New rules for New Jersey captive insurance companies; New Jersey credit for tiered subsidiary dividends;New Jersey adopts regulation permitting Director to decombine unitary groups.

 

New Jersey—Corporate Income Tax—New Jersey adopts regulation on combinable captive insurance companies. The New Jersey Division of Taxation has adopted N.J. Admin. Code § 18:7-1.24, effective September 19, 2022, to support its existing policy that combinable captive insurance companies are subject to the corporation business tax. A combinable captive insurance company is exempt from the insurance company premiums tax imposed pursuant to N.J. Rev. Stat. § 17:47B-12 and any other insurance premiums taxes imposed pursuant to any other laws of the State of New Jersey. A combinable captive insurance company that has nexus with New Jersey, but is not included as a member of a New Jersey combined return, must file a separate return. Captive insurance companies that do not meet the definition of a combinable captive insurance company are exempt from the corporation business tax and are excluded from the combined group reported on the combined return. Such captive insurance companies are subject to the insurance premiums tax at N.J. Rev. Stat. § 17:47B-12. For the purposes of determining whether a captive insurance company is a combinable captive insurance company, the entity must use the same method of accounting used for federal purposes. 

New Jersey—Corporate Income Tax—New Jersey credit for tiered subsidiary dividends. Effective September 19, 2022, the New Jersey Division of Taxation has adopted N.J. Admin. Code § 18:7-3.28 to provide rules for the deduction of tiered subsidiary dividends. In order for a taxpayer to qualify for the Tiered Subsidiary Dividend Pyramid Tax Credit, the taxpayer must have received the same dividends and deemed dividends from a subsidiary that paid tax to New Jersey. Such subsidiary must have received the same dividends and deemed dividends from other subsidiaries and included those dividends and deemed dividends in its entire net income for the purposes of determining its tax liability and paid tax on those dividends and deemed dividends to New Jersey on a timely filed New Jersey corporation business tax return. The Tiered Subsidiary Dividend Pyramid Tax Credit is a credit for: (1) dividends and deemed dividends from non-combined group subsidiaries that file separate New Jersey returns and paid the corporation business tax on dividends and deemed dividends from other subsidiaries; and (2) dividends and deemed dividends from a separate lower-tier combined group that files a New Jersey combined return separate and apart from another (dividend paying) combined group and that paid the corporation business tax on dividends and deemed dividends from other subsidiaries. A member of a combined group cannot receive a Tiered Subsidiary Dividend Pyramid Tax Credit for taxes paid by another member because the members of a combined group are one taxpayer. The Tiered Subsidiary Dividend Pyramid Tax Credit can only reduce the regular tax liability of the taxpayer. However, the Tiered Subsidiary Dividend Pyramid Tax Credit cannot exceed the regular tax liability and is not refundable. The Tiered Subsidiary Dividend Pyramid Tax Credit does not contain a provision permitting the credit to be carried forward. 

New Jersey—Corporate Income Tax—New Jersey adopts regulation permitting Director to decombine unitary groups. Effective September 19, 2022, the Division of Taxation has adopted N.J. Admin. Code 18:7-21.24. This regulation permits the Director upon audit of the combined return and review of the facts and circumstances, to decombine and require a member or members to file a separate return instead of the members being included as part of the combined group filing a mandatory unitary combined return, if the Director determines that the members were not unitary and the principle purpose of including the members was to either shelter income, dilute the allocation factor of the combined group, improperly increase the combined group net operating losses, or the inclusion was for the purpose of sharing tax credits that were not related to any function of the combined group.