* 

TAX COURT OF NEW JERSEY

 210 S. Broad Street, 5th Floor

Hon. Mary Siobhan Brennan, J.T.C. Trenton, New Jersey 08608 

 JUDGE (609) 815-2922, Ext. 54560

 

 

March 19, 2018 

Wilson Law Group, LLC 

Margaret C. Wilson, Esquire 

34 E. Main Street 

Somerville, New Jersey 08876 

Via ECourts 

Office of the Attorney General

Michael J. Duffy, Deputy Attorney General

Richard J. Hughes Justice Complex 

25 Market Street

PO Box 106 

Trenton, New Jersey 08625-0106 

Via ECourts 

 RE: Infosys Limited of India, Inc. v. Director, Division of Taxation 

 Docket # 012060-2016 

 

Dear Counsellors: 

This constitutes the court’s decision on defendant’s motion for reconsideration of the court’s 

November 28, 2017 letter opinion, granting Infosys Limited of India, Inc.’s (“Infosys”) motion for 

partial summary judgment and denying Director, Division of Taxation’s (“Director”) cross-motion for 

partial summary judgment. 

In that opinion, the court determined Infosys’s entire net income for New Jersey Corporation 

Business Tax (“CBT”) purposes is equal to its federal taxable income, as reflected on Infosys’s federal 

tax return. Further, the court ordered the refund of CBT paid on Infosys’s foreign source income for 

the 2008 through 2011 tax years. For the reasons explained more fully below, the court will grant, in 

part, Director’s motion for reconsideration and amplify its prior decision. 
2 

A motion for rehearing or reconsideration is governed by R. 8:10, which states: 

The provisions of R. 1:7-4, R. 4-49-1 and R. 4-49-2 (Motion for New 

Trial and Motion to Alter or Amend a Judgment) shall apply to Tax 

Court matters except that all such motions shall be filed and served not 

later than 20 days after the conclusions of the court are announced orally 

or in writing, with respect to R. 1:7-4 and R. 4:49-1, and after the date of 

the judgment or order, with respect to R. 4:49-2. 

 [R. 8:10.] 

The Director’s moving papers request relief pursuant to R. 4:49-2, which provides, in part, that:

[A] motion for rehearing or reconsideration seeking to alter or amend a 

judgment or order shall be served not later than 20 days after service of 

the judgment or order upon all parties by the party obtaining it. 

[R. 4:49-2.]

The court finds the Director’s Motion for Reconsideration was timely filed on December 18, 2017, 

within the 20-day period prescribed under R. 4:49-2.1 In its motion, the Director requests the court 

vacate its November 28, 2017 decision, deny Infosys’s motion for partial summary judgment, and 

grant Director’s cross-motion for partial summary judgment.

A motion for rehearing or reconsideration is granted sparingly. R. 4:49-2 requires the motion 

"state with specificity the basis on which it is made, including a statement of the matters or controlling 

decisions which counsel believes the court has overlooked or as to which it has erred . . . ." R. 4:49-2. 

Reconsideration "is a matter within the sound discretion of the court, to be exercised in the interest of 

justice." Cummings v. Bahr, 295 N.J. Super. 374, 384 (App. Div. 1996). Thus, a motion for 

reconsideration will be granted "only for those cases which fall into that narrow corridor in which 

either: (1) the court has expressed its decision based upon a palpably incorrect or irrational basis, or (2) 

it is obvious that the court either did not consider, or failed to appreciate the significance of probative, 

 

1 As a procedural matter, the court signed an Order in accordance with its November 28, 2018, 

however that Order was inadvertently not uploaded onto the ECourts system. It is being uploaded 

simultaneously with this Letter Opinion. 
3 

competent evidence." D'Atria v. D'Atria, 242 N.J. Super. 392, 401 (Ch. Div. 1990). Reconsideration is 

reserved for unique circumstances and is not justified by a litigant's mere dissatisfaction with the 

court's decision; such arguments are best raised on appeal. Ibid.

The Director raises two arguments in support of its motion for relief. First, the Director asserts 

that the court did not specifically analyze N.J.S.A. 54:10A-4(k)(2)(A), which it argues requires the 

add-back of foreign income that is exempted under federal law. That statute provides as follows: 

(k) “Entire net income” shall mean total net income from all sources, 

whether within or without the United States, and shall include the gain 

derived from the employment of capital or labor, or from both combined, 

as well as profit gained through a sale or conversion of capital assets.

For the purpose of this act, the amount of a taxpayer’s entire net income 

shall be deemed prima facie to be equal in amount to the taxable income, 

before net operating loss deduction and special deductions, which the 

taxpayer is required to report, or, if the taxpayer is classified as a 

partnership for federal tax purposes, would otherwise be required to 

report, to the United States Treasury Department for the purpose of 

computing its federal income tax, provided however, that in the 

determination of such entire net income, 

 . . . . 

(2) Entire net income shall be determined without the exclusion, 

deduction or credit of: 

(A) The amount of any specific exemption or credit allowed in any law 

of the United States imposing any tax on or measured by the income of 

corporations. 

 

 [N.J.S.A. 54:10A-4 (k)(2)(A).] 

Additionally, the Director maintains that the court erred in reaching the conclusion that the Director 

did not object to Infosys’ calculation of the CBT refund due. Thus, the Director asserts that entry of the 

court’s order directing payment of a refund to Infosys in the amount claimed, plus interest, was in 

error. In support of this contention, the Director points to page 17, footnote 4 of its summary judgment 

brief, reciting: 
4 

Neither the Tax Convention with the Republic of India (“Treaty”) nor 

the Pre-Filing Agreement have been included in the motion record. Thus, 

Taxation reserves the right to verify that Plaintiff’s returns were prepared 

in accord with said documents in the context of discovery. Thus, even if 

Plaintiff’s motion is granted, this Court should not order a specific dollar 

refund at this time.

The court is satisfied that the reasoning set forth in its November 28, 2017 letter opinion 

adequately addresses why the Director's interpretation of the term "entire net income” under N.J.S.A. 

54:10A-4(k) is in error. Nevertheless, to the extent that the court offered insufficient reasoning why 

the add-back provisions of N.J.S.A. 54:10A-4(k)(2)(A) do not apply, the court hereby revises and 

amplifies its November 28, 2017 decision. Additionally, the court vacates that portion of its November 

28, 2017 decision ordering the Director to make payment of a $5,831,788 refund to Infosys, and 

affords the Director until Monday, July 30, 20182 to calculate the refund due Infosys consistent with 

this decision. 

The court first addresses the Director’s motion for reconsideration as it relates to the addback 

provisions of N.J.S.A. 54:10A-4(k)(2)(A). 

Subsequent to the Appellate Division’s decision in Toyota Motor Credit Corp. v Director, Div. 

of Taxation, 28 N.J. Tax 96 (Tax 2014), aff’d, No. A-5189-14T3 (App. Div. October 23, 2017), the 

Director presented an additional argument. The Director argued that even if Line 29 of the 

Unconsolidated Federal Form 1120-F establishes the tax base, the Director can still addback 

exemptions or deductions allowed under the treaty by virtue of N.J.S.A. 54:10A-4(k)(2)(A). That 

statute allows for the add-back of “specific exemptions or credit allowed in any law of the United 

States imposing any tax on or measured by the income of corporations.” 

 

2

 The claims not included in this partial summary judgment are scheduled for trial on Monday July 30, 

2018. Any outstanding dispute regarding the amount of refund due plaintiff will be resolved as part of 

the trial.
5 

The Director’s position is that N.J.S.A. 54:10A-4(k)(2)(A) is a broadly written add-back 

provision that can apply to several different types of federally exempted income, including foreign 

income. It asserts that under the treaty, Infosys’s foreign income is exempted from federal taxation by 

means of I.R.C. sections 11(d), 882(b) and 6114 and therefore fits squarely within the purview of the 

add-back statute.

Generally, the I.R.C. imposes a tax on a domestic corporation’s world-wide taxable income. 

See I.R.C. §§ 11; 61; and 63. Specifically, I.R.C. § 11(d) provides: 

Foreign corporations. In the case of a foreign corporation, the taxes 

imposed by subsection (a) and section 55 [I.R.C. § 55] shall apply only 

as provided by section 882. 

[I.R.C. § 11(d).] 

In the case of a foreign corporation, the tax imposed is determined by § 882. Generally, a 

foreign corporation engaged in a trade or business within the United States is subject to tax on its 

“taxable income which is effectively connected with the trade or business of the United States.” I.R.C. 

§ 882 (a)(1). Internal Revenue Service regulations provide: 

All income, gain or loss for the taxable year derived by a ... foreign 

corporation engaged in a trade or business in the United States from 

sources within the United States which does not consist of income, gain 

or loss described in section 871 (a)(1) or 881 (a), or of gain or loss from 

the sale or exchange of capital assets, shall, for purposes of paragraph (a) 

of this section, be treated as effectively connected for the taxable year 

with the conduct of a trade or business in the United States. 

[26 C.F.R. § 1.864-4(b).] 

I.R.C. § 882(b) states: 

Gross income. In the case of a foreign corporation, except where the 

context clearly indicates otherwise, gross income includes only (1) gross 

income which is derived from sources within the United States and 

which is not effectively connected with the conduct of a trade or business 

within the United States, and (2) gross income which is effectively 
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connected with the conduct of a trade or business within the United 

States.

 [Ibid.] 

The Director concludes that because I.R.C. §§11(d) and 882 exclude or exempt certain income 

from sources outside of the U.S. from a foreign corporation’s tax base, these are specific exemptions 

that must be added back to a taxpayer’s federal taxable income for purposes of computing New Jersey 

entire net income pursuant to N.J.S.A. 54:10A-4(k)(2)(A).

Finally, the Director argues that since I.R.C. § 6114 requires that foreign income excluded from 

federal taxation based on treaty positions be disclosed, under New Jersey law, such income is to be 

included in entire net income. I.R.C. § 6114 provides: 

(a) In general. Each taxpayer who, with respect to any tax imposed by this 

title, takes the position that a treaty of the United States overrules (or 

otherwise modifies) an internal revenue law of the United States shall 

disclose (in such manner as the Secretary may prescribe) such position- 

(1) On the return of tax for such tax (or any statement attached to such 

return) . . . . 

[Ibid.] 

The Director asserts that to the extent that a treaty-based tax return position reduced Infosys’s income 

on Line 29 of its CBT return, that reduction may then be added back for purposes of computing entire 

net income under N.J.S.A. 54:10A-4(k)(2)(A).

The court finds the Director’s arguments unconvincing. N.J.S.A. 54:10A-4(k)(2)(A) allows for 

the add-back of “specific exemptions or credit allowed in any law of the United States imposing any 

tax on or measured by the income of corporations.” First and foremost, the U.S.-India treaty is not a 
7 

law of the United States. Treaties are, by definition, agreements between foreign states governed by 

international law.3 

The distinction between a treaty and a law of the United States is acknowledged by their 

separate reference in the Supremacy Clause of the Constitution:

This Constitution, and the Laws of the United States which shall be 

made in Pursuance thereof, and all Treaties made, or which shall be 

made, under the Authority of the United States, shall be the supreme 

Law of the Land; and the Judges in every State shall be bound thereby, 

any Thing in the Constitution or Laws of any State to the Contrary 

notwithstanding. 

 [U.S. Const., art. VI, cl. 2] 

In addition, I.R.C. § 6114 itself distinguishes “a treaty of the United States” from “an internal 

revenue law of the United States.” 

There is no case law supporting the Director’s position. The court is aware of only one case 

where a similar argument was successfully advanced, and that matter is easily distinguishable from the 

present case. See Garfield Trust Co. v. Director, Div. of Taxation, 102 N.J. 420 (1986), wherein the 

New Jersey Supreme Court determined that the inclusion of the face value and interest income of 

federal obligations arising under the Federal Public Debt Statute, 31 U.S.C.S. §742 was to be included 

in the CBT tax base pursuant to N.J.S.A. 54:10A-4(k)(2)(A)). 

Moreover, neither treaty protection nor the I.R.C. limitations on the scope of taxation of foreign 

entities qualifies as a “specific exemption or credit” as required by the statute. In fact, N.J.A.C. 18:7-

 

3 The broad meaning of the word "treaty", as the term is customarily used, is “any international 

agreement concluded between states in written form and governed by international law, whether 

embodied in a single instrument or in two or more related instruments and whatever its particular 

description . . . .” Vienna Convention of the Law of Treaties of May 23, 1969, Art. 2(1)(a), Compiled 

at 63 Am.J.Int'l L. 875 (1969). See also B. Altman & Co. v. United States, 224 U.S. 583, 600-01, 32 S. 

Ct. 593, 56 L. Ed. 894 (1912); L. Henkin, Foreign Affairs and the Constitution 142 (1972). 
8 

5.2 refers to a specific exemption as being a deduction when computing federal taxable income, not to 

foreign income that was never included in the federal tax base.4 

Had the Legislature wished to provide for the add-back of foreign income excluded by treaties 

of the United States, it could have specifically done so. The Legislature chose to equate CBT entire net 

income with “the taxable income, before net operating loss deduction and special deductions, which 

the taxpayer is required to report ... to the United States Treasury Department for the purpose of 

computing its federal income tax” subject only to specific add-back provisions. To interpret N.J.S.A. 

54:10A-4(k)(2)(A) as broadly as is argued by the Director would be to undercut the Legislature’s 

clearly stated intent and render it meaningless when determining entire net income of foreign 

corporations. 

With respect to the court’s prior decision ordering payment of the refund, that provision is 

vacated. The court accepts the Division’s argument that discovery and analysis has not been completed 

due to the early filing of the partial summary judgment motions. For this reason the court will not 

specify the amount of the refund due to Infosys, and will permit the Division sufficient opportunity to 

conduct discovery and determine its position on this issue. If the parties cannot resolve this issue, the 

court will include this issue as part of the trial on the disputes not included in the partial summary 

judgment motions. That trial is scheduled for Monday July 30, 2018. 

In conclusion, the court grants Infosys’ motion for partial summary judgment and denies the 

Director’s motion for partial summary judgment. Upon reconsideration the court vacates its prior order 

instructing the Director to issue a CBT refund to Infosys in the amount of $5,831,788, plus interest. 

The Director shall have until July 30, 2018 to calculate the refund amount due plaintiff in accordance 

 

4 N.J.A.C. 18:7-5.2 states that CBT taxpayers are to add back to their federal taxable income “[t]he 

amount of any specific exemption or credit allowed in any law of the United States imposing any tax 

on or measured by the income of corporations, where such specific exemption or credit has been 

deducted in computing Federal taxable income.”
9 

with this decision. If Infosys and the Director are unable to agree on a specific refund amount, they 

shall advise the court and the matter will be included as part of the July 30, 2018 trial concerning the 

remaining issues in this case.

Sincerely,

/s/ Mary Siobhan Brennan, J.T.C.