Our NYC tax office offers this guidance on New Jersey corporate taxpayer obligations. New Jersey has informed its corporation business taxpayers that it does not require a modification to the overall calculation of the IRC Sec. 163(j) limitation or the income reported on line 28 for federal purposes. Further, New Jersey law does not indicate that taxpayers should apply the limitation without considering if the taxpayer was included on a federal consolidated return.
The amount reported for federal purposes is the amount reported for New Jersey purposes. Thus, taxpayers must use the interest expense and interest income allocation methods adopted in the federal regulations as the pro-rata calculation for New Jersey purposes and related party add backs must be applied after the IRC Sec. 163(j) limitation.
Separate Returns and the IRC Sec. 163(j) Limitation – Taxpayers filing separate New Jersey corporation business tax returns but file a single federal consolidated return together are treated as one taxpayer for the purposes of applying the limitation. Each taxpayer makes the adjustments required by New Jersey law.
Combined Returns and the IRC Sec. 163(j) Limitation – Taxpayers must use the same accounting method for New Jersey purposes that they use for federal purposes. However, taxpayers included as members on a New Jersey combined return may:
- be from multiple federal consolidated returns;
- be from partially the same federal consolidated return;
- be from the same federal consolidated return; or
- file separate federal returns.
New Jersey has determined it is fair and equitable to apply the single federal consolidated return rule to New Jersey combined returns. The members included in a New Jersey combined return will be treated as if they filed a single federal consolidated return. It does not matter if the members of the New Jersey combined return are on one federal consolidated return. The single federal consolidated return rules will apply.
The members of the combined group will be treated as one taxpayer for purposes of applying the limitation. The combined group members do not need to be included on the same federal consolidated return. If there are taxpayers that are in the same federal consolidated return that are not included on the same New Jersey combined return, the taxpayers will still be treated as one taxpayer.
For example, a group of taxpayers that are included in the same federal consolidated return, but are not unitary, and have not made an affiliated group combined return election would still be treated as one taxpayer for the purposes of the limitation.
World-Wide Group Combined Returns – This also applies to the New Jersey world-wide group combined returns and New Jersey affiliated group combined returns, despite the intent of Congress to bar the super-aggregation of affiliates that were not included on the same federal consolidated return for IRC Sec. 163(j). A combined return for New Jersey corporation business tax purposes is treated as one return and taxpayers should make adjustments applying the limitation as though they had been included on a single federal consolidated return.
The single federal return rule will also apply to taxpayers that are not included in the same New Jersey combined return, but are included in the same federal consolidated return as one or all of the members of the New Jersey combined return. Each member of the combined group included on the same New Jersey combined return will make the required adjustments.
If you have questions about New York City taxes or New Jersey taxes, please contact our NYC CPA.