New Jersey Implements Sourcing Rules for Corporations Effective Tax Year 2019

Thoughtware Alert Sep 10, 2020
SALT Taxpayer Considerations

On March 16, 2020, the New Jersey Division of Taxation proposed an amendment as well as a new regulation to address the market-based sourcing provisions under its Corporation Business Tax Act. The proposed regulations include the following: 

  • A rule amendment to limit the allowance of cost of performance, time spent, or other reasonable methods to privilege periods prior to July 31, 2019
  • A new rule to provide allocating receipts from certain services using market-based sourcing for privilege periods ending on or after July 31, 2019

On September 8, 2020, the New Jersey Division of Taxation adopted N.J. Admin. Code Section 18:7-8.10A(a)(1) to provide guidance on the sourcing to services for tax years ending on or after July 31, 2019. This rule intends to source service revenues from the location where the benefits are deemed “received.”

N.J. Admin. Code §18:7-8.10A(a)(1) provides that the numerator of the sales fraction includes receipts from services not otherwise apportioned if the benefit of the service is received by the customer at a location within New Jersey. A customer within New Jersey is either 1) a recipient who’s engaged in a trade or business and maintains a regular place of business in New Jersey or 2) an individual who isn’t a sole proprietor and located in New Jersey. If the individual’s location can’t be determined, the benefit of the services will be deemed to be received at the individual’s billing address.

A regular place of business in New Jersey isn’t limited to the customer’s principal place of business and includes any office, factory, warehouse, or other business location in New Jersey where the customer conducts business in a regular and systematic manner or maintains property or employees. Under N.J. Admin. Code §18:7-7.2, for an office to be considered a regular place of business, the office must be owned or rented in the taxpayer’s name.

N.J. Admin. Code §18:7-8.10A(a)(1) further provides examples relating to real estate surveying services, engineering services, computer software services, advertising services, prescription services, market analysis services, GPS services, legal information services, and payroll processing services. 

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