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Nexus – NJ taxes out-of-state businesses

by | Feb 2, 2024 | Firm News

If you “think” about doing business with anyone in New Jersey, the State is coming after you!

New Jersey recently adopted the 200-transactions economic nexus standard for corporate income tax purposes. For tax years ending from July 31, 2023, NJ will now claim nexus against an out-of-state corporation:

a) if the corporation derives receipts exceeding $100,000 from sources in New Jersey during the fiscal or calendar year; or
b) the corporation has 200 or more transactions delivered to NJ customers during the calendar or fiscal year.

For service transactions, “delivered to a customer” for nexus purposes means the location where the benefit of the service is received. If the service is received in NJ that creates nexus.

Note: A New Jersey Division of Taxation Technical Bulletin establishes that a corporation that meets the economic nexus threshold but whose activities are protected by Public Law 86-272 The Federal Interstate Income Act* will be liable only for the minimum tax.

For tax periods ending on or after July 31, 2023, the Division’s guidance indicates that it does not consider the Interstate Income Act to protect various online business activities. In targeting these remote electronic activities, the Division specifies that unprotected activities include offering, soliciting, selling, accepting, or buying digital assets, such as cryptocurrency and non-fungible tokens (NFTs), or offering services related to those assets, and selling targeted internet advertising services that rely on data mined from software or ancillary data, such as apps or cookies, placed on devices in New Jersey.

You may be headed to NJ Tax COurt to fight the New Jersey Division of Taxation

A December 2023 order of the New Jersey Tax Court serves as an affirmation that nexus continues to be both a distinct inquiry from Interstate Income Act protection and the preliminary and paramount consideration, but also that nexus remains a highly fact-specific question that can spark protracted (and potentially costly) disputes.

The case involved a freight forwarder that provided less-than-truckload (LTL) services to customers in New Jersey by coordinating with its customers remotely and arranging pick-up of the customers’ temperature-controlled LTL shipments by independently owned trucking companies or carriers. The third-party trucking companies transported the shipments to the taxpayer’s consolidation centers in one of seven states (other than New Jersey) for redistribution by the taxpayer’s employees. Then, they collected the shipments for delivery to the taxpayer’s customers, some of whom were in New Jersey.

The court declined to issue a summary judgment in favor of the taxpayer or the Division, finding that the freight forwarder was engaged in activities exceeding the protection of Interstate Income Act in New Jersey but that the record did not establish whether the freight forwarder had nexus with the state. The court found that the taxpayer’s performing services for its customers did not constitute an activity protected by Interstate Income Act , which, by its plain language, protects only solicitation related to sales of tangible personal property. Resolving the nexus question, however, would involve delving into factual details beyond the record before the court. While the Division highlighted that the taxpayer identified approximately 238 customers having a domicile in New Jersey, for the tax years at issue, the Division identified only one New Jersey domiciled customer, with shipments totaling approximately $130,000, or an average of $18,571 per year, which the taxpayer asserted were de minimis activities, revenue, and contacts with the state.

Observing that one of the central inquiries to be made by the court in discerning whether a taxpayer is exercising its corporate franchise in New Jersey is whether the taxpayer “engages in contacts within New Jersey,” the court noted that although the record revealed that the taxpayer had serviced more than 200 customers in New Jersey, the record failed to disclose how many of those customers placed freight shipment consolidation orders with the taxpayer during the tax years at issue. Questions concerning receipts or a possible agency relationship between the taxpayer and trucking companies were also incapable of resolution based on the record before the court, which found that it did not “possess a clear picture of the scope, nature, and extent” of the taxpayer’s or the taxpayer’s employees’ in-state business activities. With genuine issues of material fact remaining unresolved, the court denied the taxpayer’s motion for summary judgment and the Division’s cross-motion for summary judgment. Barring a settlement, the matter will proceed to trial.

Nexus is the State’s new way of collecting more taxes from out-of-state businesses!

Nexus is the hot issue is State taxation. The claim of Nexus can result in not only Sales and Use Tax obligation, but also corporate and personal income tax filings and payment. If this is an issue, please call me at 856-665-2121 BEFORE you speak to anyone!


*Title 15 USCA Section 381, “Public Law 86-272,” prohibits a state from imposing a net income-based tax on the income of a foreign corporation earned within 1 Rev. 9/23 its borders from interstate commerce, if the corporation’s only business activity within the state consists of the solicitation of orders by the corporation or its representatives of tangible personal property, the orders are sent outside the state for approval and, if approved, are filled by shipment or delivery from a point outside the state.