Many New Jersey taxpayers have a reason to celebrate today as the Division of Taxation withdrew Technical Bulletin-85, providing for a special apportionment regime for global intangible low-taxed income (GILTI) and income used to compute the foreign-derived intangible income (FDII) deduction that many felt was unfair and potentially unconstitutional.
In December 2018, the New Jersey Division of Taxation issued Technical Bulletin-85 providing for a special apportionment regime for GILTI and income used to compute the FDII deduction. Under Technical Bulletin-85, GILTI and income used to compute the FDII deduction were apportioned to New Jersey separately from other business income based on the New Jersey Gross Domestic Product (GDP) relative to the GDP in all states where the taxpayer had nexus. This regime was unfair and likely unconstitutional as applied to many taxpayers because the apportionment formula was in no way related to where GILTI and income used to compute the FDII deduction were earned.
Today, thanks to the efforts of the business community in New Jersey and advocacy groups such as the STAR Partnership, the Division withdrew Technical Bulletin 85. The Division provided instead that GILTI and income used to compute the FDII deduction should be apportioned to New Jersey with the rest of the taxpayer’s business income, with GILTI (net of the federal deduction for GILTI) included in the denominator of the apportionment formula and income used to compute the FDII deduction (net of the FDII deduction) included in the denominator of the apportionment formula and the numerator to the extent such income is sourced to New Jersey. The Division is expected to release a new Technical Bulletin memorializing this guidance and providing more detail later this week. The Division’s current guidance is available at: https://www.state.nj.us/treasury/taxation/pdf/pubs/tb/tb85.pdf. Stay tuned for more!