Income/Franchise:
New Jersey Division of Taxation Explains Income Excluded from CBT Return Under Tax Treaty
Notice: Income Excluded Pursuant to a Tax Treaty and CBT Returns, N.J. Div. of Tax. (12/1/22). The New Jersey Division of Taxation (Division) updated its notice referencing administrative rules that address various matters pertaining to the 2018 through 2020 law changes to New Jersey’s corporation business tax (CBT), including “clarifications on the exclusion of income that was exempt from federal taxation pursuant to a treaty with a foreign nation” [see State Tax Matters, Issue 2022-21, for details on the earlier version of this notice]. The updated notice adds that for CBT taxpayers filing on a worldwide group basis, the income from foreign corporations and foreign non-corporate entities is included in entire net income without regard to any treaty protections. In doing so, the notice states that the application of treaty protections to a worldwide group is contrary to the legislative intent in providing a worldwide election: “which was to tax the world-wide group on all of its global income regardless of whether or not the jurisdiction where the income is earned is subject to a tax treaty with the United States.” The Division explains that it will appropriately update the CBT return instructions for the subsequent tax years as the 2018 through 2021 returns have already been filed. Please contact us with any questions.
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