P.L. 2005, c. 127 was approved on July 2, 2005. The new statute amends the corporation business tax and the gross income tax to disallow a deduction for certain qualified production activities income that was recently provided for federal income tax purposes under the American Jobs Creation Act of 2004 (Pub. L. 108-377). The legislative purpose and intention of the law relating to uncoupling from the federal deduction is set forth in the Statement to A 4294 (2004-2005).
P.L. 2005, c. 127 decouples the New Jersey Corporation Business Tax
and Gross Income Tax
from the federal IRC Section 199 deduction of certain qualified production activities as recently enacted under the American Jobs Creation Act of 2004 for taxable years beginning after December 31, 2004.
The allowable New Jersey Domestic Production Activities Deduction is based exclusively on domestic production gross receipts derived from a lease, rental, sale, exchange or other disposition of qualifying production property which was manufactured or produced by the taxpayer in whole or in significant part within the United States. Manufactured or produced are as defined under as defined under N.J.S.A. 54:10A-4(k)(2)(J) and 54A:5-15.
Deductions are not
allowed if they are applicable to or pertaining to production property grown or extracted; films, electricity, natural gas, potable water, computer software or sound recordings produced by the taxpayer; construction activities; engineering or architectural services.
Gross Income Tax
For gross income tax purposes, the allowable deduction is calculated on Form 501–GIT, New Jersey Gross Income Tax Domestic Production Activities Deduction. Form 501 GIT and instructions
are available on the Division’s web site.
The allowable deduction will be taken into consideration in determining the net distributive share of partnership income; net pro rata share of S corporation income; net profits from business; net gains or income from disposition of property; and net gains or income from rents, reportable on a NJ-1040, NJ-1040NR, or NJ-1041.
Corporation Business Tax
For corporation business tax purposes, P.L. 2005, c. 127 requires that certain domestic production expenses that had been claimed for federal purposes are not deductible for New Jersey purposes. Accordingly, New Jersey Corporation Business Tax Form 501 is used to calculate the New Jersey adjustment. For a corporation filing the CBT-100, the adjustment computed on Form 501 is carried to Schedule A-5, where a calculation is performed with the result from A-5 carried to CBT-100, Schedule A, line 33(b).
In the case of an S Corporation, the result from New Jersey Corporation Business Tax Form 501
is carried directly to CBT-100S, Schedule A, line 37(e). Form 501-GIT is used to calculate the deduction to be reported on Schedule K, Form CBT-100S.