The New Jersey Department of the Treasury Division of Taxation has released Technical Bulletin No. TB-108 revising the state’s nexus standards for tax years ending on or after July 31, 2023. The nexus standards are revised to accommodate recent legislation providing for bright-line economic nexus thresholds and the Multistate Tax Commission’s (MTC) updated P.L. 86-272 guidelines.
Bright-Line Economic Nexus
Under recent legislation, a business will be considered to have substantial nexus if:
- The corporation derives receipts from sources within New Jersey in excess of $100,000 during the corporation's fiscal or calendar year; or
- The corporation has 200 or more separate transactions in New Jersey during its fiscal or calendar year.
For corporate partners that are unitary with a partnership that has New Jersey receipts or transactions with New Jersey customers, the corporation will have nexus if the corporate partner's proportionate share of the partnership's activities in New Jersey using flow-through accounting exceeds the bright-line economic thresholds.
A member of a combined group may also be a taxable member if the corporation is deriving receipts from sources within New Jersey that meet the threshold for bright-line economic nexus, whether such receipts are the member's own receipts or receipts derived from intercompany transactions with other members of the combined group (regardless of whether the receipts are eliminated).
In addition, all combined groups must use the Finnigan method to allocate receipts. As such, the New Jersey receipts of all the members of the combined group that were not eliminated must be included in the numerator of the allocation factor.
Updated P.L. 86-272 Guidelines
The MTC has added several activities to its list of activities that are not protected by P.L. 86-272, and New Jersey has, in turn, adopted the additions listed below:
- Soliciting credit cards and other financial products and services to New Jersey customers
- Offering, soliciting, selling, accepting, or buying of digital assets such as virtual currency or non-fungible tokens (NFTs) and/or the offering of services pertaining to them is the offering and selling of financial products, financial instruments, and financial services
- Offering, selling, providing maintenance, or performing such duties under a warranty or extended warranty service contract for the performance of services under the contract through any means, whether in person or through the internet
- Contracting with a marketplace facilitator to facilitate the sale of the taxpayer's products on the facilitator's online marketplace, where the marketplace facilitator maintains the corporation's products at fulfillment centers in New Jersey
- Transmitting code or electronic instructions through the internet to repair or upgrade products as part of a service subscription purchased by the customer or as part of a warranty (or extended warranty) service contract purchased by the customer
- Placing software or ancillary data, e.g., internet “cookies” or apps, on computers and devices in New Jersey to gather market or product research that is packaged and sold to data brokers or other third parties
- Selling internet advertising services to New Jersey business customers where the taxpayer provides targeted advertising to specific New Jersey individuals using information the taxpayer mined from software or ancillary data, e.g., internet “cookies” or apps, that were placed on computers and devices in New Jersey by the taxpayer on individuals' devices
- Providing certain types of post-sales assistance through an electronic chat, email, or application that customers access through the company's website. Some examples include but are not limited to chat rooms for troubleshooting problems, complaint resolution, or an internet help desk for technical support whereby the customer can talk to a service representative who may conduct repair services remotely
- Contracting with in-state customers to stream (but not download) videos and music to electronic devices
- Contracting with in-state customers for subscription services
- Contracting with in-state customers to provide business services such as quality control, manufacturing production line maintenance, research and development, product design, logistics, regulatory, and/or other types of services through internet-connected devices, computers, and/or machines, whereby the application is installed on the customer's devices, computers, and/or machines that functions through the internet connection between the customer and the taxpayer, where the services are conducted on the taxpayer's computers and the data is transmitted back to the customer's devices, computers, and/or machines based on information received from the customer's in-state devices, computers, and/or machines
- Inviting and/or accepting applications for employment through an internet-based platform that are not specifically targeted to in-state residents or for in-state job positions other than for sales positions
It is becoming increasingly difficult to claim protections once offered under P.L. 86-272 for states that have adopted the MTC's aggressive approach. Companies should pay attention to the level of activities taking place in New Jersey and other states and consider reviewing nexus as we move further into the digital age of taxation.
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