N.J. Admin. Code § 18:7-8.7 - Business allocation factor; determination of receipts fraction

(a) The percentage of the taxpayer's receipts within New Jersey is determined by ascertaining the taxpayer's receipts allocable to New Jersey during the period covered by the return and dividing the sum of the receipts by the taxpayer's total receipts within and outside New Jersey during such period.

(b) The receipts of the taxpayer are to be computed on the cash, accrual, or other method of accounting used in computation of its net income for Federal income tax purposes. However, the numerator and denominator of the receipts fraction must, in any event, relate to the entire net income recognized during the period covered by the return and the composition of the receipts fraction must be determined consistent with the entire net income to which it relates. Thus, receipts attributable to excluded items of income are excluded from the receipts fraction.

Example 1:

Taxpayer is engaged in long-term construction contracting. It has elected to recognize income for tax purposes on the completed contract method of accounting whereby it recognizes the net income on its contracts in their entirety in the year of completion.

The composition of the receipts fraction must be determined in harmony with the entire net income to which it relates. The numerator and denominator of the receipts fraction must reflect the entire contract revenues on completed contracts recognized in entire net income during the period covered by the return.

Example 2:

Taxpayer recognizes income on a sale for tax purposes on the installment method.

The numerator and denominator of the receipts fraction should include the same proportion of the sale as is prorated as recognized income to the year covered by the return.

(c) The receipts attributable to items of entire net income shall be included or excluded in the numerator and denominator, as follows:

1. The receipts attributable to income that is included in entire net income (either as part of Federal taxable income or as an item of income required to be added back to Federal taxable income pursuant to the Corporation Business Tax Act) are included in the numerator and denominator of the receipts fraction.

2. The receipts attributable to any income item that is excluded from entire net income (for Federal purposes if not required to be added back pursuant to the Corporation Business Tax Act or excluded from entire net income pursuant to the Corporation Business Tax Act, although such item of income was included in Federal taxable income) are excluded from the numerator (New Jersey receipts) and denominator of the receipts fraction, except for banking corporations with international banking facilities. See N.J.S.A. 54:10A-6.

3. If a non-U.S. corporation, which is not a member of a world-wide group, is excluding an item of income from entire net income because it is either excluded from Federal taxable income pursuant to the terms of a tax treaty or not required to be included in income for corporation business tax purposes, the receipts attributable to such items of excluded income must be excluded from the allocation factor.

4. The members of a world-wide group must include all receipts attributable to all income, except those receipts that are attributable to items of income that are excluded from entire net income pursuant to the Corporation Business Tax Act, as though each member was a U.S. corporation. For more information, see N.J.A.C. 18:7-5.13.

5. Examples:

Example 1:

Dividends recognized as income for purposes of determining Federal income tax that are excluded from entire net income pursuant to N.J.S.A. 54:10A-4(k)(5), must also be excluded in computing the receipts fraction.

Example 2:

For Federal purposes, and in accordance with U.S. G.A.A.P., taxpayer reports their income of $ 1,000,000 (before returns and allowances) and expenses on the Federal return. Taxpayer has returns and allowances of $ 250,000. The receipts reported on Schedule J of the New Jersey CBT return must reflect the receipt amounts that are in the tax base, that is, $ 750,000. Thus, the receipts reported on Schedule J are already reduced by the returns and allowances and are not the receipts prior to taking into account the returns and allowances. A taxpayer is not entitled to an additional deduction (that is, the taxpayer is not entitled to deduct the same amounts they already deducted) for returns and allowances from the sales fraction on Schedule J.

Example 3:

Taxpayer A files an 1120-F (U.S. Income Tax Return of Foreign Corporation) for Federal purposes and a separate return for New Jersey corporation business tax purposes. It reports only their effectively connected income for Federal purposes because the items of non-U.S. income are protected pursuant to the terms of a treaty. Taxpayer A must include the receipts attributable to the effectively connected income and any other income not protected by a treaty that is required to be included in entire net income for New Jersey corporation business tax purposes in both the numerator and denominator, but would not include receipts attributable to items of income that were excluded for Federal or New Jersey purposes.

Notes

N.J. Admin. Code § 18:7-8.7

Amended by 49 N.J.R. 1694(a), effective 6/19/2017 Amended by 54 N.J.R. 1819(a), effective 9/19/2022 Amended by 57 N.J.R. 1303(b), effective 6/16/2025