calculate its Internal Revenue Code gross-up factor pursuant to (c) above and file this factor, along with the completed IRC Gross-up Factor Template, with the Board Secretary and Director of the Board's Division of Water;

3. As of June 17, 2024, each regulated entity that utilizes telecommunication depreciation rates shall calculate its Internal Revenue Code gross-up factor pursuant to (c) above and file this factor along with a detailed calculation of this factor with the Board Secretary and Director of the Board's Division of Telecommunications; and

4. If a regulated entity's Internal Revenue Code gross-up factor changes, for example, if the capital structure, tax rates, or deprecation rates change, the regulated entity shall calculate its new Internal Revenue Code gross-up factor pursuant to (c) above and file this factor along with the template or detailed calculation, as applicable, within 14 calendar days of the change.

N.J. Admin. Code § 14:3-8.6

Adopted by 47 N.J.R. 3133(c), effective 12/21/2015

Amended by 54 N.J.R. 1612(a), effective 8/15/2022

Amended by 56 N.J.R. 1026(a), effective 6/3/2024