When did revised NJ TAM 2011-6(R) require an out-of-state corporation with New Jersey receipts or customer contacts to file Corporation Business Tax?

Plain-English summary

New Jersey required an out-of-state corporation to file and pay Corporation Business Tax when it had sufficient New Jersey-source receipts, solicitation, or other contacts for the State to impose tax.

The 2002 Business Tax Reform Act amended N.J.S.A. 54:10A-2 to cover the privilege of deriving receipts from New Jersey sources or engaging in contacts within the State. The TAM applied the standards to privilege periods beginning on or after January 1, 2002.

The Division said corporations domiciled and performing services outside New Jersey still had to file when they solicited New Jersey business or derived New Jersey-source receipts, provided federal and constitutional jurisdiction existed.

The rule applied broadly, including to financial corporations, banks, credit-card companies, and similar businesses with out-of-state commercial domiciles that obtained or solicited New Jersey business or received New Jersey-source gross receipts.

The TAM cited Avco, MBNA America Bank, and Lanco as judicial support for taxation based on the described receipts and contacts.

If the standard business allocation factor did not fairly reflect New Jersey activity, receipts, capital, net worth, or income, the Director could adjust it and the taxpayer could request an adjustment under N.J.S.A. 54:10A-8 and N.J.A.C. 18:7-8.3.

What this means for you

Out-of-state service companies

Physical domicile outside New Jersey did not end the inquiry. Review New Jersey solicitation, customers, and sourced receipts.

Financial businesses

The TAM expressly applied the subjectivity principle to banks, credit-card companies, and similar financial corporations.

Tax departments

If the standard allocation factor materially misstates New Jersey activity, document the basis for requesting an adjustment.

Common questions

Q: Was physical presence in New Jersey required by this TAM?
A: The TAM based subjectivity on sufficient receipts, solicitation, or contacts, subject to federal and constitutional jurisdiction.

Q: Did the rule apply to service companies operating from another state?
A: Yes, when they solicited New Jersey business or derived New Jersey-source receipts under the stated standard.

Q: Were financial corporations covered?
A: Yes.

Q: Could a taxpayer challenge an unrepresentative allocation factor?
A: Yes, by requesting an adjustment under the cited provisions.

Citations and references

• P.L. 2002, c. 40 — Business Tax Reform Act
• N.J.S.A. 54:10A-2 and 54:10A-1 et seq. — Corporation Business Tax subjectivity
• N.J.S.A. 54:10A-8 and N.J.A.C. 18:7-8.3 — allocation-factor adjustments
• N.J.A.C. 18:7-6 and 18:7-1.8 — codified subjectivity policies
• Avco Financial Services Consumer Discount Company One, Inc. v. Director, Division of Taxation, 100 N.J. 27, 494 A.2d 788 (1985)
• Lanco, Inc. v. Director, 188 N.J. 380, 980 A.2d 176 (2006), cert. denied, 127 S. Ct. 2974 (2007)

Source

• Landing page: https://www.nj.gov/treasury/taxation/tam-pubs.shtml
• Original PDF: https://www.nj.gov/treasury/taxation/pdf/pubs/tams/tam6.pdf

Original ruling text

Foreign Corporations Subject to Tax
TAM 2011-6(R) – Revised July 25, 2023
Tax: Corporate Business Tax
The Business Tax Reform Act, P.L. 2002, c.40, enacted July 2, 2002 (“BTRA”) made numerous
amendments and supplements to the Corporation Business Tax Act (“Act”). Important changes,
contained in Section I, amended N.J.S.A. 54:10A-2. Those amendments made clear that the
franchise tax is due from foreign corporations “for the privilege of deriving receipts from sources
within the State, or for the privilege of engaging in contacts within this State.”
The amendments mandated that a taxpayer’s exercise of its franchise in this state is subject to
taxation in this state if the taxpayer’s business activity in New Jersey is sufficient to give the
state jurisdiction to impose the tax under the constitution and statutes of the United States. This
change applied to privilege periods and taxable years beginning on or after January 1, 2002.
Accordingly, after the law changed effective January 2, 2002, corporations that derive receipts
from sources within New Jersey or engage in contacts within New Jersey are subject to tax in
New Jersey, provided that the taxpayer’s business activity in New Jersey is sufficient to give this
State jurisdiction to impose the tax under the constitution and statutes of the United States.
In establishing new subjectivity standards under the Corporation Business Tax Act, N.J.S.A.
54:10A-1 et seq., the Business Tax Reform Act repealed the former Corporation Income Tax
Act, N.J.S.A. 54:10E-1 et seq. and incorporated expansive language regarding subjectivity from
the Corporations Income Tax Act into the Corporation Business Tax Act.
The New Jersey Supreme Court upheld the application of the Corporation Income Tax Act in

Avco Financial Services Consumer Discount Company One, Inc. v. Director, Division of Taxation,
100 N.J. 27, 494 A.2d 788 (1985). (See also First Family Mortgage Corporation of Florida v. Linda
A. Durham and Mr. Linda Durham, and Attorney General of New Jersey, Intervenor-Respondent,

108 N.J. 277, 528 A.2d 1288 (1987), citing Avco in determining that N.J.S.A. 14A:13-15, requiring
foreign corporations which were not certified to do business in the State and which had not filed
timely tax returns to file business activities reports with the Director of the Division of Taxation,
did not violate the commerce clause).
Several important judicial opinions were issued subsequent to the enactment of the BTRA in
2002. The Division takes note of the opinion and outcome in Tax Commissioner of the State of
W. Va. v. MBNA America Bank, N.A. 640 S.E2d 226 (W.Va. 2006), cert. denied sub nom FIA Card
Services, N.A. v. Tax Commissioner of West Virginia, 127 S.Ct. 2997 (2007). The opinion of the
highest court of West Virginia upheld against a U.S. Constitutional challenge the tax subjectivity
and imposition of tax based on solicitation and receipts derived from sources within the taxing
jurisdiction but received by an out of state credit card company. The New Jersey Supreme Court
also upheld the imposition of Corporation Business Tax against a similar challenge by a foreign
trademark holding company. Lanco, Inc. v. Director, 21 N.J. Tax 200 (2003), 379 N.J. Super 562,
879 A.2d 1234 (App. Div. 2005), 188 N.J. 380, 980 A.2d 176 (2006), cert. denied, 127 S.Ct. 2974
(2007).
Applying the principles of the statute as amended and the above-referenced court decisions,
taxpayers performing services and domiciled outside the State that solicit business within the
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State or derive receipts from sources within the State must file a Corporation Business Tax
return and pay the applicable tax to New Jersey. This principle applies to all corporations,
including financial corporations. A financial business corporation, a banking corporation, a credit
card company or similar business that has its commercial domicile in another state is subject to
tax in this State if during any year it obtains or solicits business or receives gross receipts from
sources within the State. As noted above, the principles explained in this notice are applicable
for privilege periods beginning on and after January 1, 2002.
It should be noted that taxpayers may continue to request an adjustment under N.J.S.A.
54:10A-8.Pursuant to N.J.S.A. 54:10A-8 and N.J.A.C. 18:7-8.3, if it appears that the business
allocation factor computed on the basis of all or any of the property-receipts payroll fractions
does not properly reflect the activity, business, receipts, capital, entire net worth or entire net
income of the taxpayer in New Jersey, the Director may adjust or taxpayer may request an
adjustment of the business allocation factor.
The Division codified these policies in N.J.A.C. 18:7-6 and N.J.A.C. 18:7-1.8. The Division
intends on providing additional examples and further guidance in subsequent
regulatory proposals.
Note: A Technical Advisory Memorandum (“TAM”) is an informational statement of the law,
regulations, or Division policies. It is accurate on the date issued. Subsequent changes in the
law or regulations, judicial decisions or changes in Division policies could affect the validity of
the information presented in a TAM.

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