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CARES Act Could Result in Taxation of More GILTI in New Jersey

The federal stimulus bill (the CARES Act), HR 748, which was signed into law by President Trump on March 27, includes certain corporate income tax provisions designed to provide relief to corporate taxpayers. One such provision–the net operating loss (NOL) provision that allows taxpayers to carryback NOLs to prior years–could have unintended consequences at the state level. For some taxpayers, the carryback of NOLs to 2018 and 2019 could reduce the deductions allowed pursuant to IRC § 250 applicable to global intangible low-taxed income (GILTI) and foreign derived intangible income (FDII) generated in those years. While this will obviously have federal income tax consequences it will also have consequences in states that tax GILTI and allow the deductions in IRC § 250. This blog post focuses on the consequences of the NOL rules to the New Jersey Corporation Business Tax (CBT), but the issue could arise in other states, including, for example, Nebraska and...

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BREAKING NEWS: New Jersey Is GILTI, Again!

Taxpayers may have celebrated too soon when the New Jersey Division of Taxation announced that it was withdrawing TB-85 and the GDP-based apportionment regime for global intangible low-taxed income (GILTI) and foreign-derived intangible income (FDII) in favor of a more fair apportionment regime. Read our first post on T8-85 here. Yesterday, the Division issued a new Technical Bulletin (TB-92) on the state’s treatment of GILTI and FDII that is quite troubling. The guidance provides that GILTI and FDII should be included in the general business income apportionment factor and sourced as “other business receipts” to New Jersey. The guidance then provides that “to compute the New Jersey allocation factor on Schedule J, the net amount of GILTI and the net FDII income amounts are included in the numerator (if applicable) and the denominator. This is to help prevent distortion to the allocation factor and arrive at a reasonable and equitable determination of New...

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BREAKING NEWS: New Jersey Is Not GILTI! The Division Withdraws TB-85

Many New Jersey taxpayers have a reason to celebrate today as the Division of Taxation withdrew Technical Bulletin-85, providing for a special apportionment regime for global intangible low-taxed income (GILTI) and income used to compute the foreign-derived intangible income (FDII) deduction that many felt was unfair and potentially unconstitutional. In December 2018, the New Jersey Division of Taxation issued Technical Bulletin-85 providing for a special apportionment regime for GILTI and income used to compute the FDII deduction. Under Technical Bulletin-85, GILTI and income used to compute the FDII deduction were apportioned to New Jersey separately from other business income based on the New Jersey Gross Domestic Product (GDP) relative to the GDP in all states where the taxpayer had nexus. This regime was unfair and likely unconstitutional as applied to many taxpayers because the apportionment formula was in no way related to where GILTI and income used...

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Illinois Fiscal Year 2020 Income and Franchise Tax Changes

The Illinois General Assembly enacted a number of new tax measures in a flurry of activity at the end of its legislative session. Some of the changes are taxpayer friendly and others are not. Unlike the no-deal chaos of past years, all of the measures have been or are expected to be signed by the state’s new Democratic governor, J.B. Pritzker. This blog post summarizes the income-tax and franchise tax-related changes approved by the General Assembly. Subsequent posts will address sales/use, property and other tax changes. Graduated Income Tax The General Assembly approved, by a three-fifths vote in each Chamber, a referendum to appear on the November 2020 ballot in which Illinois taxpayers will be asked whether the Illinois Constitution should be amended to permit the imposition of a graduated income tax. Article IX, Section 3 of the current Constitution provides that any tax on or measured by income “shall be at a non-graduated rate,” and that only one such...

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Illinois Responds to Federal Tax Reform Bill by Proposing Legislation to Decouple from the FDII Deduction

The 2017 federal tax reform bill, known as the Tax Cuts and Jobs Act (Act), made a number of significant changes to the law, particularly to the international tax provisions of the Internal Revenue Code (IRC). Last month, Illinois joined the growing number of states responding to the Act by proposing legislation purporting to add-back the new federal deduction for foreign-derived intangible income (FDII). The FDII deduction, enacted in sub-part (a)(1)(A) of new IRC section 250, allows US corporate taxpayers a deduction in the amount of 37.5 percent of income earned from the sale of property to a person outside of the US for use outside of the US or the provision of services to a person outside of the US or with respect to property not located in the US. (For tax years beginning 2026, the deduction is reduced to 21.875 percent.) Senate Bill (SB) 3152 (linked here) proposes an amendment to Section 203(b)(2) of the Illinois Income Tax Act (IITA) that would add...

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McDermott’s Take on State Tax after Reform

Due to the current impact and the likelihood that states will consider legislation and agency guidance addressing federal tax reform implications for state business taxes, a united, effective, nationwide advocacy effort is needed to ensure the issues are consistently addressed on a multi-state basis. In preparation for anticipated ramifications, a multi-state coalition will need to consider the subjects summarized below. For further coverage, continue reading here. How McDermott Will & Emery Can Help You: Formation of a coalition of companies and industry trade organizations dedicated to proactively addressing state tax issues raised by federal tax reform on a nationwide basis Identify and track, in real time, proposed state legislative and regulatory responses to federal tax reform Analyze proposed state reforms and develop substantive amendments and comments Develop and implement advocacy campaigns to secure favorable legislative and regulatory...

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