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Division of Taxation

 

Corporation Business Tax Overview

Description | Rate | Disposition of Revenues | History Installment Payments of Estimated Tax | Partnerships | Banking and Financial Corporations Investment Companies| Deferred Predissolution Payment | Allocation Factor

Corporations:
The Corporation Business Tax Act imposes a franchise tax on a domestic corporation for the privilege of existing as a corporation under New Jersey law, and on a foreign corporation for the privilege of having or exercising its corporate charter in this State or doing business, employing or owning capital or property, maintaining an office, deriving receipts, or engaging in contracts in New Jersey.

The tax applies to all domestic corporations and all foreign corporations having a taxable status unless specifically exempt. The tax also applies to joint-stock companies or associations, business trusts, limited partnership associations, financial business corporations, and banking corporations, including national banks. Also, a corporation is defined as any other entity classified as a corporation for federal income tax purposes and any state or federally chartered building and loan association or savings and loan association.

The income-based tax is measured by that portion of the net income allocable to New Jersey. The tax applies to net income for the firm’s accounting period (calendar year or fiscal year), or any part thereof during which the corporation has a taxable status within New Jersey. Exempt from the tax are certain agricultural cooperative associations; federal corporations which are exempt from state taxation; corporations created under the limited-dividend housing corporation law; nonprofit cemetery corporations; nonprofit corporations without capital stock; non-stock mutual housing corporations; railroad and canal corporations; sewerage and water corporations; insurance companies subject to premiums tax; and certain municipal electric corporations.

Rate
C Corporation Tax Rates:
For taxpayers with Entire Net Income greater than $100,000, the tax rate is 9% (.09) on adjusted entire net income or such portion thereof as may be allocable to New Jersey.

For taxpayers with Entire Net Income greater than $50,000 and less than or equal to $100,000, the tax rate is 7.5% (.075) on adjusted entire net income or such portion thereof as may be allocable to New Jersey.

Tax periods of less than 12 months qualify for the 7.5% rate if the prorated entire net income does not exceed $8,333 per month.

For taxpayers with Entire Net Income of $50,000 or less, the tax rate is 6.5% (.065) on adjusted net income or such portion thereof as may be allocable to New Jersey.

Tax periods of less than 12 months qualify for the 6.5% rate if the prorated entire net income does not exceed $4,166 per month.

C Corporation - MINIMUM TAX:
The minimum tax is assessed based on New Jersey Gross Receipts:

Gross Receipts: Tax:
Less than $100,000 $500
$100,000 or more but less than $250,000 $750
$250,000 or more but less than $500,000 $1,000
$500,000 or more but less than $1,000,000 $1,500
$1,000,000 or more $2,000

Provided however that for a taxpayer that is a member of an affiliated or controlled group (as per sections 1504 or 1563 of the Internal Revenue Code of 1986) which has a total payroll of $5,000,000 or more for the return period, the minimum tax shall be $2,000.

Total payroll refers to the total payroll of the affiliated group rather than total New Jersey payroll of a single corporation. Taxpayers that are members of an affiliated or controlled group must submit a schedule of payroll per member and a copy of the taxpayer’s federal affiliations schedule, Form 851, with the return. Refer to Schedule A-GR for the determination of New Jersey gross receipts.

Tax periods of less than 12 months are subject to the higher minimum tax if the prorated total payroll exceeds $416,667 per month.

S Corporation Tax Rates:
For taxpayers with total entire net income that is not subject to federal income taxation or such portion thereof as may be allocable to New Jersey, there shall be no rate of tax imposed.

For taxpayers with total entire net income plus nonoperational income with New Jersey Nexus, greater than $50,000 and less than or equal to $100,000, the applicable tax rate for entire net income that is subject to federal corporate taxation is 7.50% (.075).

Tax periods of less than 12 months qualify for this reduced rate if the prorated amount of entire net income plus nonoperational income with New Jersey Nexus does not exceed $8,333 per month.

For taxpayers with total entire net income plus nonoperational income with New Jersey Nexus of $50,000 or less, the tax rate for entire net income that is subject to federal corporate taxation is 6.5% (.065).

Tax periods of less than 12 months qualify for the 6.5% rate if the prorated if the prorated amount of entire net income plus nonoperational income with New Jersey Nexus does not exceed $4,166 per month.

For taxpayers with total entire net income that is not subject to federal income taxation or such portion thereof as may be allocable to New Jersey, there shall be no rate of tax imposed.

The tax rate is 9.00% (.09) of entire net income that is subject to federal income taxation or such portion thereof as may be allocable to New Jersey.

The tax rate on net pro rata share of S corporation income allocated to New Jersey for non-consenting shareholders for tax year 2010 periods beginning 8/09 through 12/09 is 10.75% (.1075); periods beginning on and after 1/10 is 8.97 (.0897).

S Corporation- MINIMUM TAX (Tax Year 2007 – Forward):
The minimum tax is assessed based on New Jersey Gross Receipts:

Gross Receipts: Tax:
Less than $100,000 $375.00
$100,000 or more but less than $250,000 $562.50
$250,000 or more but less than $500,000 $750.00
$500,000 or more but less than $1,000,000 $1,125.00
$1,000,000 or more $1,500.00

The minimum tax is assessed based on the New Jersey Gross Receipts (Schedule A-GR) as follows: provided however that for a taxpayer that is a member of an affiliated or controlled group (as per sections 1504 or 1563 of the Internal Revenue Code of 1986) which has a total payroll of $5,000,000 or more for the return period, including periods beginning on or after January 1, 2012, the minimum tax shall be $2,000.

Total payroll refers to the total payroll of the affiliated group rather than total New Jersey payroll of a single corporation. Taxpayers that are members of an affiliated or controlled group must submit a schedule of payroll per member and a copy of the taxpayer’s federal affiliations schedule, Form 851, with the return. Refer to Schedule A-GR for the determination of New Jersey gross receipts.

Tax periods of less than 12 months are subject to the higher minimum tax if the prorated total payroll exceeds $416,667 per month.

Disposition of Revenues
Revenues collected from general business corporations are deposited in the State Treasury for general State use. Revenues collected from banking and financial corporations are distributed 25% to counties, 25% to municipalities, and 50% to the State.

Article 8, Section 2, paragraph 6 of the State Constitution was amended to dedicate 4% of Corporation Business Tax revenue to fund hazardous discharge cleanup, underground storage tank improvements, and surface water quality projects.

P.L. 2002, c. 40, s. 32 created within the General Fund a restricted reserve fund to be known as the “Corporation Business Tax Excess Revenue Fund.”

History
Corporation Business Taxes date back to 1884 when a franchise tax was imposed upon all domestic corporations. Between 1884 and 1946, the franchise tax was based upon the total amount of capital stock issued by the taxpayer and outstanding as of January 1 of each year (P.L. 1884, c. 159).

There was no franchise tax on foreign corporations prior to 1936, when provision was made for an annual tax (P.L. 1936, c. 264). This tax was replaced in 1937 (P.L. 1937, c. 25) with a new franchise tax providing for allocation of capital stock of foreign corporations.

Effective January 1, 1946 (P.L. 1945, c. 162), the tax became a net worth tax applicable to both domestic and foreign corporations and measured by net worth allocated to New Jersey. Allocation was measured by the greater of an assets factor or a three-part business factor (property, sales, and payroll).

P.L. 1954, c. 88, increased the tax on allocable net worth from 8/10 mills per $1 to 2 mills per $1.

P.L. 1958, c. 63, amended the Corporation Business Tax Act by adding a tax at 1¾% based upon allocated net income to the tax based upon allocated net worth. The 1958 amendment also changed the tax year from a calendar year for all corporations to a privilege period coinciding with the accounting year for each taxpayer.

In 1975, the Corporation Business Tax was imposed on banking corporations and incorporated financial businesses.

In 1982, there was enacted into law a measure phasing out the Corporation Business Tax on net worth. The tax was phased out at 25% per year over a four-year period with taxpayers whose accounting or privilege periods began on or after April 1, 1983 (P.L. 1982, c. 55). The net worth tax has been eliminated for periods beginning after June 30, 1986.

Net Income Tax rates have changed as follows:

Effective Date Rate
January 1, 1959 (P.L. 1958, c. 63) 1¾%
January 1, 1967 (P.L. 1966, c. 134) 3¼%
January 1, 1968 (P.L. 1968, c. 112) 4¼%
January 1, 1972 (P.L. 1972, c. 25) 5½%
January 1, 1975 (P.L. 1975, c. 162) 7½%
January 1, 1980 (P.L. 1980, c. 280) 9 %

For taxable years ending after June 30, 1984, a carryover of net operating loss was allowed as a deduction from entire net income for seven years following the year of the loss (P.L. 1985, c. 143).

A surtax of 0.417% was invoked for privilege periods ending between July 1, 1990, and June 30, 1991; and 0.375% for privilege periods ending between July 1, 1989, and June 30, 1990, and July 1, 1991, through June 30, 1993. The 0.375% surtax on corporate net income was repealed effective January 1, 1994. The surtax had been scheduled to end July 1, 1994 (P.L. 1994, c. 3).

A new jobs investment tax credit, enacted by P.L. 1993, c. 170, allows corporations to take a credit against Corporation Business Tax and property taxes for qualified investments in new or expanded business facilities resulting in new jobs in the State. The credit against Corporation Business Tax is for up to 50% of the portion of the tax that results from investment in new or expanded facilities. The credit was extended to midsize businesses by P.L. 2002, c. 40. P.L. 1993, c. 171, allows for a credit against Corporation Business Tax for investment in qualified equipment. The credit is 2% of the cost of qualified machinery purchased (the investment credit base). Taxpayers taking the 2% equipment credit may also take an employment credit of $1,000 per new employee (up to a maximum of 3% of the investment credit base). A small business benefit was added by P.L. 2004, c. 65. P.L. 1993, c. 175, allows for a credit for increased research activities.

Two changes in 1993 brought New Jersey corporation tax law into closer alignment with Federal corporation tax law. Chapter 172 allows corporations to use the Federal modified accelerated cost recovery system for depreciation of property under the New Jersey Corporation Business Tax for property placed in service for accounting years beginning after July 7, 1993. Chapter 173 allows, for the first time, an S election to be made under New Jersey law. As noted above, a New Jersey S corporation pays a reduced tax rate on that portion of entire net income not subject to Federal corporate income tax. The shareholder is taxed on net pro rata share of S corporation income under the Gross Income Tax.

The allocation formula for multistate corporations was changed in 1995. Under prior law, multistate corporation income was allocated to New Jersey based on equally weighted New Jersey property, payroll, and sales compared to total property, payroll, and sales. The new formula counts sales twice, so that sales account for half the allocation formula (P.L. 1995, c. 245).

The legislature continued to provide additional tax benefits for corporation business taxpayers. These include a tax benefit certificate transfer program to assist certain emerging companies (P.L. 1997, c. 334), later modified by P.L. 1999, c. 140 and P.L. 2004, c. 65, and supplemented by a credit transfer program P.L. 2004, C. 65, the Small New Jersey Based High Technology Business Investment Tax Credit Act (P.L. 1997, c. 349), the carry­forward of net operating losses under the Corporation Business Tax for certain taxpayers (P.L. 1997, c. 350), the extension of the carry­forward of the research and development tax credit (C.351, P.L. 1997), and the Neighborhood and Business Child Care Tax Incentive Program (P.L. 1999, c. 102).

Other credits against Corporate Business Tax liability have also been enacted for effluent equipment (P.L. 2001, c.321), neighborhood revitalization (P.L. 2001, c. 415), HMO credit (P.L. 2000, c. 12), the economic recovery tax credit (P.L. 2002, c. 43), and the remediation tax credit (P.L.2003, c. 296).

Electric and telephone companies were subjected to the Corporation Business Tax effective January 1, 1999.

P.L. 1999, c. 369, excludes certain hedge fund activity income of corporations of foreign nations from taxation under the Corporation Business Tax.

P.L. 2000, c. 12, provides that holders and former holders of a certificate of authority to operate a health maintenance organization are allowed a Corporation Business Tax credit for certain payments they are required to make.

P.L. 2001, c. 23, provides for a three-year phase-out of the corporate taxation of the regular income of S corpo­rations with annual income in excess of $100,000, and for S corporations whose net income is under $100,000 whose privilege periods end on or after July 1, 2001. Also, the bill provides for the adjusted minimum tax amount to be rounded to the next highest multiple of $10.

P.L. 2001, c. 136, provides for the Corporation Business Tax payment obligations of certain partnerships and limited liability companies for privilege periods beginning on and after January 1, 2001.

P.L. 2002, c. 40, among other things, effects the most extensive changes in the Corporation Business Tax since 1945. This law provides for a partnership filing fee, an alternative minimum assessment, nonresident partner withholding, a “throwout rule” on corporations apportion­ing income outside New Jersey, and new rules for related-party transactions. It also increases the minimum tax and broadens the definition of corporations that are subject to this tax.

P.L. 2002, c. 43, includes some provisions for incentives in the form of Corporation Business Tax credits to qualifying taxpayers engaged in a business in the qualified municipality during the municipality’s “period of rehabilitation and economic recovery.”

P.L. 2004, c. 47, limits the Corporation Business Tax application of net operating losses to 50% of taxable income for tax years 2004 and 2005.

P.L. 2004, c. 65, decouples Corporation Business Tax from changes in Federal bonus depreciation and certain expensing principles under IRC section 179.

P.L. 2005, c. 127, uncouples Corporation Business Tax from many provisions of the IRC Section 199 deduction for certain qualified production activities income.

P.L. 2005, c. 318, allows Corporation Business Tax credit to businesses providing employment to qualified handicapped persons at sheltered workshops.

P.L. 2005, c. 345, provides a credit under the Corporation Business Tax for film production expenses incurred in New Jersey and provides for the transfer of those tax credits to other taxpayers.

P.L. 2006, c. 38, imposes a 4% surcharge on the Corporation Business Tax liability and increases the minimum tax.

P.L. 2007, c. 89, increases the amount of State tax credits granted to businesses providing funding to qualified neighborhood revitalization projects.

P.L. 2008, c. 120, applicable to privilege periods beginning on or after July 1, 2010, eliminates the throw-out provision of the apportionment formula for Corporation Business Tax. It also removes the “regular place of business” requirement for taxpayers to allocate income. To allocate less than 100% of income to New Jersey, a taxpayer is no longer required to show a regular place of business that exists outside of the State.

P.L. 2011, c. 59, amends N.J.S.A. 54:10A-6 to replace the three-factor allocation formula of the Corporation Business Tax allocation factor with a single fraction formula. The change is phased in over three years, beginning with privilege periods beginning on or after January 1, 2012.

Installment Payments of Estimated Tax
Taxpayers are required to make installment payments of estimated tax. The requirement for making these payments is based on the amount of the total tax liability shown on the most recent return.

(a) If the total tax liability is $500 or more, the taxpayer must make installment payments. These payments are due on or before the 15th day of the 4th, 6th, 9th, and 12th month of the tax year.

(b) If the total tax liability is less than $500, installment payments may be made as shown in (a) above or, in lieu of making installment payments, the taxpayer may make a payment of 50% of the total tax liability.

The Business Tax Reform Act (P.L. 2002, c. 40) provides for two significant changes regarding corporate estimated tax. First, for the tax year beginning on or after January 1, 2002, all corporations must base their fourth quarter payment on 25% of the actual 2002 tax computed under the changes to avoid penalty. This one-time change supersedes the prior rules for estimated returns. The fourth quarter payment must be 25% of the year 2002 liability even if the corporation may have already satisfied all or substantially all of its year 2002 corporation tax liability through prior year’s overpayments or quarterly estimated payments in the first three quarters. The corporation must nonetheless remit 25% of the year 2002 tax to avoid penalties.

Secondly, for large corporations with sales of over $50 million, beginning with the year 2003, the second and third quarter payments, normally due on the 15th day of the 6th and 9th months, will be combined into a single 50% payment due on the 15th day of the 6th month. No payments will be due for such corporations on the 15th day of the 9th month, and normal 25% payments will be due in the 4th and 12th months.

Partnerships
P.L. 2002, c. 40, establishes a $150 per partner filing fee for partnerships, LLPs, and LLCs deriving income from New Jersey sources. In general, the $150 per partner fee is based on the number of K-1s issued. For professional service corporations, the $150 fee applies for each registered professional who owns or is employed by the enterprise and is calculated using a quarterly average. In addition to the filing fee for the year, an installment payment equal to 50% of the filing fee is also required with the New Jersey partnership return. The annual fee is capped at $250,000.

New Jersey partnership payments made on behalf of out-of-State corporate and noncorporate partners are based on taxable income whether the income is distributed or undistributed and are designated as a tax at a rate of 9% for nonresident corporate partners and 6.37% for noncorporate partners. Qualified investment partnerships and part­nerships listed on a U.S. national stock exchange are not subject to the tax. The calculation is based on the partnership’s “entire net income” multiplied by the partnership’s New Jersey apportionment percentages computed under the Corporation Business Tax, not under Gross Income Tax.

P.L. 2002, c. 40, subjects savings banks and savings and loan associations to the Corporation Business Tax and repeals the Savings Institution Tax and the Corporation Income Tax.

Effective beginning with the 2002 tax year, P.L. 2003, c. 256, exempts investment clubs from the $150 per owner annual partnership filing fee and from the requirement that partnerships remit Gross Income Tax payments on behalf of their nonresident noncorporate partners. To meet the definition of “investment club,” the partnership must have income below $35,000 per individual (up to a total of $250,000) and satisfy other limitations and criteria.

P.L. 2005, c. 288, requires partners and other owners of pass-through entities to credit payments made on their behalf against estimated taxes to end double withholding. In addition, for privilege periods beginning on or after January 1, 2007, partnerships that are required to make tax payments on behalf of nonresident partners must make installment payments of 25% of that tax on or before the 15th day of the 4th, 6th, and 9th months of the privilege period, and on or before the 15th day of the 1st month following the close of the privilege period.

Banking and Financial Corporations
Banking and financial corporations are subject to the Corporation Business Tax Act at the rate of 9% on net income or to the lesser rates stated above if their income meets those thresholds.

P.L. 1975, c. 170, provides that during each of privi­lege years 1976, 1977, and 1978, the amount paid by each banking corporation as taxes shall be the greater of (1) the amount which such banking corporation paid in calendar year 1975 as Bank Stock Tax, or (2) a sum equal to total of taxes paid by such banking corporation as Corporation Business Tax and Business Personal Property Tax.

Formerly, banks were subject to a tax of 1.5% on net worth under the Bank Stock Tax Act. Bank Stock Tax was for­merly administered by the Division of Taxation and the 21 separate County Boards of Taxation. The corporate tax upon banks is now administered solely by the Division.

Financial business corporations were formerly subject to the Financial Business Tax. These included such corporations as small loan companies and mortgage finance companies which are now subject to Corporation Business Tax.

P.L. 1975, c. 171, provides that during each of the years 1976, 1977, and 1978, each financial business corporation shall pay as taxes, the greater of (1) a sum equal to the amount such financial business corporation paid under the Financial Business Tax Act in the calendar year 1975, or (2) a sum equal to the total of the taxes payable by such financial business corporation pursuant to the Corporation Business Tax Act. P.L. 1978, c. 40, extended the save harmless provision through 1979. It expired in 1980. As a result of changes in the Federal and State banking laws, interstate banking is now permitted (P.L. 1996, c. 17). An administrative rule adopted by the Division of Taxation (N.J.A.C. 18:7-1.14, effective June 16, 1997) sets forth certain conditions under which foreign banks and certain domestic banks will be taxed in New Jersey.

Investment Companies
A taxpayer qualifying and electing to be taxed as an investment company is subject to an allocation percentage of 40% of the net income base. Investment companies are subject to a minimum tax of $500.

Regulated Investment Company means any corporation which, for a period covered by its reports, is registered and regulated under the Investment Company Act of 1940 (54 Stat. 789), as amended.

The Corporation Business Tax on regulated investment companies was eliminated (P.L. 1983, c. 75), approved on February 24, 1983. Regulated investment companies in New Jersey were formerly taxed on both entire net worth and entire net income. These taxes were eliminated and a flat tax of $500 per year was imposed. For privilege periods beginning in calendar year 2012, regulated investment companies are subject to the same minimum tax on gross receipts as C corporations.

Real estate investment trusts qualifying and electing to be taxed as such under Federal law are taxed at 4% of entire net income.

Deferred Predissolution Payment
P.L. 1973, c. 367, approved in 1974, eliminated the requirement for a certificate to be obtained in the case of merger or consolidation involving a domestic or foreign corporation qualified to transact business in New Jersey. It also provided alternatives to actual payment of taxes, or payment on account of such taxes by providing in lieu thereof, for a written undertaking to be given by a domestic corporation, or a foreign corporation authorized to transact business in New Jersey, to pay all taxes when payable on behalf of a corporation which otherwise would have to pay all taxes prior to taking certain corporate actions.

Allocation Factor
P.L. 2001, c. 59, signed on April 28, 2011, amended N.J.S.A. 54:10A-6 to replace the three-fraction allocation formula of the Corporation Business Tax allocation factor with a single sales fraction formula. The change was phased in over three years, beginning with privilege periods beginning on or after January 1, 2012. For privilege periods beginning on or after January 1, 2012 but before January 1, 2013, the sales fraction accounted for 70% of the allocation, and the property and payroll fractions each account for 15% of the allocation. For privilege periods beginning on or after January 1, 2013 but before January 1, 2014, the sales fraction accounted for 90% of the allocation, and the property and payroll fractions each accounted for 5% of the allocation. For privilege periods beginning on or after January 1, 2014, the sales fraction accounts for 100% of the allocation.

Under prior law, a taxpayer was required to have a regular place of business outside New Jersey in order to allocate income. P.L. 2008 c. 120 repealed the “regular place of business” requirement for taxpayers to allocate income.

The Business Tax Reform Act (P.L. 2002, c. 40) imposes a “throwout rule” on corporations apportioning income outside the State. The tax effect of the throwout rule on an affiliated or controlled group having $20 million or more in net income is capped at $5 million.

P.L. 2002, c. 40, also introduced an alternative mini­mum assessment (AMA) on apportioned gross receipts or gross profits of C corporations when the AMA exceeds the normal Corporation Business Tax. The assessment is based on either gross receipts or gross profits, with the taxpayer electing which formula to use. This formula must also be used for the next four tax periods. S corporations, professional corporations, investment companies, and unincorporated businesses are exempt from the AMA. The AMA also applies to non-New Jersey businesses deriving income from New Jersey sources with or without physical presence in the State that are not currently subject to the Corporation Business Tax.

For privilege periods beginning after June 30, 2006, the AMA is $0, except for taxpayers claiming exemption under Pub. L. 86-272, for whom the previously prescribed rate will continue. For privilege periods beginning after December 31, 2006, the AMA for taxpayers otherwise subject to the AMA that consent to jurisdiction and pay the Corporation Business Tax will be $0

The use of net operating losses is suspended for tax years 2002 and 2003. For 2004 and 2005 net operating losses were limited to 50% of taxable income.


Last Updated: Monday, 08/28/23