Recently, the New Jersey Legislature passed a bill that would change the corporate business income tax allocation formula.  Presently, the formula is based on property, payroll, and sales, which is counted twice.  The new law would count sales once, rather than the two times it is presently counted.  This change would take three years to completely phase into effect.  
 

The first phase-in encompasses periods ending on or after July 1, 2011, but before July 1, 2012, and the sales factor would account for 70% of the apportionment and the property and payroll factors each would account for 15% of the apportionment during this time.  In the second phase-in, encompassing periods ending on or after July 1, 2012, but before July 1, 2013, the sales factor increases to 90% whle the property and payroll weighting would each account for 5% of the apportionment.  In the third and final phase-in, for privilege periods ending after July 1, 2013, the sales factor would account for 100% of the apportionment.
 

Additionally, the bill would change the sales factor for airlines.  The current sales factor based on the ration of departures would be replaced by a sales factor determined as the ratio of an airline's revenue miles in New Jersey divided by an airline's total revenue miles, starting for privilege periods ending on or after July 1, 2011.  Airline taxpayers engaged in transporting passengers, transporting freight, or renting aircraft, the ratio would 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 taxpayer's relative gross receipts from passenger transportation, freight transportation, and rentals.
 

Governor Chris Christie is expected to sign the bill into law.

New Jersey's single sale factor will be phased in over a period of three years.  For our calendar year clients this will be effective with the calendar year ending December 31, 2011.
 

Questions?  Please contact the  DDK TAX TEAM