New Jersey VDA Program—Attractive Terms for IHCs

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New Jersey has announced a new voluntary disclosure initiative for companies that own intangibles. If your intangible holding company (“IHC”) didn’t come forward previously, it should seriously consider coming forward now. The terms are significantly better than anything the New Jersey Division of Taxation has offered in years. Companies have until January 15, 2013 to take advantage of this program.

In 2006, the New Jersey Supreme Court issued its decision in Lanco, holding that physical presence was not required for corporate income tax nexus.1 The court subsequently ruled that the Division could assert economic nexus even for tax years that pre-dated its 1996 regulation.2 This broad nexus standard was compounded by New Jersey’s "throwout rule," which required taxpayers to exclude non-sourced receipts from their sales-fraction denominator for tax years prior to 2011.3 Although there are pending cases challenging the throwout rule,4 it could be years before the courts issue a final decision.

In the meantime, the combination of economic nexus and throwout can mean significant assessments for IHCs. For example, in the pending Whirlpool case, the IHC’s throwout exposure for 2002 alone is over $10 million including interest and penalties. IHCs that come forward voluntarily can avoid a significant part of their exposure.

Please see full Alert below for further information.

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Tax

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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