N.J.A.C. 18:7-21.13 - Allocation Factor Computation for Combined Groups

(a) A taxable member of a combined group shall determine its allocation factor for determining its share of the entire net income of the combined group, provided however:

1. For privilege periods ending on or after July 31, 2019, but before July 31, 2023, the members of a combined group shall source the receipts for allocation purposes as follows:

i. Each taxable member shall determine its allocation factor based on the otherwise applicable allocation provided in sections 6 through 10 at P.L. 1945, c. 162 (N.J.S.A. 54:10A-6 through 54:10A-10). In computing its denominator, the taxable member shall use the combined group's denominator. The combined group's denominator equals the receipts of both the taxable and nontaxable members. In computing the numerator of its receipts factor, each taxable member shall include in its numerator its receipts assignable to this State, as provided in this subchapter.

ii. A combined group that makes an affiliated group election shall include the receipts of all of the members in both the numerator and denominator of the receipts factor, regardless of whether the members are subject to tax, if doing business in this State. See N.J.S.A. 54:10A-4.11.c.

2. For privilege periods ending on or after July 31, 2023, all combined groups must use the Finnigan Method of sourcing receipts and the combined group (regardless of the combined return filing method) shall source the receipts for allocation purposes as follows:

i. The allocation and sourcing of unitary receipts is done at the group level, not the member level; and

ii. In computing the numerator and denominator of the allocation factor of the combined group, the combined group, as one taxpayer, shall take into account all of the unitary receipts of all of the members.

(b) All business income of a combined group engaged in the transportation of freight by air or ground shall be apportioned to this State by multiplying the income by a fraction, the numerator of which is the ton miles traveled by the combined group's mobile assets in this State by type of mobile asset and the denominator of which is the total ton miles traveled by the combined group's mobile assets everywhere. This section applies if 50 percent or more of the combined group's entire net income is derived from the transportation of freight by air or ground. See N.J.A.C. 18:7-21.28 for more information.

(c) In determining the numerator and denominator of the allocation factors of taxable members, transactions between or among members of the combined group shall be eliminated. Intercompany transactions between a combined group member and a partnership whose income is included in the unitary business of the combined group are also disregarded where the transactions relate to the unitary business to the extent of the group member's distributive share interest in partnership income.

1. A sale by a member of a combined group to a purchaser that is not a member of the combined group is attributed to the group member that books the sale, subject to the adjustments to be made to avoid distortion of applicable allocation formulas in the case of intra-group sales.

2. Where a combined group member makes a sale to a purchaser that is not a member of the combined group, and previously acquired the property or services sold from another combined group member, the activities of both the member producing the property or services and the member making the sale to the non-member must jointly be considered for purposes of determining the appropriate allocation formula of the member making the sale.

(d) Where a taxable member of a combined group receives unitary business income through a direct or indirect ownership interest in a partnership or disregarded entity, the sales/receipts factors of such taxable member shall include its pro rata share of the factors relating to such income as attributed to the taxable member through such ownership interest. In the case of an affiliated group election, a taxable member of a combined group shall include in its sales/receipts factors its pro rata share of the sales/receipts factors relating to all income that is attributed to the taxable member through its direct or indirect ownership interest in a partnership or disregarded entity. See N.J.A.C. 18:7-7.6.

(e) Receipts of the members of the combined group shall otherwise be determined based on the same methods as prescribed at N.J.A.C. 18:7-7.1 through 7.6 and 8.1 through 8.17 that are not inconsistent with (a), (b), (c), or (d) above.

(f) Member receipts that are non-unitary to the combined group or are attributable to income that is excluded from entire net income are excluded from the allocation factor of the combined group.

(g) Nothing at (a) through (e) above shall preclude the Director from making adjustments pursuant to N.J.S.A. 54:10A-4(k)(3), 54:10A-8, or 54:10A-10.

(h) Receipts attributable to items of income excluded or exempt from entire net income shall not be included in the allocation factor.

1. For non-U.S. corporations that are members of either water's-edge or affiliated groups, the receipts attributable to treaty protected income shall be excluded from the allocation factor.

2. For non-U.S. corporations that are members of either water's-edge or affiliated groups, only the receipts attributable to effectively connected income (or what would be effectively connected income for such members that did not file a Federal return but have U.S. source income) shall be included in the allocation factor.

3. World-wide group members shall include world-wide receipts; however, with respect to the non-U.S. corporations, the receipts shall be reported in the same manner as a U.S. corporation, taking into account the amounts of any resulting reduction in receipts from the corporation computing its entire income as though it were a U.S. corporation for Federal purposes.