New Jersey Publicly Traded Companies May Qualify for New Tax Deduction
By John Bonk, National State & Local Tax Leader
In 2018, the State of New Jersey mandated combined reporting for privilege periods ending on and after July 31, 2019. Recognizing that certain companies could be adversely affected by the shift to combined reporting, the State is permitting a Net Deferred Tax Liability Deduction, also referred to as NDTLD, (pursuant to tax accrual guidance described under ASC-740) to provide relief to certain publicly traded entities. Privately held companies are not eligible for the NDTLD.
The NDTLD was designed to mitigate the financial impact of New Jersey’s shift to combined reporting. The deduction is related to the amount necessary to offset the increase in the net deferred tax liability or decrease in the net deferred tax asset, or aggregate change from a net deferred tax asset to a net deferred tax liability of the company. The gross deduction is spread over 10 years, starting with tax periods in January 2023.
When calculating the NDTLD, the computation must be based on the change that resulted from the combined reporting provisions. The statute makes it clear that the NDTLD cannot be adjusted as a result of subsequent events. The overall deferred tax impact will then be converted to the “annual deferred tax deduction.” Taxpayers will use one-tenth of the deduction per year, over a ten-year period, beginning on or after January 1, 2023.
In order to qualify for the deduction, a taxpayer must file the New Jersey Form DT-1 by July 1, 2020. The New Jersey Division of Taxation has indicated that Form DT-1 must be submitted electronically through the New Jersey Online Notice Response Service, and paper forms through the mail will not be accepted. The Division of Taxation also clarified that submission of Form DT-1 “does not guarantee the deduction will be granted.”
More information about the requirements and the form are included in the following:
https://www.state.nj.us/treasury/taxation/pdf/current/cbt/dt-1.pdf
https://www.state.nj.us/treasury/taxation/pdf/pubs/tb/tb96.pdf
Please contact your Marcum State and Local Tax professional to address any questions regarding this or any other tax matter or contact John Bonk at 954.320.8112 or email John.
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