New Jersey Administrative Code
Title 18 - TREASURY - TAXATION
Chapter 7 - CORPORATION BUSINESS TAX ACT
Subchapter 21 - COMBINED RETURNS
Section 18:7-21.15 - The water's-edge combined group default return filing method

Universal Citation: NJ Admin Code 18:7-21.15

Current through Register Vol. 56, No. 18, September 16, 2024

(a) Unitary combined returns are mandatory. The water's-edge group basis filing method is the default, if no election is made. The combined group shall take into account the income and allocation factors of only the following members of the combined group:

1. Each member incorporated in the United States, or formed under the laws of the United States, any state, the District of Columbia, or any territory or possession of the United States, excluding such a member if 80 percent or more of both its property and payroll during the privilege period are located outside the United States, the District of Columbia, or any territory or possession of the United States;

2. Each member, wherever incorporated or formed, if 20 percent or more of both its property and payroll during the privilege period are located in the United States, the District of Columbia, or any territory or possession of the United States;

3. Any member that earns more than 20 percent of its income, directly or indirectly, from intangible property or related service activities that are deductible against the income of other members of the combined group; and

4. Each member that has income as defined under the Corporation Business Tax Act, P.L. 1945, c. 162 (N.J.S.A. 54:10A-1 et seq.), and has sufficient nexus in New Jersey pursuant to section 2 of P.L. 1945, c. 162 (C.54:10A-2) (see N.J.A.C. 18:7-1.6 through 1.14 for more detail on nexus).

(b) Although the water's-edge combined group filing method is the mandatory default filing method, the managerial member of the combined group may elect the worldwide election or an affiliated group election. See N.J.S.A. 54:10A-4.11 and N.J.A.C. 18:7-21.16 and 21.17 for more information on elective combined return filing methods.

(c) For changes in the composition of the combined group, the members shall notify the Director, as set forth pursuant to the procedures at N.J.A.C. 18:7-21.29.

(d) For the purposes at (a)1 and 2 above, property and payroll are determined, in accordance to the rules at N.J.A.C. 18:7-8.1 through 8.17.

(e) In determining which members are included in a water's-edge combined group, the disregarded entity's attributes shall be used by the member that owns the disregarded entity. In making a determination of which members are included in a water's-edge combined group pursuant to N.J.S.A. 54:10A-4.11, the attributes of the unitary partnerships, unitary limited partnerships, or unitary limited liability companies treated as partnerships, of which a member is a corporate partner shall be used as part of the member's attributes, based on the member's proportionate share of the partnerships, limited partnerships, or limited liability companies.

(f) For corporations with movable property and mobile employees transporting/shipping such mobile property, the following criteria, which is not all inclusive, are to be used for the purposes of guidance as to determining whether an entity should be included on a water's-edge basis as a member on the combined return pursuant to N.J.S.A. 54:10A-4.11:

1. With regard to the property, movable property, such as tractors and trailers, shall be allocated to the U.S. using a mileage fraction consisting of the miles driven in the U.S. over the miles driven everywhere. Such allocated movable property shall be added to the non-movable property in the U.S. for the purposes of determining the percentage of property in the U.S.

2. With regard to the payroll, wages of mobile employees, such as drivers, shall be allocated to the U.S. based upon mileage driven in the U.S. over miles driven everywhere. Such allocated payroll shall be added to the non-mobile employee wages in the U.S. for the purposes of determining the percentage of payroll in the U.S.

3. With regard to such movable property and such mobile employees, if the terms of an international transportation, shipping, export/import, or income tax treaty or agreement specify the allocation/apportionment of mileage/time/location method for determining when such property or employee is considered to be located in, or assigned to, the respective nation, the corporation may rely on such allocation/apportionment methods dictated by such treaties or agreements.

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