Recent New Jersey State Income Tax Case In Telebright Allows New Jersey To Cast A Wider Net For Imposing Its Corporate Business Tax: A Few Comments Also On The BIS, LP, Inc. Decision On Non-Resident Partners

New Jersey's Superior Court, Appellate Division, last year issued an interesting and potentially far sweeping decision on what constitutes doing business in the state for purposes of its state corporate business tax in the Telebright Corp.Inc. decision.

Telebright Corp., Inc.

In a March 2, 2012 decision of the Superior Court of New Jersey, Appellate Division, in Telebright Corp. Inc., v. Director, N.J. Division of Taxation, it was determined that an out of state software company which did not maintain an office or financial accounts, nor solicited sales within the state, nevertheless had a taxable nexus with New Jersey because an employee who telecommutes each day from her home in New Jersey is conducting business in New Jersey and therefore the plaintiff-appellant is subject to the New Jersey Corporation Business Tax (CBT Act), N.J. 54:10A-1 to -41 and must file N.J. Corporation Business Tax returns. The Superior Court affirmed the Tax Court's decision below. 25 N.J. Tax. 333.

Telebright, which is incorporated in Delaware, maintains offices in Maryland. The employee whose activity was involved in the case develops and writes software code from a laptop computer in New Jersey. The work produced represents an integral part of the company's "ManageRight" web based application which is provided to customers. Thus, her work creates intellectual property for web based sales income. For the years in issue, the employee was permitted, due to her husband's obtaining employment in New Jersey, to telecommute full-time from New Jersey and provided her with a laptop computer. Telebright withheld N.J. income tax from her salary and remitted it to the N.J. Division of Taxation.

New Jersey's Corporate Business Tax requires every foreign corporation that is not exempt to pay an annual franchise tax "for the privilege of having or exercising its corporate franchise in N.J. or....for the privilege of doing business, employing or owning capital or property, or maintaining an office, in N.J. See N.J.S.A. 54:10A-2. This statute is broadly construed. See Roadway Express Inc. v. Dir., Div. of Taxation, 40 N.J. 471 (1967), app.dismissed, 390 U.S. 745 (1968). The regulations of the Division of Taxation define "doing business" broadly as embracing "all activities which occupy the time or labor of men for profit". N.J. A.C. 18:7-1.9(a). Any for-profit corporation "carrying out any of the purposes of its organization within New Jersey is deemed to be doing business...