Menu
Tax Notes logo

New Jersey Scraps Controversial GILTI Apportionment Method

Posted on Aug. 21, 2019

New Jersey has announced that it will revise its controversial method for apportioning global intangible low-taxed income and foreign-derived intangible income.

The Division of Taxation announced August 20 that a technical bulletin (TB-85) issued last year regarding tax conformity to GILTI and FDII  “is obsolete.” The division said it expects to issue new guidance "later this week" with more detail.

“To help prevent distortion to the allocation factor and arrive at a reasonable and equitable level of New Jersey tax, the Schedule J must include the net amount of the GILTI in the denominator and the net FDII income amounts in the numerator (if applicable) and denominator,” the announcement said.

Under TB-85, the state put forth a separate special accounting method with an equation for allocating state corporate business tax on net GILTI and net FDII using New Jersey’s GDP over the total U.S. GDP of all the states in which the company has economic nexus.

The guidance has been viewed as onerous by many in the taxpayer community. In January the Council On State Taxation urged the state to scrap the apportionment method in favor of a different approach.

Members of the taxpayer community welcomed the division's announcement.

Stephen P. Kranz of McDermott Will & Emery, which is a member of the State Taxes After Reform (STAR) Partnership, told Tax Notes August 20 that the division withdrew the guidance "thanks to the efforts of New Jersey taxpayers and advocacy groups such as the STAR Partnership." The coalition has been pushing for states to exclude GILTI from their tax bases. 

Kranz said New Jersey’s regime was unfair and likely unconstitutional because the apportionment formula did not take into account where income was earned when computing GILTI and FDII deductions.

Norman Lobins of Deloitte Tax LLP told Tax Notes that he is glad the decision was made ahead of the October 15 deadline for taxpayers who got an extension, because they will be able to avoid filing supplemental forms and amending returns.

Lobins said he thinks the announcement is a reflection of numerous comments and inquiries that the division received since it communicated its unique position. "A more reasoned approach should result in less controversy in the future," he added.

Darien Shanske with the University of California, Davis, School of Law was among those New Jersey consulted to craft its approach to GILTI. Shanske said he is still studying the change but his first impression is that as a matter of law and policy, what is important is that the method for apportioning GILTI be reasonable. 

“There can be more than one reasonable approach, and this new approach certainly appears reasonable,” Shanske said. “I think the previous approach was rather reasonable and the opposition to it quite unreasonable,” he added.

Copy RID