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New Jersey Tax Court finds payments made by subsidiary qualify for exception to addback rule

On May 24, 2017, the New Jersey Tax Court granted a taxpayer’s motion for summary judgment and allowed deductions for royalty payments made by a subsidiary to its parent company. Specifically, the court found that the payments qualified for the unreasonable exception to the addback rule because they were substantively equivalent to payments made by the subsidiary and/or the parent to unrelated third parties under transactions involving the same subject and object (the sale of pre-written computer software license and service contracts).