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A5039
ASSEMBLY, No. 5039
STATE OF NEW JERSEY
222nd LEGISLATURE
�
INTRODUCED MAY 11, 2026
Sponsored by:
Assemblywoman� KATIE BRENNAN
District 32 (Hudson)
Co-Sponsored by:
Assemblywoman Haider and Assemblyman Bhalla
SYNOPSIS
���� Requires combined groups to be determined on
world-wide basis under corporation business tax.
CURRENT VERSION OF TEXT
���� As introduced.
��
An Act
mandating world-wide basis determination of combined
groups and amending P.L.2018, c.48.
����
Be It
Enacted
by the Senate and General Assembly of
the State of New Jersey:
���� 1.��� Section 18 of P.L.2018,
c.48 (C.54:10A-4.6) is amended to read as follows:
���� 18.� A taxable member of a
combined group shall determine its entire net income from the unitary business
as its share of the entire net income of the combined group in accordance with
a combined unitary tax return made pursuant to this section and sections 19,
20, and 23 of P.L.2018, c.48 (C.54:10A-4.7, C.54:10A-4.8, and C.54:10A-4.11).�
The entire net income from the unitary business of a combined group is the sum
of the entire net incomes of each taxable member and each nontaxable member of
the combined group derived from the unitary business, which shall be determined
as follows:
���� a.���� For a member
incorporated in the United States, the income to be included in the entire net
income of the combined group shall be the member's entire net income otherwise
determined pursuant to the Corporation Business Tax Act (1945), P.L.1945, c.162
(C.54:10A-1 et seq.).
���� b. (1) For a member not
incorporated in the United States, the income to be included in the entire net
income of the combined group shall be determined from a profit and loss
statement that shall be prepared for each foreign branch or corporation in the currency
in which the books of account of the branch or corporation are regularly
maintained, adjusted to conform it to the accounting principles generally
accepted in the United States for the presentation of those statements and
further adjusted to take into account any book-tax differences required by
federal or State law.� The profit and loss statement of each foreign member of
the combined group and the allocation factors related thereto, whether United
States or foreign, shall be translated into or from the currency in which the
parent company maintains its books and records on any reasonable basis
consistently applied on a year-to-year or entity-by-entity basis. Income shall
be expressed in United States dollars. In lieu of these procedures and subject to
the determination of the director that the income to be reported reasonably
approximates income as determined under the Corporation Business Tax Act
(1945), P.L.1945, c.162 (C.54:10A-1 et seq.), income may be determined on any
reasonable basis consistently applied on a year-to-year or entity-by-entity
basis.
���� (2) For privilege periods
ending on and after July 31, 2022:
���� (a) Notwithstanding any law or
treaty to the contrary, and regardless of the combined return filing method
other than a world-wide group combined return, for a member that is
incorporated or formed in a foreign nation with a comprehensive tax treaty with
the United States, entire net income shall not include an item of income or
loss excluded or exempted from federal taxable income under the terms of the
treaty, and no other deduction, exclusion, or elimination will be permitted for
an item of income or loss excluded or exempted by this paragraph.
���� (b) For a corporation that is
not incorporated in the United States, and that is a member of a water's-edge
group
for privilege periods ending before July 31, 2026
or
an
affiliated group for purposes of filing a combined return, the member shall
only include in entire net income the following:� in the case of a member that
files a federal tax return, the member shall only include the member's
effectively connected income or loss reported for federal purposes, as modified
by the provisions of the Corporation Business Tax Act (1945), P.L.1945, c.162
(C.54:10A-1 et seq.); and in the case of a member that does not file a federal
tax return but that has United States source income or loss, the member shall
only include that United States source income or loss, as modified by the
provisions of the Corporation Business Tax Act (1945), P.L.1945, c.162
(C.54:10A-1 et seq.), to the extent that United States source income or loss
would otherwise be effectively connected income or loss if the member would
have been conducting a business that is effectively connected to the United
States.� For the purpose of determining what income or loss to include in
entire net income pursuant to this paragraph, the member shall take into
account only the items of expense and allocation factor receipts attributable
to that income or loss.
���� c. (1) (a) For privilege
periods ending before July 31, 2023, if a member of a combined group receives
income from the unitary business from a partnership, the combined group's
entire net income shall include the member's direct and indirect distributive
share of the partnership's unitary business income.
���� (b) For privilege periods
ending on and after July 31, 2023, if a member of a combined group receives
income from the unitary business from a partnership, the combined group's
entire net income shall include the member's direct and indirect distributive share
of the partnership's unitary business income, and the unitary partnership shall
not be liable for the portion of the payment imposed pursuant to section 12 of
P.L.2002, c.40 (C.54:10A-15.11) that is directly, or indirectly in the case of
a tiered partnership, attributable to that member.
���� (2) The distributive share of
income received by a limited partner from a qualified investment partnership
shall not be considered to be derived from a unitary business unless the
general partner of such investment partnership and such limited partner have
common ownership. To the extent that the limited partner is otherwise carrying
on or doing business in New Jersey, it shall allocate its distributive share of
income from a qualified investment partnership in accordance with subsection a.
of section 3 of P.L.2001, c.136 (C.54:10A-15.6) or subsection a. of section 4
of P.L.2001, c.136 (C.54:10A-15.7) as applicable. If the limited partner is not
otherwise carrying on or doing business in New Jersey, its distributive share
of income from an investment partnership is not subject to tax under this
chapter.
���� d.��� All dividends paid by
one member to another member of the combined group shall be eliminated from the
income of the recipient.
���� e.���� Except as otherwise
provided by regulation, business income from an intercompany transaction among
members of the same combined group shall be deferred in a manner similar to the
deferral under 26 C.F.R. s.1.1502-13, as determined by the director. Upon the
occurrence of either of the events set forth in paragraphs (1) and (2) of this
subsection, deferred income resulting from an intercompany transaction among
members of a combined group shall be restored to the income of the seller and
shall be included in the net income of the combined group as if the seller had
earned the income immediately before the event:
���� (1) The object of a deferred
intercompany transaction is: (a) resold by the buyer to an entity that is not a
member of the combined group, (b) resold by the buyer to an entity that is a
member of the combined group for use outside the unitary business in which the
buyer and seller are engaged, or (c) converted by the buyer to a use outside
the unitary business in which the buyer and seller are engaged; or
���� (2) The buyer and seller cease
to be members of the same combined group, regardless of whether the buyer and
seller remain 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 between them.
���� In the case of an event set
forth in paragraph (2) of this subsection, no portion of the income or loss
shall be included in entire net income of the combined group, but shall be
included in the entire net income of the respective member.
���� f.���� A charitable expense
incurred by a member of a combined group shall, to the extent allowable as a
deduction pursuant to section 170 of the federal Internal Revenue Code, 26
U.S.C. s.170, be subtracted first from the combined group's entire net income,
subject to the income limitations of that section applied to the entire net
income of the group. A charitable deduction disallowed under section 170 of the
federal Internal Revenue Code, 26 U.S.C. s.170, but allowed as a carryover
deduction in a subsequent privilege period, shall be treated as originally
incurred in the subsequent year by the same member and the provisions of this
section shall apply in the subsequent privilege period in determining the
allowable deduction for that privilege period.
���� g.��� A prior net operating
loss conversion carryover incurred by a member of a combined group shall be
deducted from the entire net income or loss allocated to this State pursuant to
section 19 of P.L.2018, c.48 (C.54:10A-4.7) as follows:
���� (1) For privilege periods
ending before July 31, 2023, a prior net operating loss conversion carryover
deduction shall be allowed to offset only the entire net income allocated to
this State of the corporation that created the prior net operating loss; the
prior net operating loss conversion carryover cannot be shared with other
members of the combined group.� For privilege periods ending on and after July
31, 2023, the remaining balance of prior net operating loss conversion
carryover deductions of the members of the combined group shall be pooled
together and shall be allowed to offset the entire net income allocated to this
State of either: the combined group for which the corporation is a member; or
the corporation that created the prior net operating loss conversion carryover,
provided that the corporation departs the combined group before the
corporation's respective prior net operating loss conversion carryover has been
completely used.
���� (2) The prior net operating
loss conversion carryover deduction computed under subsection (u) of section 4
of P.L.1945, c.162 (C.54:10A-4) shall be applied against the entire net income
allocated to this State before the net operating loss carryover computed under
subsection h. of this section.
���� (3) For privilege periods
ending before July 31, 2023, the director shall provide regulations
establishing rules on how each such corporation shall apply its prior net
operating loss conversion carryover against its share of entire net income
allocated as if filing on a separate entity basis.� For privilege periods
ending on and after July 31, 2023, the director shall provide regulations
establishing rules on pooling members' prior net operating loss conversion
carryovers and tracing members' prior net operating loss conversion carryovers
in the event a member departs the combined group before the member's prior net
operating loss conversion carryovers are completely used.
���� (4) For privilege periods
ending before the members of a combined group pool their prior net operating
loss conversion carryovers for usage by the combined group, a member of the
combined group may sell prior net operating loss conversion carryover to other
members of the combined group, if otherwise applicable and allowable under
section 2 of P.L.1997, c.334 (C.54:10A-4.2) and section 1 of P.L.1997, c.334
(C.34:1B-7.42a); provided, however, such sale of prior net operating loss
conversion carryover must be made at arm's length price at the same rate as
though the sale was to an unrelated taxpayer.
���� h.��� A net operating loss
carryover incurred by a combined group or by a member of the combined group
shall be deducted from entire net income or loss allocated to this State
pursuant to section 19 of P.L.2018, c.48 (C.54:10A-4.7) as follows:
���� (1) (a) For privilege periods
beginning on or after the first day of the initial privilege period for which a
combined unitary tax return is required under this section and sections 19, 20,
and 23 of P.L.2018, c.48 (C.54:10A-4.7, C.54:10A-4.8, and C.54:10A-4.11), but
ending before July 31, 2023, if the computation of a combined group's entire
net income allocated to this State results in a net operating loss, a taxable
member of such group may carry over the net operating loss allocated to this
State, as calculated under this section and sections 19 and 23 of P.L.2018,
c.48 (C.54:10A-4.7 and C.54:10A-4.11), and shall be deductible from entire net
income derived from the unitary business in a future privilege period to the
extent that the carryover and deduction is otherwise consistent with subsection
(v) of section 4 of P.L.1945, c.162 (C.54:10A-4).
���� (b) For privilege periods
ending on and after July 31, 2023, if the computation of a combined group's
entire net income allocated to this State results in a net operating loss, a
combined group may carry over the net operating loss allocated to this State,
as calculated under this section and sections 19 and 23 of P.L.2018, c.48
(C.54:10A-4.7 and C.54:10A-4.11), and shall be deductible from entire net
income derived from the unitary business in a future privilege period to the
extent that the carryover and deduction is otherwise consistent with subsection
(v) of section 4 of P.L.1945, c.162 (C.54:10A-4).
���� (2) (a) Where a taxable member
of a combined group has a net operating loss carryover derived from a loss
incurred by a combined group in a privilege period beginning on or after the
first day of the initial privilege period for which a combined unitary tax
return is required under this section and sections 19, 20, and 23 of P.L.2018,
c.48 (C.54:10A-4.7, C.54:10A-4.8, and C.54:10A-4.11), but ending before July
31, 2023, then the taxable member may share the net operating loss carryover
with other taxable members of the combined group if such other taxable members
were members of the combined group in the privilege period that the loss was
incurred. Any amount of net operating loss carryover that is deducted by
another taxable member of the combined group shall reduce the amount of net
operating loss carryover that may be carried over by the taxable member that
originally incurred the loss.
���� (b) Where a combined group has
a net operating loss carryover derived from a loss incurred by the combined
group in a privilege period ending on or after July 31, 2023, then the combined
group may use the net operating loss carryover.� Any amount of net operating
loss carryover that is deducted by the combined group shall reduce the amount
of net operating loss carryover that may be carried over by the combined group.
���� (3) Where a taxable member of
a combined group has a net operating loss carryover derived from a loss
incurred in a privilege period during which the taxable member was not a member
of such combined group, the carryover shall remain available to be deducted by
that taxable member or other group members that, in the year the loss was
incurred, were part of the same combined group as such taxable member. Such
carryover shall not be deductible by any other members of the combined group
for privilege periods ending before July 31, 2023.� For privilege periods
ending on and after July 31, 2023, such carryover may (a) be pooled with the
combined group net operating loss carryover for use by the combined group or
(b) be used by the taxable member that generated the carryover for that
member's activities that are independent of the unitary business of the
combined group; provided, however, the combined group and the members of the
combined group shall use tracing protocols for all net operating loss
carryovers, as may be prescribed by regulations promulgated by the director.
���� (4) A net operating loss
carryover or, for privilege periods ending on and after July 31, 2023, a
combined group net operating loss carryover, shall not include any net
operating loss incurred during any privilege period beginning prior to the
first day of the initial privilege period for which a combined unitary tax
return is required under this section and sections 19 and 23 of P.L.2018, c.48
(C.54:10A-4.7 and C.54:10A-4.11).
���� (5) Where a taxable member of
a combined group has a net operating loss carryover derived from a loss
incurred by a combined group in a privilege period beginning on or after the
first day of the initial privilege period for which a combined unitary tax return
is required under this section and sections 19, 20, and 23 of P.L.2018, c.48
(C.54:10A-4.7, C.54:10A-4.8, and C.54:10A-4.11), and the taxable member departs
the combined group and continues to be a taxpayer for the purposes of the
Corporation Business Tax Act (1945), P.L.1945, c.162 (C.54:10A-1 et seq.), the
taxable member shall be entitled to take its respective portion of the combined
group net operating loss carryover and the combined group shall not be entitled
to use such portion of the net operating loss carryover.
���� (6) For privilege periods
ending on and after July 31, 2023, each taxable member of a combined group
shall track that member's proportionate share of any combined group net
operating loss carryovers used.
���� i.���� Tax credits earned by a
member of a combined group shall be utilized as follows:
���� (1) If a taxable member of a
combined group earns a tax credit in a privilege period beginning on or after
the first day of the initial privilege period for which a combined unitary tax
return is required under this section and sections 19, 20, and 23 of P.L.2018,
c.48 (C.54:10A-4.7, C.54:10A-4.8, and C.54:10A-4.11), then the taxable member
may share the credit with other taxable members of the combined group. Any
amount of credit that is utilized by another taxable member of the combined
group shall reduce the amount of credit carryover that may be carried over by
the taxable member that originally earned the credit. If a taxable member of a
combined group has a tax credit carryover derived from a privilege period
beginning on or after the first day of the initial privilege period for which a
combined unitary tax return is required under this section and sections 19, 20,
and 23 of P.L.2018, c.48 (C.54:10A-4.7, C.54:10A-4.8, and C.54:10A-4.11), then
the taxable member may share the carryover credit with other taxable members of
the combined group.
���� (2) If a taxable member of a
combined group has a tax credit carryover derived from a privilege period
beginning prior to the first day of the initial privilege period for which a
combined unitary tax return is required under this section and sections 19, 20,
and 23 of P.L.2018, c.48 (C.54:10A-4.7, C.54:10A-4.8, and C.54:10A-4.11), then
the taxable member may share the carryover credit with other taxable members of
the combined group.
���� (3) If a taxable member of a
combined group has a tax credit carryover derived from a privilege period
during which the taxable member was not a member of such combined group, the
credit carryover shall remain available to be utilized by such taxable member
or other group members.
���� (4) To the extent a taxable
member has more than one corporation business tax credit that it may utilize in
a privilege period, whether such credits were earned by said member or are
available to said member in accordance with paragraphs (1), (2) and (3) of this
subsection, the order of priority of the application of the credits shall be as
prescribed by the director.
���� j.���� An expense of a member
of the combined group that is directly or indirectly attributable to the income
of any member of the combined group, which income this State is prohibited from
taxing pursuant to the laws or Constitution of the United States, shall be
disallowed as a deduction for purposes of determining the combined group's
entire net income.
���� k.��� Nothing in this section
shall apply to:
���� (1) A corporation or combined
group which is licensed, in whole or in part, as an insurance company under the
laws of this State or of another state, including corporations which are
surplus lines insurers declared eligible by the Commissioner of Banking and
Insurance pursuant to section 11 of P.L.1960, c.32 (C.17:22-6.45) to insure
risks within this State that is not a combinable captive insurance company.
Notwithstanding a provision, if any, to the contrary in this section, the
income of an insurance company that is not a combinable captive insurance
company, the allocation or apportionment of income related thereto and the
apportionment factors of an insurance company that is not a combinable captive
insurance company shall not be included in a combined unitary tax return filed
under this section and sections 19, 20, and 23 of P.L.2018, c.48 (C.54:10A-4.7,
C.54:10A-4.8, and C.54:10A-4.11). In addition, the dividend exclusion
provisions of paragraph (5) of subsection (k) of section 4 of P.L.1945, c.162
(C.54:10A-4) relating to dividends paid by insurance companies to non-insurance
companies included in the unitary group shall not be affected by P.L.2018, c.48
(C.54:10A-5.41 et al.).
���� (2) A corporation that is
regulated, in whole or in part, by the Federal Energy Regulatory Commission,
the New Jersey Board of Public Utilities, or similar regulatory body of another
state, with respect to rates charged to customers for electric or gas services
and water and wastewater services.
���� l.���� (Deleted by amendment,
P.L.2020, c.118)
���� m.�� To the extent consistent
with the Corporation Business Tax Act (1945), P.L.1945, c.162 (C.54:10A-1 et
seq.), the federal rules and regulations governing consolidated return net
operating losses and net operating loss carryovers shall apply to the New Jersey
net operating loss carryover provisions under subsection h. of this section as
though the combined group filed a federal consolidated return, regardless of
how the members of the combined group filed for federal purposes.
���� n.��� The principles and
provisions set forth in federal regulations promulgated pursuant to section
1502 of the Internal Revenue Code (26 U.S.C. s.1502), shall apply to the extent
consistent with the Corporation Business Tax Act (1945),
P.L.1945, c.162
(C.54:10A-1 et seq.),
New Jersey combined group membership principles, New
Jersey combined unitary return principles, and regulations set forth by the
director.
���� o.��� For purposes of the
deduction allowed in paragraph (4) of subsection (k) of section 4 of P.L.1945,
c.162 (C.54:10A-4), a combined group shall be treated as one taxpayer;
provided, however, a combined group shall only be eligible for the deduction if
at least one of the taxable members is a banking corporation and the taxable
member has an international banking facility. The income of the combined group
shall not be eligible for the deduction allowed in paragraph (4) of subsection
(k) of section 4 of P.L.1945, c.162 (C.54:10A-4) if such income was already
eliminated pursuant to other subsections of this section.
���� p.��� This section shall apply
to world-wide group
[
elective
]
mandatory
combined returns and affiliated group elective combined returns in accordance
with section 23 of P.L.2018, c.48 (C.54:10A-4.11).� An election to file an
affiliated group combined return shall be an election to treat all of the
member's attributes and income as though they were from one unitary business.
���� q.��� The director shall
promulgate rules and regulations necessary to carry out the provisions of this
section.
(cf: P.L.2023, c.96, s.2)
���� 2.��� Section 23 of P.L.2018,
c.48 (C.54:10A-4.11) is amended to read as follows:
���� 23. a.
[
The
]
For
privilege periods ending on and after July 31, 2026, 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
]
world-wide
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;
]
(Deleted
by amendment, P.L. , c. )
(pending before the Legislature as this bill)
���� (2)
[
each member incorporated or
formed under the laws of a foreign nation, 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;
]
(Deleted by amendment, P.L. ,
c. ) (pending before the Legislature as this bill)
���� (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;
]
(Deleted by amendment, P.L. ,
c. ) (pending before the Legislature as this bill)
���� (4) (Deleted by amendment,
P.L.2023, c.96)
���� (5)
[
any member, wherever incorporated
or formed, that is not included in paragraphs (1) through (3) of this
subsection, if that member has effectively connected income or loss within the
meaning of the federal Internal Revenue Code, as modified by the provisions of
the Corporation Business Tax Act (1945), P.L.1945, c.162 (C.54:10A-1 et seq.).�
For any member that is included pursuant to this paragraph, the member shall be
included in the combined group only to the extent of its effectively connected
income or loss, taking into account items of expense and allocation factors
associated with the effectively connected income or loss.
]
(Deleted
by amendment, P.L. , c. )
(pending before the Legislature as this bill)
���� b.���
[
A world-wide
election or an
]
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.��� The director shall
promulgate rules and regulations necessary to carry out the provisions of this
section.
(cf: P.L.2023, c.96, s.5)
���� 3.��� This act shall take
effect immediately.
STATEMENT
���� This bill modifies the method
used to determine the members of a combined group under the Corporation
Business Tax Act (1945).� Specifically, the bill amends current law to require
that a combined group be determined on a world-wide basis.
���� Under current law, a group of
business entities that are engaged in a unitary business is required to submit
a combined return for State corporation business tax purposes.� This group of
business entities is also known as a combined group.� A "unitary
business," is 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, or
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.
���� Under current law, a combined
group is required to be determined on a water's-edge basis, unless the combined
group elects to be determined on a world-wide basis or affiliated group basis.�
Instead, this bill provides that for privilege periods beginning on or after
July 31, 2026, a combined group is required to be determined on a world-wide
basis, unless the combined group elects to be determined on an affiliated group
basis.� Thereafter, the State will no longer allow combined groups to be
determined on a water's-edge basis under this bill.
���� In general, the primary
difference between the world-wide and water's-edge basis is the geographic
scope of the business entities included in the combined group.� Under a
"world-wide basis" of combined reporting, the combined group is
required to include all business entities, both domestic and foreign, that are
engaged in the unitary business.� This differs from a "water's-edge
basis" of combined reporting, in which the combined group is only required
to include business entities that are engaged in the unitary business and that
have significant business operations in the United States.
���� Unlike a water's-edge or
world-wide basis, an affiliated group basis of combined reporting does not
require the existence of a unitary business relationship.� An affiliated group
basis requires the inclusion of income from all United States domestic corporations,
including business entities that under federal tax law are treated as domestic
corporations or are foreign-incorporated entities with effectively connected
income, that are commonly owned, directly or indirectly, by any member of such
affiliated group.