Bill Text: NJ A2277 | 2010-2011 | Regular Session | Introduced
Bill Title: Phases in single sales fraction for corporation business tax income allocation formula, over five years, provides airline-specific sales fraction.
Spectrum: Partisan Bill (Republican 4-0)
Status: (Introduced - Dead) 2010-02-18 - Introduced, Referred to Assembly Commerce and Economic Development Committee [A2277 Detail]
Download: New_Jersey-2010-A2277-Introduced.html
Sponsored by:
Assemblyman ALEX DECROCE
District 26 (Morris and Passaic)
Assemblyman MICHAEL PATRICK CARROLL
District 25 (Morris)
Assemblyman DOMENICK DICICCO, JR.
District 4 (Camden and Gloucester)
Co-Sponsored by:
Assemblywoman McHose
SYNOPSIS
Phases in single sales fraction for corporation business tax income allocation formula over five years, provides airline-specific sales fraction.
CURRENT VERSION OF TEXT
As introduced.
An Act modifying the allocation of the entire net income of corporation business taxpayers, amending and supplementing P.L.1945, c.162.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. Section 6 of P.L.1945, c.162 (C.54:10A-6) is amended to read as follows:
6. The portion of [its] a taxpayer's entire net worth to be used as a measure of the tax imposed by subsection (a) of section 5 of P.L.1945, c.162 (C.54:10A-5), and the portion of its entire net income to be used as a measure of the tax imposed by subsection (c) of section 5 of P.L.1945, c.162 (C.54:10A-5), shall be determined by multiplying such entire net worth and entire net income, respectively, by an allocation factor which for privilege periods ending before July 1, 2002 is the property fraction, plus twice the sales fraction plus the payroll fraction and the denominator of which is four, and for privilege periods ending on or after July 1, 2002 is the sum of the portions of the property fraction, sales fraction, and payroll fraction determined pursuant to the following schedule:
for privilege periods ending on or after July 1, 2002 but before July 1, 2003, 20% of the property fraction plus 60% of the sales fraction plus 20% of the payroll fraction,
for privilege periods ending on or after July 1, 2003 but before July 1, 2004, 15% of the property fraction plus 70% of the sales fraction plus 15% of the payroll fraction,
for privilege periods ending on or after July 1, 2004 but before July 1, 2005, 10% of the property fraction plus 80% of the sales fraction plus 10% of the payroll fraction,
for privilege periods ending on or after July 1, 2005 but before July 1, 2006, 5% of the property fraction plus 90% of the sales fraction plus 5% of the payroll fraction, and
for privilege periods ending on or after July 1, 2006; 100% of the sales fraction,
except as the director may determine pursuant to section 8 of P.L.1945, c.162 (C.54:10A-8), that is:
(A) The property fraction is the average value of the taxpayer's real and tangible personal property within the State during the period covered by its report divided by the average value of all the taxpayer's real and tangible personal property wherever situated during such period; provided, however, that for the purpose of determining average value, the provisions with respect to depreciation as set forth in subparagraph (F) of paragraph (2) of subsection (k) of section 4 of P.L.1945, c.162 (C.54:10A-4) shall be taken into account for arriving at such value.
(B) The sales fraction is the receipts of the taxpayer, computed on the cash or accrual basis according to the method of accounting used in the computation of its net income for federal tax purposes, arising during such period from
(1) sales of its tangible personal property located within this State at the time of the receipt of or appropriation to the orders where shipments are made to points within this State,
(2) sales of tangible personal property located without the State at the time of the receipt of or appropriation to the orders where shipment is made to points within the State,
(3) (Deleted by amendment.)
(4) services performed within the State,
(5) rentals from property situated, and royalties from the use of patents or copyrights, within the State,
(6) all other business receipts (excluding dividends excluded from entire net income by paragraph (1) of subsection (k) of section 4 of P.L.1945, c.162 (C.54:10A-4)) earned within the State,
divided by the total amount of the taxpayer's receipts, similarly computed, arising during such period from all sales of its tangible personal property, services, rentals, royalties and all other business receipts, whether within or without the State.
(C) The payroll fraction is the total wages, salaries and other personal service compensation, similarly computed, during such period of officers and employees within the State divided by the total wages, salaries and other personal service compensation, similarly computed, during such period of all the taxpayer's officers and employees within and without the State.
In the case of a banking corporation which maintains a regular place of business outside this State other than a statutory office, and which elects to take the exclusion from net worth provided in subsection (d) of section 4 of P.L.1945, c.162 (C.54:10A-4) or the deduction from entire net income provided in paragraph (4) of subsection (k) of section 4 of P.L.1945, c.162 (C.54:10A-4), the allocation factor shall be computed and applied in accordance with section 6 of P.L.1945, c.162 (C.54:10A-6); provided, however, that the numerators and the denominators of the fractions described in (A), (B) or (C) above shall include all amounts attributable, directly or indirectly, to the production of the eligible net income of an international banking facility as defined in paragraph (4) of subsection (k) of section 4 of P.L.1945, c.162 (C.54:10A-4), whether or not such amounts are otherwise attributable to this State.
(cf: P.L.2008, c.120, s.2)
2. (New section) Notwithstanding the provisions of section 6 of P.L.1945, c.162 (C.54:10A-6), the sales fraction for the transportation revenues of a taxpayer that is an airline shall be determined pursuant to this section as the sum of the ratio determined pursuant to subsection a. of this section and the ratio determined pursuant to subsection b. of this section, divided by two.
a. Revenue miles in this State divided by total revenue miles. If a taxpayer is engaged in the transportation of passengers, the transportation of freight, or the rental of aircraft, the ratio under this subsection shall be determined by means of an average of a passenger revenue mile fraction, freight revenue mile fraction, and rental revenue mile fraction weighted to reflect the person's relative gross receipts from passenger transportation, freight transportation and rentals.
b. Departures in revenue service from points in this State divided by total departures in revenue service. Departures shall be weighted as to the cost and value of aircraft by type.
3. This act shall take effect immediately and shall apply to privilege periods ending on or after July 1, 2011.
STATEMENT
This bill changes the corporation business tax formula used for determining the portion of the income of a corporation that will be subject to tax by New Jersey from a three-factor formula to a single sales factor formula. The bill "phases in" this change over five years. The bill also provides a specialized sales fraction for airlines.
Single Sales Fraction. All states with corporate income taxes determine the portion of the total income of a corporation that will be subject to their own state tax by using formulas which measure specific activities of the corporation definitely assigned to a specific state. The proportion of the income of the corporation subject to tax by a state is determined by the proportion of some activity in the state to the total of such activity of the corporation.
The New Jersey corporation business tax currently uses a three-fraction formula that apportions (referred to as "allocation" in New Jersey law) based on a weighted average of the fractions: (1) a corporation's property in this State over the corporation's total property, (2) a corporation's sales in this State over the corporation's total sales and (3) the corporation's payroll in this State over the corporation's total payroll. Currently, the sales fraction accounts for 50% of the apportionment and the property and payroll fractions each account for 25% of the apportionment.
This bill replaces that three-factor formula with a single sales factor. The change is phased in over five years, beginning with privilege periods ending after July 1, 2002 (for most taxpayers that will be the same as federal tax year 2002). For that year, the sales fraction will account for 60% of the apportionment and the property and payroll fractions each account for 20% of the apportionment. For each year thereafter, the weight of the sales fraction will increase by 10% and weights of the property and payroll fractions will decrease by 5% each until the sales factor is 100% of the apportionment for privilege periods ending after July 1, 2006 (for most taxpayers that will be the same as federal tax year 2006 and thereafter).
Specialized Sales Fraction for Airlines. Some industries (broadcasters, airlines, financial services industries) have specialized formulas that have been adopted by regulation to more appropriately measure the taxpayers' relative activity in New Jersey than under the regular formula. Currently, airlines' sales fraction is determined, under regulation, based on the ratio of departures from New Jersey to total departures, weighted as to cost and value of aircraft by type where weighting would give a more fair and reasonable business allocation factor.
This bill provides a specialized sales fraction for airlines which is the ratio of revenue miles in this State divided by total revenue miles (weighted by relative gross receipts) plus the ratio of departures from New Jersey to total departures (weighted as to cost and value of aircraft by type), divided by 2.
