New Jersey starts CBT combined reporting initiative


On June 3, 2021, the New Jersey Division of Taxation (Division) announced the launch of a combined reporting initiative for Corporation Business Tax (CBT) purposes.1 The initiative is designed for companies that had nexus with New Jersey prior to filing as part of a combined group, but have not filed on a separate-entity basis for periods prior to New Jersey’s transition to combined reporting. Companies choosing to participate in the initiative will receive the benefit of a three-year limited lookback to tax periods ending after June 30, 2016 and waiver of late filing and late payment penalties. The initiative runs until Oct. 15, 2021.






In 2018, New Jersey enacted legislation making significant changes to the state’s CBT regime. For tax years ending on or after July 31, 2019, the state requires mandatory combined reporting for entities under combined ownership, engaged in a unitary business, and having at least one corporation subject to the CBT.2 The current combined reporting procedures require the identification of a managerial member of the combined group. The managerial member is obligated to identify all members of the combined group as well as all activities of the unitary members on the combined return.




Initiative requirements and benefits


The initiative is part of the Division’s effort to identify companies that are included as part of a combined group filing and indicated that they have nexus with New Jersey but have not filed on a separate-entity basis for periods prior to 2019. Qualifying companies that are approved for participation in the program will be permitted to enter into a closing agreement with the Division under the following terms and requirements:

  • Companies must not have been incorporated in New Jersey, authorized to do business in New Jersey or registered for CBT prior to inclusion on a 2019 or 2020 combined return;
  • The company must provide the New Jersey registration number of the combined group managerial member and file returns (which are subject to routine audit) for separate reporting periods ending after June 30, 2016, for which CBT nexus with New Jersey was established;
  • The company must file all required returns and remit payment of the reported tax liability in full within 45 days of execution of the closing agreement; and
  • The taxpayer must remit payment of applicable interest within 30 days of the assessment.

Companies must complete and submit a Combined Reporting Initiative Form available on the Division’s website.3 Companies failing to apply for the program will not be eligible for the Division’s voluntary disclosure (VDA) program and may be subject to lookback to periods ending on or before June 30, 2016, in addition to the assessment of penalty and interest on non-filed returns under audit.






The Division’s announcement of the combined reporting initiative provides an opportunity for corporations to obtain a limited lookback and penalty relief for earlier filing years upon a determination that they had nexus with New Jersey. Impacted companies should consider several notable differences between the operation of the initiative and the Division’s traditional VDA program. First, companies currently filing as part of a combined group would not be eligible for the VDA program because they are already filing returns with the Division. Second, unlike the VDA program, which allows for taxpayer anonymity pending the execution of an agreement with the Division, the initiative requires the company to disclose their name, identifying information and combined group managerial member on the initial application. Third, the initiative lookback period applies to separate-entity reporting tax years ending after June 30, 2016, whereas the VDA program lookback period includes the current tax year plus the prior three years. Finally, the initiative applies specifically to the CBT, whereas taxpayers are typically required to disclose all delinquent tax types under the VDA. However, companies that come forward under the initiative should evaluate potential exposure for other New Jersey tax types in the event they register with the Division under the initiative.

Companies evaluating whether they have nexus with New Jersey for pre-2019 periods should consider the state’s expansive and sometimes contradictory CBT nexus standards. A company has nexus in New Jersey if it exercises its corporate franchise in the state, derives receipts from sources within the state, engages in contacts within the state, does business in the state, has employees in the state, owns capital or property in the state, or maintains an office in the state.4 However, the “deriving receipts” nexus standard set forth by New Jersey has been interpreted differently by the courts. For example, in Lanco, Inc. v. Director, Division of Taxation, the New Jersey Supreme Court ruled that an out-of-state company’s licensing of intangibles to a New Jersey affiliate provided the requisite substantial nexus with New Jersey despite having no physical presence in the state.5 However, in AccuZip, Inc. v. Director, Division of Taxation, the New Jersey Tax Court ruled that the licensing of prewritten software to New Jersey customers did not satisfy the substantial nexus requirement for CBT purposes.6

Companies selling tangible personal property should also be aware of New Jersey case law and guidance regarding protection from CBT under Public Law 86-272 (P.L. 86-272). For example, the New Jersey Tax Court recently clarified that a wholesale produce distributor’s activities of accepting produce returned prior to acceptance by the customer and other de minimis activities were insufficient to warrant imposition of CBT under the court’s interpretation of P.L. 86-272.7 The Division has also taken the position that if one member of a combined group has nexus with New Jersey, then no member of the group may claim immunity under P.L. 86-272.8 Given that the scope of “deriving receipts” in New Jersey is broadly interpreted, companies should closely analyze the extent of their business activities in New Jersey before requesting a closing agreement.

Companies may consider the effects of the significant change in New Jersey’s apportionment rules should they choose to participate in the initiative. The lookback period for New Jersey’s initiative applies to the later of June 30, 2016, or the date that nexus was established with New Jersey. Under the 2018 tax reform legislation, New Jersey transitioned to market-based sourcing for service transactions effective for tax years ending on or after July 31, 2019.9 Under prior law, receipts from the sale of services were generally sourced following a cost-of-performance methodology. However, the sales sourcing rules for certain industry-specific services for tax years ending before July 31, 2019, allow for a certain degree of flexibility in sourcing receipts based on a reasonable approximation of value derived from New Jersey sources.10 For companies choosing to participate in the initiative, CBT liability may possibly be mitigated by the flexibility provided in New Jersey’s sourcing rules.

Similar to apportionment considerations, impacted companies that incurred losses in prior years should consider if they would be eligible to report and preserve net operating losses (NOLs) for purposes of carrying forward to offset taxable income in later years. However, companies should also be aware of the statutory rules and administrative guidance dictating the calculation and conversion of prior NOL (PNOL) carryovers to reflect New Jersey’s change in the calculation of NOLs and carryovers from a pre-allocation to post-allocation basis for tax years ending on or after July 31, 2019.11

It is expected that the Division will utilize the information obtained from combined returns to identify non-filed separate company returns during pre-2019 periods and assert nexus for companies that do not participate in the initiative. Given all these considerations, impacted corporations should weigh the costs and benefits of participating in the initiative.



Corporation Business Tax – Combined Reporting Initiative, New Jersey Division of Taxation, published at
2 P.L 2018, c. 48, P.L. 2018, c. 131, Laws 2018. For a discussion of New Jersey tax reform and recent technical corrections to the state’s tax overhaul legislation, see GT SALT Alert: New Jersey enacts business tax corrections.
3 The Combined Reporting Initiative form is available at
4 N.J. REV. STAT. § 54:10A-2. According to the initiative guidelines, companies that are authorized to do business in New Jersey are excluded from participating in the initiative.
Lanco, Inc. v. Director, Division of Taxation, 908 A.2d 176 (N.J. 2006).
AccuZIP, Inc. v. Director, Division of Taxation, 25 N.J. Tax 158, 162 (N.J. Tax Ct. 2009).
Procacci Brothers Sales Corp. v. Director, Division of Taxation, New Jersey Tax Court, No. 015626-2014, May 25, 2021. For a discussion of this case, see GT SALT Alert: New Jersey rules on application of P.L. 86-272.
8 N.J. Technical Bulletin TB-89(R), Combined Group Filing Methods, N.J. Division of Taxation, rev. Jan. 13, 2021.
9 N.J. REV. STAT. § 54:10A-6(B)(4)(i); N.J. ADMIN. CODE § 18:7-8.10A.
10 N.J. ADMIN. CODE § 18:7-8.10.
11 For an in-depth discussion of New Jersey’s new NOL deduction and carryover rules as applied to separate return and combined group CBT filers, see GT SALT Alert: New Jersey clarifies new net operating loss rules; and GT SALT Alert: New Jersey enacts business tax corrections.





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