N.J. Admin. Code § 18:7-8.7

Current through Register Vol. 56, No. 24, December 18, 2024

Section 18:7-8.7 - Business allocation factor; determination of receipts fraction

(a) The percentage of the taxpayer's receipts within New Jersey is determined by ascertaining the taxpayer's receipts allocable to New Jersey during the period covered by the return and dividing the sum of the receipts by the taxpayer's total receipts within and outside New Jersey during such period.

(b) The receipts of the taxpayer are to be computed on the cash, accrual, or other method of accounting used in computation of its net income for Federal income tax purposes. However, the numerator and denominator of the receipts fraction must, in any event, relate to the entire net income recognized during the period covered by the return.

Example 1:

Taxpayer is engaged in long-term construction contracting. It has elected to recognize income for tax purposes on the completed contract method of accounting whereby it recognizes the net income on its contracts in their entirety in the year of completion.

The composition of the receipts fraction must be determined in harmony with the entire net income to which it relates. The numerator and denominator of the receipts fraction must reflect the entire contract revenues on completed contracts recognized in entire net income during the period covered by the return.

Example 2:

Taxpayer recognizes income on a sale for tax purposes on the installment method.

The numerator and denominator of the receipts fraction should include the same proportion of the sale as is prorated as recognized income to the year covered by the return.

(c) Entire net income shall be included or excluded, as follows:

1. All income which is included in entire net income enters into the numerator and denominator of the receipts fraction.

2. Any income that is excluded from entire net income is also excluded from the numerator (New Jersey receipts) and denominator of the receipts fraction, except for banking corporations with international banking facilities as provided at P.L. 1983, c. 422. See N.J.S.A. 54:10A-6.

Example:

Dividends recognized as income for purposes of determining Federal income tax but which are excluded from entire net income under N.J.S.A. 54:10A-4(k)(1) must also be excluded in computing the receipts fraction.

(d) The receipts sourced to a state, a possession or territory of the United States or the District of Columbia or to any foreign country in which the taxpayer is not subject to a tax on or measured by profits or income or business presence or business activity shall be excluded from the denominator of the sales fraction. This principle applies to single entity taxing jurisdictions, as well as post-apportionment combination states. The rule also permits the throwout of receipts to pre-apportionment combination states. Receipts from pre-apportionment combination states are not required to be thrown out of the denominator of the New Jersey receipts fraction if they create a potential tax in a foreign state. For purposes of this subsection, "pre-apportionment combination states" are those states where the receipts from all states are added together before the apportionment factor is calculated. "Post-apportionment combination states" are those where the various apportionment factors are calculated first then totaled. If a taxpayer believes that application of the throwout rule in a particular situation produces an improper allocation, the taxpayer may avail itself of the prescribed avenues to request the Director's discretionary adjustment of the allocation factor pursuant to N.J.S.A. 54:10A-8. Notwithstanding the foregoing, for privilege periods beginning on or after July 1, 2010, the receipts sourced to a state, a possession or territory of the United States or the District of Columbia, or to any foreign country in which the taxpayer is not subject to a tax on or measured by profits or income or business presence or business activity are not required to be excluded from the denominator of the sales fraction found in N.J.S.A. 54:10A-6(B).

Example: ABC Inc., a New Jersey corporation, manufactures goods in New Jersey. It also maintains an office in Philadelphia. Eighty percent of ABC Inc.'s payroll and property are in NJ. It sells 30 percent of its goods to NJ customers; 30 percent to PA customers; and 40 percent to customers in other states. ABC Inc. files returns and pays tax to NJ and PA only. It is not subject to tax in other states due to the protection of P.L. 86-272. ABC Inc. has entire net income of $ 1,000,000.

For tax year 2001, beginning 1/1/01, and ending 12/31/01, its allocation factor is:

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For tax year 2001, beginning 1/1/01, and ending 12/31/01, its allocation factor is:

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(e) Receipts that are included in the numerator of a jurisdiction's receipts fraction by reason of the operation of a throwback provision are deemed not to be receipts assigned to that jurisdiction and are, therefore, excludible from this State's receipts fraction denominator.

(f) For pre-throwout repeal returns the amount by which the exclusion of receipts from the denominator of the sales fraction increases the liability of all the members of an affiliated group or controlled group pursuant to I.R.C. § 1505 or 1563 over the liability calculated without application of the exclusion shall not exceed $ 5,000,000. If the exclusion increases the liability of all the members of an affiliated group or controlled group by more than $ 5,000,000 for the privilege period, then the amount of liability in excess of $ 5,000,000 due to the exclusion shall be abated, and the abated liability shall be allocated among the members of the affiliated group or the controlled group in proportion to each member's increase in liability due to the exclusion of such receipts. The Director may allow a single corporation within the affiliated group or controlled group to act as the key corporation (clearinghouse) for the abatement. "Business presence" or "business activity" taxes include, but are not limited to, net worth taxes, gross receipts taxes, and single business taxes. For example, business presence or business activity taxes include, but are not limited to, the Pennsylvania Bank Shares Tax (72 P.S. 7701 et seq.) and the New York Franchise Tax on Banking Corporations (Article 32 of the New York tax laws). Property taxes, excise taxes (for example, cigarette taxes), payroll taxes, and sales taxes are not considered "business presence" or "business activity" taxes.

(g) For pre-throwout repeal returns the exclusion of sales increases the liability of a single entity taxpayer that is independent of and not affiliated with any controlled or affiliated group as defined above, then such increase shall be capped at $ 5,000,000 and the excess shall be abated.

N.J. Admin. Code § 18:7-8.7

Amended by 49 N.J.R. 1694(a), effective 6/19/2017

Amended by 54 N.J.R. 1819(a), effective 9/19/2022