N.J.A.C. 18:7-21.10 - Ordering of the Dividend Elimination, Subsidiary Dividend Received Exclusion, and Net Operating Losses in a Combined Group Context

(a) In calculating entire net income, the members of a combined group filing a combined return shall first eliminate 100 percent of the intercompany dividends received from the other members of the combined group reported on the same New Jersey combined return.

(b) If the combined group has a loss in the current tax year, the entire group is deemed to have a net operating loss in the current tax year and the combined group shall be entitled to the net operating loss as a net operating loss carryover in subsequent privilege periods.

(c) If the entire net income of the combined group is a positive number, the combined group is deemed to have entire net income for the year. The combined group shall apply the group allocation factor and shall subtract the unused unexpired converted prior net operating loss carryovers.

(d) If, after allocating the entire net income and subtracting the unused unexpired converted prior net operating loss carryovers, the combined group still has combined group allocated entire net income greater than zero, then the combined group may use the net operating loss carryovers.

(e) Only dividends from subsidiaries that are not part of the combined group included in the combined return are excluded pursuant to N.J.S.A. 54:10A-4(k)(5). For privilege periods ending on and after July 31, 2019, but ending before July 31, 2023, the dividend exclusion is an allocated dividend exclusion and the exclusion occurs only if, after the application of N.J.A.C. 18:7-21.19(b) and (d), the allocated entire net income is greater than zero. For privilege periods ending on and after July 31, 2023, the dividend exclusion is pre-allocation regardless of whether entire net income is zero or less than zero.

1. For privilege periods ending on and after July 31, 2019, but before July 31, 2020, when computing the allowable dividend exclusion for dividends received from excluded subsidiaries that are unitary with the combined group, the pre-allocated dividend exclusions of each member of the combined group are aggregated together and then distributed for use by each member using the member's allocation factor from Schedule J to arrive at the allocated dividend exclusion each member may deduct against allocated entire net income.

2. For privilege periods ending on and after July 31, 2020, for purposes of the dividend exclusion, the members of a combined group filing a New Jersey combined return shall be treated as one taxpayer with regard to dividends and deemed dividends that were received as part of the unitary business of the combined group.

i. In computing the combined group dividend exclusion for privilege periods ending before July 31, 2023, the combined group shall use the group allocation factor on Schedule J.

ii. In computing the total amount of the dividends and deemed dividends excluded for privilege periods ending on and after July 31, 2023, the exclusion shall be deducted from entire net income after the State modifications that increase Federal entire net income but before the other State modifications that reduce entire net income and before the allocation of entire net income to this State.

3. A member of a combined group that independently has separate activities to give rise to sufficient nexus with New Jersey is entitled to take the dividend exclusion on Schedule X when the dividends from the excluded subsidiaries are not part of the unitary business of the combined group and not included in the entire net income of the combined group. In circumstances where New Jersey is prohibited from taxing said subsidiary dividends, the member must, nonetheless, disclose such dividends and attach a rider with an explanation.