New Jersey Division Of Taxation Is Offering Two Limited Voluntary

The New Jersey Division of Taxation is offering two new limited voluntary disclosure agreement (VDA) initiatives. The first initiative is a revision and renewal of a previous VDA initiative which expired on January 15, 2013.1 This initiative is for companies that have income tax nexus with New Jersey as a result of deriving income from the use of intangible assets in the state. It applies to intangible holding companies (IHCs) as well as companies with other business operations beyond the mere ownership of intellectual property. The terms of the new IHC initiative are more favorable than those of the previous program and are comparable to the terms of VDAs offered by most other states including New Jersey itself (for non-IHCs).

The second VDA initiative is for partnerships with New Jersey source income that have not filed the requisite forms (PART-100, PART-200T, and NJ-1065).2 This initiative covers both the partnership filing fee and nonresident partnership tax. The program is also available to individual partners that have not satisfied their New Jersey filing and tax remittance requirements. Partnerships considering this program should discuss the decision with their partners, as a VDA entered into by the partnership may trigger the need for VDAs on behalf of the affected partners.

Intangible Asset Nexus Initiative

The Intangible Asset Nexus Initiative began on March 15, 2014 and runs through May 15, 2014. Participating IHCs must meet the standard conditions for all VDA applicants and should follow standard procedures for seeking a VDA.3 Additionally, for IHCs the following provisions apply:

1. The lookback period is limited to periods beginning after July 1, 2010, or the date business commenced in New Jersey. Returns for earlier periods are not required. 2. The Division will waive all penalties.

3. The taxpayer must file all required returns and remit payment of the full tax liability within 45 days of the execution of the VDA. All interest must be paid within 30 days of assessment.

4. Companies that have added back royalties paid to related entities to arrive at New Jersey entire net income may submit amended returns for any period open under the statute of limitations in order to claim an exception to the addback.

5. Returns are subject to routine audit on issues not specifically covered in the VDA. The following chart highlights the differences between this new initiative and the prior IHC initiative that expired on January 15, 2013:

   Background

   As discussed in our SALT Alert for the prior IHC initiative,4 income taxation on the basis of economic nexus has consistently been upheld by the New Jersey courts.5 The New Jersey Supreme Court decision in Lanco effectively invalidated any Quill physical presence requirement as it relates to corporate tax nexus for IHCs.6 Although...