Bill Text: NJ S4239 | 2018-2019 | Regular Session | Introduced
Bill Title: Concerns treatment of certain foreign-sourced income subject to federal income tax treaty under CBT.
Spectrum: Partisan Bill (Democrat 1-0)
Status: (Introduced - Dead) 2019-11-18 - Introduced in the Senate, Referred to Senate Budget and Appropriations Committee [S4239 Detail]
Download: New_Jersey-2018-S4239-Introduced.html
Sponsored by:
Senator TROY SINGLETON
District 7 (Burlington)
SYNOPSIS
Concerns treatment of certain foreign-sourced income subject to federal income tax treaty under CBT.
CURRENT VERSION OF TEXT
As introduced.
An Act concerning the corporation business tax, amending P.L.2018, c.48.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. Section 23 of P.L.2018, c.48 (C.54:10A-4.11) is amended to read as follows:
23. a. The managerial member of a combined group may elect to have the combined group determined on a world-wide basis or an affiliated group basis. If no such election is made, the combined group shall be determined on a water's-edge basis and will take into account the incomes and allocation factors of only the following members of the combined group:
(1) each member incorporated in the United States, or formed under the laws of the United States, any state, the District of Columbia, or any territory or possession of the United States, excluding such a member if eighty per cent or more of both its property and payroll during the privilege period are located outside the United States, the District of Columbia, and any territory or possession of the United States;
(2) each member, wherever incorporated or formed, if twenty per cent or more of both its property and payroll during the privilege period are located in the United States, the District of Columbia, or any territory or possession of the United States;
(3) any member that earns more than 20% 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;
(4) each member that has income as defined under the Corporation Business Tax Act (1945), P.L.1945, c.162 (C.54:10A-1 et seq.) and has sufficient nexus in New Jersey pursuant to section 2 of P.L.1945, c.162 (C.54:10A-2).
b. A world-wide election or an affiliated group election is effective only if made on a timely filed, original return for a privilege period by the managerial member of the combined group. Such election is binding for, and applicable to, the privilege period for which it is made and for the five immediately succeeding privilege periods. Provided however, the election can be revoked prior to the expiration of the binding period by written request to the Director of Taxation for reasonable cause including but not limited to a substantial change in ownership, members of the combined group or principal business, or changes in tax law, regulation or policy.
c. If the managerial member elects to determine the members of a combined group on an affiliated group basis, the taxable members shall take into account the entire net income or loss and allocation factors of all of the members of its affiliated group, regardless of whether such members are engaged in a unitary business, that are subject to tax or would be subject to tax under this chapter, if doing business in this State.
d. For a combined group that determines its net income or loss on a water's-edge basis pursuant to this section, an item of income of a corporation that is organized outside of the United States shall not be included in the net income of the combined group to the extent that the item is exempt from United States federal income tax by virtue of a federal income tax treaty. Any items of expense and apportionment factors related to that item of exempt income shall be excluded in the determination of net income of the combined group to the extent provided in regulations issued by the director. However, that item of exempt income shall be taken into account to determine whether the corporation is included in the water's-edge group pursuant to this section. If a corporation organized outside of the United States is included in a water's-edge combined group and has an item of income that is exempt from United States federal income tax by virtue of a federal tax treaty, the corporation shall be considered to be included in the combined group pursuant to this section only with regard to any items of income described pursuant to this section that are not exempt, taking into account items of expense and apportionment factors associated with those items of non-exempt income to the extent provided by regulations issued by the director.
Nothing in this subsection shall prevent the director from adjusting, pursuant to section 5 of P.L.2002, c.40 (C.54:10A-4.4), section 10 of P.L.1945, c.162 (C.54:10A-10), or any other provision of law, any deduction claimed by the payer for amounts that are excluded from the net income of the combined groups pursuant to this subsection. The director may require the reporting of the amounts of excluded income and the documentation of any claimed treaty exemption as conditions to be met by a payer claiming a deduction of those payments.
e. The director shall promulgate rules and regulations necessary to carry out the provisions of this section.
(cf: P.L.2018, c.48, s.23)
2. This act shall take effect immediately.
STATEMENT
This bill amends the corporation business tax as it relates to treatment of certain foreign-sourced income subject to a federal income tax treaty.
Specifically, the bill provides that, for a combined group that elects to be taxed on a water's-edge basis, certain income derived from a corporation organized outside of the United States would not be included in the net income of the combined group if that income is exempt from federal income tax by operation of a federal income tax treaty. The Director of the Division of Taxation, however, is to develop regulations to clarify the treatment of expenses and apportionment factors related to such exempt income.
