Date: July 11, 2023Attorney: Martin D. Hauptman

On July 3, 2023, New Jersey Governor Phil Murphy signed a law that adopts certain corporation business tax (CBT) sourcing rules for gross income tax purposes. However, these sourcing rules apply only if the taxpayer cannot readily ascertain its income from New Jersey sources. (L. 2023, A5323, effective for tax years beginning on or after 01/01/2023.) Sourcing rules adopted. The bill provides that a taxpayer that is subject to the provisions of the gross income tax and engages in a trade or business, regardless of business form, or is a partner in a partnership or shareholder of an S corporation, which trade, business, partnership, or S corporation conducts business operations partly within and partly without New Jersey and, as a result thereof or for other reasons that portion of the income from sources within New Jersey cannot readily or accurately be ascertained, the income from the trade, business, partnership, or S corporation must be sourced in a manner consistent with the provisions of N.J. Rev. Stat. § 54:10A-6 through N.J. Rev. Stat. § 54:10A-10 of the Corporation Business Tax Act.

By referring to the above-mentioned statutes, New Jersey adopts for personal income tax purposes:

(1) single-factor apportionment;

(2) the destination rule for sales of tangible property; and

(3) the sourcing of services based on where the benefit of the services are received. The law does not tie the gross income tax to any statutes that refer to combined reporting.