N.J. Increases Tax on P.L. 86-272-Protected Companies—Should You Comply?


In the days leading up to Monday’s deadline to file CBT returns, some of our clients that are protected from New Jersey income tax by P.L. 86-272 have asked us whether they should comply with New Jersey’s Alternative Minimum Assessment (or “AMA”),1 which, by the express terms of the statute only applies to companies that are protected by P.L. 86-272. Our answer is “no,” do not pay that AMA. Because this question has come up several times, we are issuing this alert to taxpayers just in time for their filing on Monday.

AMA’s Impact on P.L. 86-272 Protected Companies -

Until 2011, if a company was immune from income tax under P.L. 86-272, its New Jersey corporate tax liability was zero. Beginning with the 2011 tax year, however, New Jersey’s Division of Taxation is imposing gross receipts tax on these companies. The Division’s policy discriminates against companies protected from New Jersey tax by P.L. 86-272. If your company is affected, consider taking a return position that the tax doesn’t apply.

This new tax increase results from the application of the AMA, which was enacted in 2002 to supplement New Jersey’s corporate income tax. The AMA was designed to raise revenue: a taxpayer had to pay the greater of the AMA or regular income tax. Since the AMA was computed based on gross receipts or gross profits (rather than net income), it applied even if a taxpayer was immune from income tax under P.L. 86-272.

Please see full Alert below for further information.

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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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