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New Jersey Corporation Business Tax Compliance Initiative Ending; Washington B&O Deadline Remains

by Brandee Tilman
September 28, 2021

Summary

On June 3, 2021, the New Jersey Division of Taxation announced a new compliance initiative for corporation business tax (CBT). The initiative began June 15, 2021, and is slated to end on October 15, 2021. It applies to corporations with New Jersey nexus that filed as part of a combined return in 2019 but previously failed to file separate company returns. The initiative allows corporations to comply with their CBT requirements voluntarily; however, it also penalizes corporations that are eligible for the initiative yet fail to participate.

Companies that had Washington-sourced income in 2020 must submit an Annual Reconciliation of Apportionable Income by October 31, 2021. Though this deadline falls on a weekend, the state has NOT extended it to Monday, so companies should plan to file on or before the Sunday deadline to avoid potential late filing penalties.

In Detail

New Jersey CBT Compliance Initiative

In 2019, New Jersey switched from a separate company reporting state to a mandatory unitary combined reporting state effective for tax years ending on or after July 31, 2019. See P.L. 2018, c. 48 (July 1, 2018) (enacting combined reporting). The managerial member of the CBT return must identify each member in the combined group and describe the company’s New Jersey activities.

The initiative runs from June 15 through October 15. It applies to corporations that engaged in New Jersey nexus-creating activities for tax years prior to filing as part of a combined return for 2019 but previously failed to file separate company returns in the state.

New Jersey’s statute provides a broad “deriving receipts” nexus standard, and physical presence is not required to create nexus. According to TB-79 (R), the general guidelines for determining whether the activities of a corporation create nexus with New Jersey for the purposes of imposing the CBT are as follows:

  • The nature and extent of the activities of the corporation in the state
  • The location of its offices and other places of business
  • The continuity, frequency and regularity of the activities in the state
  • The employment of agents, officers and employees in the state
  • The location of the actual seat of management or control of the corporation

Members of a New Jersey combined group with nexus in New Jersey during a tax year ending before August 1, 2019, may enter into an agreement with the New Jersey Division of Taxation to participate in the initiative under certain conditions. To participate, a non-filing corporation generally must meet the following requirements:

  • The non-filer must not have been incorporated in New Jersey, authorized to do business in New Jersey, or registered for CBT prior to being included as part of a 2019 or 2020 combined return.
  • The non-filer must provide the New Jersey registration number of the managerial member, which begins with NU.
  • The look-back period will be limited to the periods ending after June 30, 2016, or the date nexus was established with New Jersey, whichever is later.
  • The non-filer must pay any tax due within 45 days of executing the closing agreement. The Division of Taxation will issue a bill for any associated interest, which must be paid within 30 days.

For non-filing corporations that meet the requirements above and come forward voluntarily, the Division of Taxation will waive any penalties and not require any returns to be filed for tax years ending prior to June 30, 2016. If approved, the non-filing corporation has 45 days from the execution of the agreement to file the required returns and pay all tax due. New Jersey will subsequently issue an interest assessment and the taxpayer must remit the interest payment within 30 days of the assessment.

Corporations that meet the requirements of the initiative but fail to come forward by October 15, 2021, will be prohibited from later participating in the New Jersey Division of Taxation’s standard voluntary disclosure program. These corporations will also be subject to penalties of up to 30% of the tax due if they are subsequently identified by New Jersey. These corporations may also be required to file returns for tax years prior to the limited look-back period included in the initiative, to the extent they had nexus with the state.

Washington Business and Occupation (B&O) Tax Filing Deadline

Some companies are required to file their Washington B&O tax returns on a monthly or quarterly basis. Washington allows those companies to estimate current taxable income using the prior-year annual receipts factor; however, Washington also requires those companies to reconcile the estimates to actuals to determine whether they are entitled to a refund or owe incremental tax based on the results of the reconciliation.

The Annual Reconciliation of Apportionable Income generally must be filed regardless of whether it produces an adjustment to the estimates submitted on the monthly or quarterly tax returns.

Insights

The New Jersey Division of Taxation appears to be using information gleaned from New Jersey combined report filings to identify prior-year non-filers.

We recommend that each corporation review the members of its New Jersey combined return to determine whether it may have nexus exposure for tax years ending on or before August 1, 2019. To the extent the corporation meets the requirements and decides to participate in the initiative, it may be prudent to evaluate the corporation’s sales-sourcing method before filing any prior-year returns.

Remember to file your Washington B&O Annual Reconciliation of Apportionable Income before Sunday, October 31, 2021, to avoid potential late filing and/or late payment penalties.

If you have any questions about this New Jersey initiative and/or the Washington B&O tax filing deadline, contact our SALT experts.

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Author
Brandee Tilman headshot
National Tax Managing Director
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