The New Jersey Tax Court denied the Division of Taxation’s motion for reconsideration and again found that the Alternative Minimum Tax is preempted by P.L. 86-272. Previously, the New Jersey Tax Court granted summary judgment in favor of the taxpayer and held that the AMA, which was repealed for tax years beginning on or after January 1, 2018, is preempted by P.L. 86-272, a federal statute that bars states from imposing a net income tax on certain out-of-state sellers of tangible goods with specific limited contacts in a state. While the Division agreed the taxpayer was not subject to the Corporation Business Tax, it argued that P.L. 86-272 entities are subject to the AMA. In denying the Division’s motion for reconsideration, the court considered that under the AMA, P.L. 86-272 taxpayers pay the lesser of the CBT or the AMA. It stated that when the AMA is greater than the CBT, the AMA clearly operates as an end-run around P.L. 86-272. When the AMA is greater than the CBT, the AMA becomes a tax measured by net income because the taxpayer would be paying the CBT. However, even if the AMA is lower than the CBT, the court reasoned that Congress indicated that there shall be no net income tax, not merely a reduction that is collected in the form of the AMA: “[r]egardless of whether the amount assessed is above or below the CBT, the AMA is inextricably linked to the CBT.” The court concluded that the legislature cannot create a special gross receipts tax that only applies to P.L. 86-272 entities in an attempt to garner lost net income tax. It determined that “the presumption against preemption is overcome since the clear purpose of Congress in enacting P.L. 86-272 is effectively thwarted by the Legislature in enacting the AMA. As such, the AMA is subject to preemption.”
Stanislaus Food Products Co v. Div. Of Taxation, N.J. Tax. Ct. Dkt. No. 011050-2017 (Apr. 22, 2021)