Current law dictates that the water's-edge group filing method is the mandatory default filing method for New Jersey combined returns. However, the managerial member of the combined group may elect to make a world-wide election or affiliated group election.
N.J.S.A. 54:10A-4.11(b) provides that:
A world-wide election or an affiliated group election is effective only if made on a timely filed, original return for a privilege period by the managerial member of the combined group. Such election is binding for, and applicable to, the privilege period for which it is made and for the five immediately succeeding privilege periods. Provided however, the election can be revoked prior to the expiration of the binding period by written request to the Director of Taxation for reasonable cause including but not limited to a substantial change in ownership, members of the combined group or principal business, or changes in tax law, regulation or policy.
P.L. 2020, c. 118 (Chapter 118), signed into law on November 4, 2020, included several changes impacting combined groups for privilege periods ending on and after July 31, 2019, and in future privilege periods. These changes may impact taxpayers' decisions on their combined return filing method option. By statute, the filing method election cannot be changed because it must be made on a timely filed original return and would otherwise be binding for the subsequent five privilege periods in addition to the current tax year. However, as a result of the law change, the Division of Taxation is providing a one-time exception to prospectively allow a change to the combined group's filing methods. Filing method elections selected on the 2019 CBT-100U will not be binding for subsequent years. Instead, any election the combined group makes on their 2020 CBT-100U return will be considered the start of the binding period for the purposes of N.J.S.A. 54:10A-4.11(b).
As a result of the enactment of Chapter 118, and in accordance with N.J.S.A. 54:10A-4.11(b) and N.J.S.A. 54:10A-4.14, the Division will not penalize taxpayers for filing their 2019 returns following the 2019 CBT-100U instructions or the information provided in the Technical Bulletins. Taxpayers will not be penalized if they choose a different combined group filing method option when they file their 2020 CBT-100U return pursuant to Section 18 of P.L. 2020, c. 118. Nor will the Division assess taxpayers for the P.L. 2020, c. 118, changes that were otherwise different than 2019 CBT-100U return instructions and the Technical Bulletins for the 2019 return the taxpayer filed.
No retroactive changes will be permitted for the use of the mandatory default method or the affiliated or world-wide elections made for the 2019 privilege period with respect to any return previously filed for 2019. No amended returns changing the election or use of the mandatory default method will be permitted for the 2019 privilege period.