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Change to New Jersey Corporation Business Tax Apportionment

Publisher: Day Pitney Alert
May 4, 2011

On April 28, 2011, New Jersey Governor Chris Christie signed into law Senate Bill No. 2753 (the "Bill"). The Bill amends the New Jersey Corporation Business Tax ("CBT") by changing the formula used to determine the portion of a corporation's net income that is subject to tax in New Jersey. 

In general, a corporation pays state corporate income tax based on the portion of its income attributable to business activities in each state. Prior to the passage of the Bill, the CBT apportioned a corporation's net income based on a weighted average of three fractions: (1) the corporation's property in New Jersey over its total property, which accounted for 25% of the apportionment; (2) the corporation's payroll in New Jersey over its total payroll, which accounted for 25% of the apportionment; and (3) the corporation's sales in New Jersey over its total sales, which accounted for 50% of the apportionment.

The Bill replaces the three-fraction formula with a single sales factor formula that will be phased in over the course of three years. For privilege periods beginning on or after January 1, 2012, the sales fraction will account for 70% of the apportionment, and the property and payroll fractions will each account for 15%. For privilege periods beginning on or after January 1, 2013, but before January 1, 2014, the sales fraction will account for 90% of the apportionment and the property and payroll fractions will each account for 5% of the apportionment. For privilege periods beginning on or after January 1, 2014, a corporation's net income will be apportioned solely on the basis of the corporation's sales in New Jersey over its total sales. 

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