N.J.A.C. 18:7-5.2 - Entire Net Income; How Computed

(a) "Taxable income before net operating loss deduction and special deductions," (hereinafter referred to as "Federal taxable income") is the starting point in the computation of the entire net income. After determining Federal taxable income, it must be adjusted as follows:

1. Add to Federal taxable income:

i. The amount of any exemption or credit allowed in any law of the United States imposing any tax on or measured by the income of corporations, where such exemption or credit has been deducted in computing Federal taxable income.

(1) All income that is exempt under any provision of the Federal law must be included in the entire net income for New Jersey corporation business tax purposes, unless there is a provision of the Corporation Business Tax Act that exempts or excludes such item of income;

(2) New Jersey shall follow the Federal government's treatment of the related expenses paid with Paycheck Protection Program (PPP) loans and forgiven loans will be excluded from entire net income. A taxpayer, pursuant to the Corporation Business Tax Act, P.L. 1945, c. 162 (N.J.S.A. 54:10A-1 et seq.), shall not be denied a deduction for ordinary and necessary business expenses paid for with the proceeds of a Federal Paycheck Protection Program loan by reason of the exclusion from entire net income, pursuant to P.L. 1945, c. 162, of such loan, or portion thereof, forgiven pursuant to § 1106 of the Federal CARES Act, P.L. 116-136, or any subsequent expansion of the Federal Paycheck Protection Program, including the provision of second draw loans pursuant to § 311 of Division N of the "Consolidated Appropriations Act, 2021," P.L. 116-260; and

(3) Items of income excluded from Federal taxable net income pursuant to the specific terms of a treaty do not have to be added back to entire net income whether the business entity is a separate return filer or a member of a water's-edge or affiliated group New Jersey combined return. With respect to privilege periods ending on and after July 31, 2022, no other deduction, exclusion, or elimination will be permitted for such income and loss items excluded pursuant to N.J.S.A. 54:10A-4(k)(18). The corporation claiming treaty protection must attach a copy of the form 8833 that was filed with the Federal government, or if the corporation did not file a Federal return, a pro-forma form 8833 must be included with the corporation's pro forma form 1120-F that was included with the corporation business tax return. A member of a combined group is not excluded from the group solely because their income is excluded from combined group entire net income under the terms of a treaty, and must be included as a member of the combined group on the combined return;

(A) With regard to taxpayers formed in a foreign nation, that has a treaty with the U.S., and the treaty contains a reciprocal tax treaty clause with other foreign nations with tax treaties with the U.S., for example, member nations of the European Union, the taxpayer will not be required to add back treaty protected income that was protected for Federal purposes pursuant to the terms of such tax treaties;

(4) A non-U.S. corporation, that files a Federal tax return, and that is not a member of a combined group filing a New Jersey combined return on a world-wide basis shall only include its income or loss included in Federal taxable income, which, in general, is limited to only the non-U.S. corporation's effectively connected income or loss (as modified by the provisions of the Corporation Business Tax Act (1945), P.L. 1945, c. 162 (N.J.S.A. 54:10A-1 et seq.)), and the items of expense and the allocation factor receipts attributable to such items of income or loss. For a non-U.S. corporation that is a member of a water's-edge group and has U.S. source income not protected by a treaty, that did not file a Federal return, see N.J.A.C. 18:7-21.7 for more information.

ii. All interest income from sources within the United States which has not been included in computing Federal taxable income, including interest on State and Municipal bonds and certain obligations of the United States and its instrumentalities, less interest expense incurred to carry such investments, to the extent such interest expense has not been deducted in computing Federal taxable income;

iii. All dividend income from sources within the United States which has not been included in computing Federal taxable income;

iv. All Federal taxes on or measured by income or profits which were deducted in computing Federal taxable income;

v. All New Jersey franchise taxes paid or accrued under the Corporation Business Tax Act, whether measured by net worth, net income or otherwise, to the extent such taxes were deducted in computing Federal taxable income; and, with respect to accounting years beginning after July 7, 1993, taxes paid or accrued to a possession or territory of the United States, a state, a political subdivision thereof, or the District of Columbia on or measured by profits or income, or business presence or business activity including, without limitation, the Michigan Single Business Tax and taxes measured in whole or in part by "net taxable capital" to the extent such taxes were deducted in computing Federal taxable income;

vi. All taxes paid or accrued to any foreign country, state, province, territory, or subdivision, on or measured by profit or income or business presence or business activity, to the extent such taxes were deducted in computing Federal taxable income with respect to accounting years beginning on or after January 1, 2002;

vii. Taxes paid or accrued with respect to subsidiary dividends should be added back to the extent dividends are excluded from entire net income and such taxes were deducted in computing Federal taxable income;

viii. Net operating losses sustained during any year or period other than that covered by the return, which were deducted in computing Federal taxable income, but a net operating loss deduction shall be allowed to the extent provided at N.J.A.C. 18:7-5.12 through 5.17 for privilege periods ending before July 31, 2019. For privilege periods ending on and after July 31, 2019, net operating losses are calculated on a post-allocation basis, rather than a pre-allocation basis, and are not included in the computation of entire net income. See N.J.A.C. 18:7-5.21;

ix. For accounting or privilege periods ending on or before January 10, 1996, the amount deducted, in computing Federal taxable income, for interest on indebtedness whether or not evidenced by a written statement. To be added back, such interest must be owed directly or indirectly either to an individual stockholder or members of his or her immediate family who, in the aggregate, own beneficially 10 percent or more of the taxpayer's outstanding shares of capital stock or to a corporate stockholder that owns 10 percent or more of the taxpayer's outstanding shares of capital stock. The amount deducted shall be reduced by 10 percent of the amount so deducted or $1,000, whichever is larger. Thus, if the amount of such interest is$ 1,000 or less, then none of said amount need be added back. However, there shall be allowed as a deduction:

(1) Any part of a deduction for interest on written evidence of indebtedness issued, with stock, pursuant to a bona fide plan of reorganization to persons who prior to such reorganization were bona fide creditors of the taxpayer or any predecessor corporation, but were not stockholders thereof; and

(2) Any part of a deduction for interest that relates to financing of motor vehicle inventory held for sale to customers, provided that the underlying indebtedness is owed to a taxpayer customarily and routinely providing this type of financing. The portion of such interest which may be deducted is limited to interest on indebtedness relating to floor-planning of motor vehicles evidenced by a trust receipt or similar document and is also limited to interest on unsold inventory items. The interest must be paid or accrued directly to a creditor which is a taxpayer under the act and not indirectly to any related entity. That taxpayer, or a corporation which is a parent or subsidiary of that taxpayer, must be the manufacturer or the motor vehicles financed; and

(3) Any deduction for interest that relates to debt of a "financial business corporation" owed to an affiliate corporation but only where the interest rate does not exceed two percentage points over a prime rate as determined by the Commissioner of Banking. Interest paid or accrued to such an affiliate is an unrestricted deduction only when a corporation is a financial business corporation as determined at N.J.A.C. 18:7-1.16. A debt is owed to an "affiliate" corporation when it is owed directly or indirectly to holders of 10 percent or more of the aggregate outstanding shares of the taxpayer's capital stock of all classes. The deduction may not be claimed on the Corporation Business Tax Return, Form CBT-100. Any corporation that is a financial business corporation must file the Corporation Business Tax Return for Banking and Financial Corporations, Form BFC-1, and complete Schedule L apportioning the financial business conducted in New Jersey consistent with N.J.S.A. 54:10A-38; and

(4) Any part of a deduction for interest that related to debt of a banking corporation owed directly to a bank holding company, as defined in 12 U.S.C. § 1841, of which the banking corporation is a subsidiary. The allowable deduction for interest is limited to interest paid or accrued directly by the subsidiary to its bank holding company parent notwithstanding that related indebtedness may be excluded from net worth where it is indirectly owed to such bank holding company.

x. Recoveries with respect to war losses, regardless of whether such war losses were deducted in any return previously made for the purpose of computing the New Jersey Corporation Business Tax;

xi. All income from sources outside the United States which has not been included in computing Federal taxable income less all allowable deductions to the extent that such allowable deductions were not taken into account in computing Federal taxable income;

xii. In any year or short period which ends after 1981, with respect to property placed in service on and after January 1, 1981, but prior to taxpayer fiscal or calendar accounting years beginning on or after July 7, 1993, any depreciation or cost recovery (ACRS or MACRS) which was deducted in arriving at Federal taxable income and which was determined in accordance with I.R.C. § 168 in effect after December 31, 1980. See (a)2iv below for depreciation allowable in computing entire net income.

xiii. In any year or short period ending after 1981, with respect to property placed in service on and after January 1, 1981, but prior to taxpayer fiscal or calendar accounting years beginning on or after July 7, 1993, any interest, amortization or transactional costs, rent, or any other deduction which was claimed in arriving at Federal taxable income as a result of a "safe harbor leasing" election made under I.R.C. § 168(f)8; provided, however, that for a fiscal year or short period which begins in 1981 and ends in 1982, any such amount which relates to property placed in service during that part of the return year that occurs in 1981 shall be allowed as a deduction in arriving at entire income for that year only; and provided further that any such amount with respect to a qualified mass commuting vehicle pursuant to I.R.C. § 168(f)(8)(D)(v) (formerly 168(f)(8)(D)(iii)) shall be allowed in any event.

(1) Where the "user/lessee" of qualified lease property which is precluded from claiming a deduction for rent under this rule would have been entitled to cost recovery on property which is subject to such "safe harbor lease" election in the absence of that election, it may claim depreciation on that property under the provisions of (a)2iv and v below. See (a)2vi below for the treatment to be accorded related income on such "safe harbor lease" transactions.

xiv. All income, from whatever sources derived not included in computing Federal taxable income and not otherwise required to be added back under (a)1i through ix above, less all allowable deductions attributable thereto, to the extent that those allowable deductions were not taken into account in computing Federal taxable income.

xv. The amount deducted from Federal taxable income for any civil, civil administrative, or criminal penalty or fine, including a penalty or fine under an administrative consent order, assessed and collected for violation of a State or Federal environmental law, an administrative consent order, or an environmental ordinance or resolution of a local governmental entity, and any interest earned on the penalty or fine, and any economic benefits having accrued to the violator as a result of a violation, which benefits are assessed and recovered in a civil, civil administrative, or criminal action, or pursuant to an administrative consent order. The provisions of this subsection shall not apply to a penalty or fine assessed or collected for a violation of a State or Federal environmental law, or local environmental ordinance or resolution, if the penalty or fine was for a violation that resulted from fire, riot, sabotage, flood, storm event, natural cause, or other act of God beyond the reasonable control of the violator, or caused by an act or omission of a person who was outside the reasonable control of the violator.

xvi. The amount deducted from Federal taxable income of treble damages paid to the Department of Environmental Protection and Energy (Department) pursuant to subsection a of section 7 of P.L.1976, c.141 (N.J.S.A. 58:10-23.11f) for costs incurred by the Department in removing, or arranging for the removal of, an unauthorized discharge upon failure of the discharger to comply with a directive from the Department to remove, or arrange for the removal of, the discharge.

xvii. Any deduction for research and experimental expenditures to the extent that those research and experimental expenditures are qualified research expenses or basic research payments for which an amount of research credit is claimed pursuant to N.J.S.A. 54:10A-5.24, unless those research and experimental expenditures are also used to compute a Federal credit claimed pursuant to I.R.C. § 41; provided, however, for privilege periods beginning on and after January 1, 2022, a deduction for research and experimental expenditures shall be allowed during the same privilege period for which a credit is claimed pursuant to N.J.S.A. 54:10A-5.24, notwithstanding the timing schedule required by the Federal Internal Revenue Code of 1986, 26 U.S.C. § 174, for the deduction of specified research and experimental expenditures.

(1) In the case of a taxpayer that is a cannabis licensee, there shall be allowed as a deduction an amount equal to any expenditure that would qualify as a specified research or experimental expenditure pursuant to I.R.C. § 174 but is disallowed as a deduction for Federal tax purposes because cannabis is a controlled substance pursuant to Federal law. Any expenditure that is claimed as a deduction pursuant to this sub-subparagraph may also be claimed as a qualified research expense for purposes of the credit allowed pursuant to N.J.S.A. 54:10A-5.24. For purposes of this sub-subparagraph, "licensee" means the same as that term is defined at N.J.S.A. 24:6I-33;

xviii. Interest paid, accrued, or incurred to a related member except as may be permitted pursuant to N.J.A.C. 18:7-5.18;

xix. Interest expenses and costs and intangible expenses and costs directly or indirectly paid, accrued, or incurred in connection with a transaction with one or more related members, except as may be permitted pursuant to N.J.A.C. 18:7-5.18 for privilege periods ending before July 31, 2023;

xx. No deduction for amounts that would have been deductible pursuant to I.R.C. § 199 are allowed after January 1, 2018;

xxi. For property placed in service on or after January 1, 2004, the amounts claimed as cost expense pursuant to I.R.C. § 179 that are in excess of $ 25,000;

xxii. For privilege periods beginning after December 31, 2008, and before January 1, 2011, the amount of discharge of indebtedness income excluded for Federal income tax purposes pursuant to I.R.C. § 108(i);

xxiii. For privilege periods beginning on and after January 1, 2017, any deduction, exemption, or credit allowed under the Internal Revenue Code for income reported pursuant to I.R.C. § 965;

xxiv. For privilege periods beginning after December 31, 2017, the amounts taken as a deduction pursuant to I.R.C. § 199A; and

xxv. For privilege periods beginning after December 31, 2017, see N.J.A.C. 18:7-5.22 for more information on the interest deduction limitation in subsection (j) at I.R.C. § 163; and

2. Deduct from Federal taxable income:

i. The dividend exclusion is computed as follows:

(1) For privilege periods ending on or before December 31, 2016, 100 percent of all dividends or deemed dividends for Federal purposes included in Federal taxable income that were received from subsidiaries meeting the definition of a subsidiary having the requisite degree of ownership of investment as described at N.J.S.A. 54:10A-4(d) and 100 percent of all dividends from those subsidiaries that were added to Federal taxable income in accordance with (a)1 above. For privilege periods beginning on or after January 1, 2017, but ending before July 31, 2023, 95 percent of all dividends or deemed dividends for Federal purposes included in Federal taxable income that were received from subsidiaries meeting the definition of a subsidiary at N.J.S.A. 54:10A-4(d) and 95 percent of all dividends or deemed dividends from those subsidiaries that were added to Federal taxable income, in accordance with (a)1 above. For privilege periods ending on or after July 31, 2023, 100 percent of all dividends or deemed dividends for Federal purposes included in Federal taxable income that were received from subsidiaries meeting the definition of a subsidiary having the requisite degree of ownership of investment as described at N.J.S.A. 54:10A-4(d) and 100 percent of all dividends from those subsidiaries that were added to Federal taxable income in accordance with (a)1 above.

(A) Dividends received from an entity qualified as a real estate investment trust (REIT) as defined pursuant to I.R.C. § 856, and N.J.S.A. 54:10A-4(1), are ineligible for inclusion in the dividends received deduction for corporations as provided at (a)2i above. For those taxpayers that are subject to New Jersey corporation business tax, REIT distributions in conformity with Federal law are subject to taxation.

(B) For privilege periods beginning on or after January 1, 2017, but ending before July 31, 2019, dividends or deemed dividends received from a subsidiary shall be excluded from the entire net income of a taxpayer to the extent to which the subsidiary: received the same dividends or deemed dividends from other subsidiaries; included those dividends or deemed dividends in its entire net income for the purposes of determining its tax liability pursuant to section 5 at P.L. 1945, c. 162 (N.J.S.A. 54:10A-5); and paid tax to New Jersey on those dividends or deemed dividends, based on the subsidiary's allocation factor used by the subsidiary in determining its tax liability pursuant to section 5 at P.L. 1945, c. 162 (N.J.S.A. 54:10A-5). Taxpayers may request section 8 relief as set forth in the procedures at N.J.A.C. 18:7-10.1, as a result of differing allocation factors.

(C) For privilege periods ending on and after July 31, 2019, but before July 31, 2020, the extent to which a subsidiary: received dividends from other subsidiaries; included those dividends in its entire net income for the purposes of determining its tax liability pursuant to section 5 at P.L. 1945, c. 162 (N.J.S.A. 54:10A-5) and paid tax on those dividends; and the taxpayer receiving those same dividends from the subsidiary shall exclude those dividends from its entire net income.

(D) For privilege periods ending on and after July 31, 2020, for the treatment of tiered subsidiary dividends received from subsidiaries that file a return separate and apart from the taxpayer, please see N.J.A.C. 18:7-3.28.

(E) For privilege periods ending on and after July 31, 2020, for purposes of N.J.S.A. 54:10A-4(k)(5), the members of a combined group filing a New Jersey combined return shall be treated as one taxpayer regarding dividends and deemed dividends that were received as part of the unitary business of the combined group pursuant to N.J.S.A. 54:10A-4(k)(5)(E);

(2) Fifty percent of all dividends or amounts deemed dividends for Federal purposes included in Federal taxable income or added to Federal taxable income, in accordance with (a)2i(1) above if received from 50 percent to less than 80 percent owned subsidiaries. Dividends received from a regulated investment company that are treated as interest for purposes of the Internal Revenue Code and/or that are not considered qualifying dividends for Federal purposes are not eligible for deduction or exclusion from entire net income pursuant to this subsection.

(A) Dividends received from an entity qualified as a real estate investment trust (REIT) as defined at I.R.C. § 856, and N.J.S.A. 54:10A-4(l), are ineligible for inclusion in the dividends received deduction for corporations as provided at (a)2i(2) above. For those taxpayers that are subject to New Jersey corporation business tax, REIT distributions in conformity with Federal law are subject to taxation.

(B) For privilege periods beginning on or after January 1, 2017, but ending before July 31, 2019, dividends received from a subsidiary, to the extent to which the subsidiary received the same dividends from other subsidiaries and included those dividends in its entire net income for the purposes of determining its tax liability pursuant to N.J.S.A. 54:10A-5; and paid tax to New Jersey on those dividends, a taxpayer shall exclude from the entire net income those dividends received from the subsidiary on which the subsidiary paid tax to New Jersey, based on the subsidiary's allocation factor used by the subsidiary in determining its tax liability pursuant to N.J.S.A. 54:10A-5. Taxpayers may request section 8 relief, as appropriate, as a result of differing allocation factors.

(C) For privilege periods ending on and after July 31, 2019, but before July 31, 2020, to the extent to which a subsidiary received dividends from other subsidiaries and included those dividends in its entire net income for the purposes of determining its tax liability pursuant to N.J.S.A. 54:10A-5, and paid tax to New Jersey on those dividends, the taxpayer receiving those same dividends from the subsidiary shall exclude those dividends from its entire net income.

(D) For privilege periods ending on and after July 31, 2020, for the treatment of tiered subsidiary dividends received from subsidiaries that file a return separate and apart from the taxpayer, please refer to N.J.A.C. 18:7-3.28.

(E) For privilege periods ending on and after July 31, 2020, for purposes of N.J.S.A. 54:10A-4(k)(5), the members of a combined group filing a New Jersey combined return shall be treated as one taxpayer regarding dividends and deemed dividends that were received as part of the unitary business of the combined group pursuant to N.J.S.A. 54:10A4(k)(5)(E).

(3) For privilege periods ending on and after July 31, 2023, the dividend exclusion shall be deducted from entire net income after the State modifications that increase Federal taxable income but before the other State modifications that reduce entire net income and before the allocation of entire net income to this State.

(4) In computing the total amount of the dividends and deemed dividends excluded, the amount of dividends and deemed dividends excluded shall be reduced by the amount of the expenses and deductions that are attributable to those dividends and deemed dividends that are excludable from entire net income pursuant to N.J.S.A. 54:10A-4(k)(5). For purposes of N.J.S.A. 54:10A-4(k)(5), expenses and deductions related to dividends shall equal five percent of all dividends and deemed dividends received by a taxpayer during an income year that were not eliminated pursuant to N.J.S.A. 54:10A-4.6(d).

(5) For privilege periods ending on and after July 31, 2023, for the purposes of N.J.S.A. 54:10A-4(k)(5) and 54:10A-4.6(d), the income amounts required to be included in Federal taxable income pursuant to 26 U.S.C. § 951A shall be considered a dividend.

(6) For privilege periods ending on and after July 31, 2023, the dividend exclusion shall be taken before the application of the prior net operating loss conversion carryovers (N.J.S.A. 54:10A-4(u)) and the net operating loss deductions (N.J.S.A. 54:10A-4(v)).

(7) Federal previously taxed earnings and profits pursuant to I.R.C. § 959 that are not representative of dividends or deemed dividends that were taxed for New Jersey purposes in previous years, but are recognized for Federal purposes in the current privilege period as Federal previously taxed earnings and profits pursuant to I.R.C. § 959, are generally eligible for exclusion pursuant to N.J.S.A. 54:10A-4(k)(5), except as follows:

(A) Such amounts that are representative of investments in U.S. property pursuant to I.R.C. § 959, are not dividends or deemed dividends, but depreciable assets, and, thus, are not eligible for the New Jersey dividend exclusion and not subject to the claw-back required at (a)2i(4) above, but are instead deductible for New Jersey purposes elsewhere on the CBT return before the dividend exclusion; and

3. Federal previously taxed earnings and profits pursuant to I.R.C. § 959 that were not previously taxed for New Jersey purposes are not eligible for exclusion set forth at N.J.A.C. 18:7-5.20.

Example: Teal Corp directly owns Company 1, Company 2, and Company 3, and indirectly owns Company 4, and Company 5. Company 5 is a separate return subsidiary of Company 3 and neither companies have nexus with New Jersey. Teal Corp, Company 1, Company 2, and Company 4 file a New Jersey combined return. Neither Company 5 nor Company 3 are members of Teal Corp's New Jersey combined return. Company 5 had a deemed dividend distribution to Company 3 in year 1 and Company 3 paid Federal tax on those deemed dividends. In year 2, Company 3 is included as a member on Teal Corp's New Jersey combined return. In year 3, when the dividends are actually distributed, these dividends are treated as Federal previously taxed earnings and profits pursuant to I.R.C. § 959. As the dividends were not previously taxed for New Jersey purposes, N.J.A.C. 18:7-5.20 is inapplicable; however, the dividends are eligible for the dividend exclusion allowable pursuant to N.J.S.A. 54:10A-4(k)(5).

i. In the case of a taxpayer that is a cannabis licensee, there shall be allowed as a deduction an amount equal to any expenditure that is eligible to be claimed as a Federal income tax deduction but is disallowed because cannabis is a controlled substance pursuant to Federal law; income shall be determined without regard to I.R.C. § 280E (26 U.S.C. § 280E) for cannabis licensees. For purposes of this subparagraph, "licensee" means the same as that term is defined at N.J.S.A. 24:6I-33.

ii. Depreciation on property placed in service after 1980, but prior to taxpayer fiscal or calendar accounting years beginning on and after July 7, 1993, on which ACRS or MACRS has been disallowed pursuant to (a)1xii above using any method, life and salvage value that would have been allowable under the Internal Revenue Code at December 31, 1980. A method, once adopted, must be used for all succeeding years for purposes of computing depreciation on that particular recovery property, except only that a taxpayer may make a change in method that would not have required the consent of the Commissioner of Internal Revenue. Personal property placed in service during any year after 1980 must be treated using the half year convention by claiming a half year of depreciation in the year that property is placed in service. No depreciation is allowable in the year of disposal. Aggregate depreciation claimed pursuant to this subparagraph for all years is limited to the basis for depreciation under the Internal Revenue Code at the date the property is placed in service less whatever salvage value would have been required to be considered under the Internal Revenue Code at December 31, 1980;

iii. In any privilege period or taxable year beginning on or after January 1, 2002, with respect to property acquired on or after September 10, 2001, any depreciation that was deducted in arriving at Federal taxable income and that was determined in accordance with I.R.C. §§ 168(k) and 1400L. Assets acquired before September 10, 2001, for which such depreciation was taken will continue for the entire life of the asset to follow Federal depreciation. Assets acquired in periods beginning before September 10, 2001, will continue to follow Federal depreciation even if the asset itself was acquired after September 10, 2001, but during such fiscal year. Upon early retirement a basis adjustment will be required to equalize Federal and State basis.

Example: Federal bonus depreciation with respect to an asset acquired February 1, 2002, by a corporation that is a calendar year corporation will be disallowed for the corporation when filing its Form CBT-100 for 2002.

iv. Gain or loss on property sold or exchanged is to be determined with reference to the amount properly to be recognized in determination of Federal taxable income. However, on the physical disposal of recovery property, whether or not a gain or loss is properly to be recognized under the Internal Revenue Code, the transferor of the property shall take as a deduction any excess or shall restore as an item of income any deficiency of depreciation disallowed pursuant to (a)1xii above over related depreciation claimed on that property pursuant to (a)2iv above. A statutory merger or consolidation shall not constitute a disposal of recovery property.

v. In any year or short period ending after 1981, with respect to property placed in service on and after January 1, 1981, but prior to taxpayer fiscal or calendar accounting years beginning on or after July 7, 1993, any item of income included in arriving at Federal taxable income solely as a result of a "safe harbor leasing" election made under I.R.C. § 168(f)(8); provided, however, that for the accounting period which begins in 1981 and ends in 1982, such income which relates to property placed in service during 1981 is not to be excluded; and provided, further, that any such income which relates to a qualified mass commuting vehicle pursuant to I.R.C. § 168(f)(8)(D)(v) (formerly 168(f)(8)(D)(iii)) shall be included in entire net income in any event.

(1) Where income relating to such safe harbor leasing election would have been included in Federal taxable income whether or not the election is made, no exclusion is permitted.

Example: A corporation which finances the acquisition of machinery and equipment is not permitted to exclude interest income merely because it is one of the parties to a "safe harbor lease" whereby it agreed that all parties to the transaction characterize it as a lease for Federal income tax purposes.

(2) For treatment of deductions relating to such "safe harbor lease" transactions, see (a)1xi above.

vi. Any banking corporation that is operating an international banking facility (IBF) as part of its business may exclude the eligible net income of the IBF, as described in this section, from its entire net income, as follows:

(1) Any deductions pursuant to this subsection can only be claimed to the extent that they are not deductible in determining Federal taxable income, or not deductible pursuant to N.J.S.A. 54:10A-4(k)(1) through (3).

(2) The eligible net income of an IBF is the amount of income remaining after subtracting the applicable expenses, as defined at (a)2vii(4) below.

(3) Eligible gross income is the gross income derived from an IBF. This will include gross income derived from the following:

(A) Making, arranging for, placing, or carrying loans to foreign persons, provided, however, that in the case of a foreign person which is an individual, or which is a foreign branch of a domestic corporation (other than a bank), or which is a foreign corporation or foreign partnership which is controlled, by one or more domestic corporations (other than banks), domestic partnerships or resident individuals, all the proceeds of the loan are for use outside of the United States.

(B) Making or placing deposits with foreign persons that are banks or foreign branches of banks (including foreign subsidiaries) or foreign branches of the taxpayers or with other international banking facilities.

(C) Entering into foreign exchange or hedging transactions relating to any transactions pursuant to (a)2vii(3)(A) and (B) above or (D) below.

(D) Any other activities that an IBF may be, at any time, authorized to engage in by Federal or state law, the Board of Governors of the Federal Reserve, the Comptroller of the Currency, the New Jersey Banking Commission, or any other authority.

(4) Applicable expenses are any expenses or deductions which are directly or indirectly attributable to eligible gross income as defined at (a)2vii(3) above.

(5) For the international banking facility and combined groups, see N.J.A.C. 18:7-21.25.

(6) For privilege periods ending on and after July 31, 2023, the international banking facility deduction shall be taken before the application of N.J.S.A. 54:10A-4(u) and 54:10A-4(v).

vii. For privilege periods beginning on or after January 1, 2014, and before January 1, 2019, the amount of discharge of indebtedness income included for Federal income tax purposes, pursuant to I.R.C. § 108(i)).

viii. For privilege periods beginning on and after January 1, 2018, but ending before July 31, 2023, a taxpayer is allowed as a deduction the amount of the total value of the deduction that the taxpayer was allowed for Federal income tax purposes and for which the taxpayer had claimed for Federal income tax purposes pursuant to I.R.C. § 250. See N.J.S.A. 54:10A-4.15 and N.J.A.C. 18:7-5.19 for more information.