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 Jersey tax.” 
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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 to compute the FDII deduction were earned.
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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.
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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

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 outcomes, including
    • Preparation of all advocacy collateral
    • Organization of on the ground advocacy, including retaining in-state advocates where needed
    • Activating allied organizations to ensure broad support
  • Provide support concerning the proper reporting of state responses to federal tax reform on company financial statements

Coalition Goals: 

  • Prevent state legislation expanding tax base through decoupling from federal deductions
  • Support state legislation adopting comprehensive federal reform conformity, with appropriate deviations
  • Identify and remedy Commerce Clause issues
  • Encourage states revenue department to publish guidance on issues such as definitional questions, apportionment approaches and problems with different group calculations
  • Identify and act on opportunities to address related issues through state responses to federal reform
  • Prepare to address potential nexus changes in response to South Dakota v. Wayfair


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