N.J.A.C. 18:7-21.18 - Net Deferred Tax Liability Deduction

(a) There shall be allowed as a deduction an amount computed, in accordance with N.J.S.A. 54:10A-4(k)(16) for publicly traded companies. Affiliated corporations participating in the filing of a publicly traded company's financial statements prepared, in accordance with generally accepted accounting principles, shall also be eligible for this deduction. The deduction shall be allowed beginning with the combined group's first privilege period beginning on or after January 1, 2023, that is, the fifth year after the effective date of combined reporting pursuant to N.J.S.A. 54:10A-4(k)(16)(E).

(b) A combined group claiming this deduction shall also be allowed the credit at N.J.A.C. 18:7-21.14, since the alternative minimum assessment credit pursuant to N.J.A.C. 18:7-21.14 is intended for all combined groups filing combined returns in New Jersey, not just publicly traded companies.

(c) A combined group claiming the deduction shall file the claim by July 1, 2020.

(d) The Division of Taxation will only accept U.S. Generally Accepted Accounting Principles (U.S. G.A.A.P.) and International Financial Reporting Standards (I.F.R.S.).

(e) Only taxpayers that are publicly traded companies, or their affiliates (subsidiaries), included in the financial statements filed with the U.S. regulatory authorities or the financial statements filed with the regulatory authorities of a foreign nation with which the U.S. has a reciprocal agreement will qualify, so long as the financial statements are prepared, in accordance with U.S. G.A.A.P. or in accordance with the I.F.R.S.

(f) A publicly traded company is a company that is listed on a stock exchange or traded on over-the-counter markets.

(g) To qualify for the purposes of N.J.S.A. 54:10A-4(k)(16), a U.S. stock exchange or U.S. over-the-counter market must be regulated by a U.S. regulatory authority, and a foreign stock exchange or foreign over-the-counter market must be regulated by a regulatory authority of the foreign nation (so long as there is a reciprocal agreement with the U.S. government or U.S. regulatory authority).

(h) Financial statements are statements that are required to be filed annually, quarterly, etc. such as, but not limited to, the 10-K, 10-Q, or 8-K filings with the U.S. Securities and Exchange Commission (S.E.C.).

(i) The terms "net deferred tax liability" and "net deferred tax asset," as defined at N.J.S.A. 54:10A-4(k)(16), shall otherwise have the same meaning as prescribed by the Financial Accounting Standards Board (F.A.S.B.) or International Accounting Standards Board (I.A.S.B.) and calculated in accordance with U.S. G.A.A.P. or I.F.R.S., as applicable.

(j) The surtax imposed at N.J.S.A. 54:10A-5.41 shall be taken into account by the combined group when computing the deduction.

(k) Only the changes resulting from a change to filing combined returns apply for the purposes of computing the deduction.

(l) Where U.S. subsidiaries are required to file a mandatory unitary combined return with New Jersey and are included in the non-U.S. parent corporation's financial statements filed with the regulatory authorities of a foreign nation, the combined group filing a New Jersey return shall be eligible for the deduction if the parent corporation files its financial statements, in accordance with I.F.R.S. and is listed on a foreign stock exchange of a foreign nation that has a reciprocal agreement with the U.S. government.

(m) Where a publicly traded U.S. parent corporation is not unitary with its subsidiaries that constitute the combined group required to file a New Jersey combined return for New Jersey corporation business tax purposes, the combined group shall be eligible for the deduction where the combined group is included in the parent corporation's financial statements that are filed with the S.E.C.

(n) A combined group that is privately held does not qualify for the deduction. Only publicly traded companies that file financial statements, in accordance with U.S. G.A.A.P. or I.F.R.S. are eligible. Privately held combined groups are not eligible for the Net Deferred Tax Liability Deduction.

(o) A taxpayer that files a gross income tax return that is the owner of a closely held group of companies that is not a publicly traded group of companies is not eligible for the deduction.

(p) The net deferred tax liability deduction, as amended at P.L. 2023, c. 96, may still be taken for privilege periods beginning on and after January 1, 2023. However, the deduction is to be taken according to the following schedule outlined at N.J.S.A. 54:10A-4(k)(16):

1. For group privilege periods beginning on and after January 1, 2023, but before January 1, 2030, the combined group may deduct one percent of the amount necessary to offset the increase in the net deferred tax liability or decrease in the net deferred tax asset, or aggregate change from a net deferred tax asset to a net deferred tax liability, during a group privilege period.

2. For group privilege periods beginning on and after January 1, 2030, the combined group may deduct up to five percent of any remaining unused amount of the deduction during the group privilege period, until the group privilege period in which the total deduction amount has been fully utilized.

3. Example: Group A timely applied for a net deferred tax liability deduction totaling $100 million with the Division, and for most privilege periods averages an entire net income of$ 8,500,000. For group privilege periods beginning on January 1, 2023, but before January 1, 2030, Group A would be entitled to a $1,000,000 per group privilege period deduction, for a total of$ 7,000,000 the first seven group privilege periods. For each group privilege period starting with the group privilege period beginning on or after January 1, 2030, Group A would be entitled to a $4,650,000 deduction (($ 100M - $ 7M)*0.05) per group privilege period. Subsequently, in 2024, 2031, 2037, 2040, 2044, and 2049, Group A had a net operating loss for each of those respective periods. This would mean that 2056, not 2050, would be the last potential group privilege period year for which Group A could take the net deferred tax liability deduction.