New Jersey Administrative Code › Title 18 - TREASURY - TAXATION › Chapter 7 - CORPORATION BUSINESS TAX ACT › Subchapter 8 - BUSINESS ALLOCATION FACTOR › Section 18:7-8.10A - Receipts from services in the State; allocation for certain special industries

Current through Register Vol. 56, No. 14, July 15, 2024
(a) For privilege
				periods ending on and after July 31, 2019, receipts from service transactions shall
				be allocated to New Jersey in accordance with this section. See N.J.A.C. 18:7-21for
				additional information on combined groups filing New Jersey combined returns.
1. The numerator of the sales fraction developed
				in accordance with this section includes receipts from services not otherwise
				apportioned, if the benefit of the service is received by the customer at a location
				within this State.
2. In determining
				whether the benefit of the services is received within this State, a taxpayer shall
				include in the numerator of the sales fraction receipts derived from customers
				within this State as provided in this paragraph.
i.
				For purposes of this subparagraph, a customer is considered located within this
				State if a recipient is either:
(1) Engaged in a
				trade or business and maintains a place of business in this State; or
(2) Is an individual that is not a sole
				proprietor, who is located in this State. If the location of the individual cannot
				be determined, the benefit of the services will be deemed to be received at the
				individual's billing address.
ii. A place of business in this State is not
				limited to the principal place of business of the customer and includes any office,
				factory, warehouse, or other business location in this State where the customer
				conducts business in a regular and systematic manner or maintains property or
				employees.
iii. A billing address is the
				location indicated in the pertinent customer order or records of the taxpayer as the
				address of record where notices, statements, or bills relating to the customer's
				account are mailed, or the location where services are provided to the
				customer.
3. In the event
				that services are provided to a recipient engaged in a trade or business for use in
				that trade or business located in this State and another state(s), a taxpayer shall
				include in the numerator of the sales fraction receipts based on the percentage of
				the total value of the benefit of the services received in all locations both within
				and outside of this State, as determined in this paragraph, or a reasonable
				approximation as defined at (a)3iv(1) below.
i.
				For purposes of this paragraph, receipts are attributable to this State if the
				recipient of the service(s) receives all of the benefit of the service(s) in this
				State.
ii. If the recipient of the
				service(s) receives some of the benefit of the service(s) in this State, receipts
				arising from the service(s) shall be attributable to this State in proportion to the
				extent to which the recipient receives the benefit of the service(s) in this
				State.
iii. In determining the
				"proportion to the extent to which the recipient receives the benefit of the
				service(s) in this State," a taxpayer may use the terms of a contract, the
				taxpayer's books and records kept in the normal course of business, or the nature of
				the taxpayer's or recipient's business and/or the service(s) at issue, to determine
				how much of the benefit of the service(s) is received in this State.
iv. In determining the "proportion to the extent
				to which the recipient receives the benefit of the service(s) in this State," a
				taxpayer may use a reasonable approximation to attribute the location of receipts if
				none of the items listed at (a)3iii above provide the information necessary to
				determine how much of the benefit of the service(s) is received in this State.
(1) A "reasonable approximation" for attributing
				receipts under this subparagraph means that, considering all sources of information
				other than the terms of a contract, the taxpayer's books and records kept in the
				normal course of business, or the nature of the taxpayer's or recipient's business
				and/or the service(s) at issue, the location where the benefit of the service(s) is
				received is determined in a manner that is consistent with the activities of the
				recipient to the extent such information is available to the taxpayer. "Reasonable
				approximation" shall be limited to the jurisdictions or geographic areas where the
				recipient, at the time of purchase, will receive the benefit of the service(s), to
				the extent such information is available to the taxpayer. If population is a
				reasonable approximation, the population used shall be the U.S. population as
				determined by the most recent U.S. census data. If it can be shown by the taxpayer
				that the benefit of the service(s) is being substantially received outside the U.S.,
				then the populations of the countries where the benefit of the service(s) is being
				substantially received shall be added to the U.S. population for purposes of
				determining a reasonable approximation of the total value of the benefit of the
				services received in all locations. Information that is verifiable and specific in
				nature is preferred over unverifiable information that is general in nature. If the
				information is not readily verifiable or not readily available to the taxpayer, the
				taxpayer may request to use certain industry standard approximations.
Example 1: A taxpayer is in the business of providing real estate
				  surveying services to developers and potential borrowers. A real estate development
				  firm from another state is developing a tract of land in New Jersey. The real estate
				  development firm from another state utilizes the services of the taxpayer to survey
				  the land in New Jersey. The survey work is completed and the plans are drawn in New
				  Jersey. All of the taxpayer's receipts from this survey work are attributable to New
				  Jersey and are included in the numerator of the receipts fraction because the
				  recipient of the service received all of the benefit of the service in New Jersey.
Example 2: A taxpayer is in the business of providing engineering
				  services and is headquartered in another state. A corporation headquartered in
				  another state is building an office complex in New Jersey. The corporation contracts
				  with the taxpayer to oversee construction of the buildings on the site. The taxpayer
				  performs some of its service in New Jersey at the building site and additional
				  service in its home state. All of the receipts from the taxpayer's engineering
				  service are attributable to New Jersey and are included in the numerator of the
				  receipts fraction because the recipient of the service received all of the benefit
				  of the service in New Jersey.
Example 3: A taxpayer headquartered outside this State enters
				  into an agreement with a corporation from another state to develop and provide
				  customized computer software for the corporation's business office that is located
				  in New Jersey. The software will only be used by the business office in New Jersey.
				  The software development occurs in another state. All of the taxpayer's receipts
				  from the software services are attributable to New Jersey and are included in the
				  numerator of the receipts fraction because the recipient of the service received all
				  of the benefit of the service in New Jersey.
Example 4: A taxpayer headquartered outside this State enters
				  into an agreement with a corporation from another state to develop and provide
				  customized computer software for the corporation's business offices that are located
				  in New Jersey and several other states. The software development occurs in another
				  state. The taxpayer's receipts from the software services that are attributable to
				  New Jersey and included in the numerator of the taxpayer's sales fraction shall be
				  equal to the proportion of the software used in New Jersey to the software used
				  everywhere (domestic and/or international).
Example 5: A taxpayer derives advertising revenues in the course
				  of providing or distributing content (for example, broadcasting television or radio
				  programs or any other content over the air, satellite, cable system, or Internet).
				  It sets its advertising rates based upon the audience it reaches or has the
				  potential to reach. The portion of the taxpayer's advertising revenues or receipts
				  that is attributable to New Jersey and included in the numerator of the taxpayer's
				  sales fraction shall be equal to the proportion of the taxpayer's audience in New
				  Jersey to the audience everywhere (domestic and/or international).
Example 6: A taxpayer performs prescription fulfillment service.
				  The company is headquartered in State X and manages a prescription plan on behalf of
				  a client that is headquartered in State Y with offices in 50 states. The client's
				  employees are located in all 50 states, including New Jersey, but frequently travel
				  and may fill prescriptions from their home pharmacy or pharmacies on the road. For
				  lump sum payments from the client to the fulfillment service, the sourcing may be
				  based on the percentage of the client's employees working in New Jersey.
				  Alternatively, for pay as you go services where there is adequate documentation of
				  where the prescription is filled, the percentage of prescriptions filled in New
				  Jersey would be acceptable to verify receipts to be sourced to this State. If the
				  company is unable to track the percentage of the client's employees working in New
				  Jersey or the percentage of prescriptions filled in New Jersey, a reasonable
				  approximation considering all sources of information, or a population-based
				  methodology would be acceptable.
Example 7: The taxpayer is a company that performs marketing
				  analysis services in California and New York for a client that is headquartered in
				  New Jersey. The project was requested from and directed by the client's advertising
				  division leader who is located in the client's Florida office. The deliverable is a
				  memo detailing the results of the marketing analysis, which will be sent to the
				  division leader in Florida. The information contained in the deliverable will
				  ultimately be incorporated into an advertising strategy used companywide,
				  nationwide. The bill was sent to the client's accounts payable function in Illinois.
				  This taxpayer's service would not be sourced to New Jersey since the benefit of the
				  service is not utilized in New Jersey, nor is the benefit of the service received in
				  New Jersey.
Example 8: A person purchases an in-dashboard GPS system that
				  includes a periodic update service when the person brings the car to the dealership
				  for periodic car maintenance. The update service ends after one year with an option
				  for the car owner to renew the service directly with the GPS company, such that upon
				  renewal, payments to the company are paid by the car's owner. In the first instance,
				  where the periodic update service and GPS are bundled together the sale would be
				  sourced to the location of the dealership. When the owner of the car renews the
				  update service, the company's receipts from the service will be sourced to the
				  customer's billing address.
Example 9: Taxpayer, a legal information company, provides a
				  periodic legal research materials service. The service consists of periodic
				  shipments of the latest statutes, regulations, and court cases based on the terms of
				  contracts negotiated with each customer. The updates shipped to the customers
				  consist of pocket parts for bound books or loose leaf binder inserts. A customer,
				  with offices in New Jersey and three other states, contracts with the legal
				  information company to receive weekly updates of the materials that are shipped to
				  each office. The receipts included in the taxpayer's sales fraction will be sourced
				  based on the percentage of updates that are received in the client's New Jersey
				  office.
Example 10: Taxpayer, a payroll processing corporation, provides
				  a payroll processing and remittance service to clients for a fee. The payroll
				  processing corporation receives the data from clients and impounds funds from its
				  clients for disbursing payroll checks and remitting tax monies to government
				  agencies. The payroll processing corporation transmits the processed data back to
				  its client that has offices and employees in New Jersey, Pennsylvania, South
				  Carolina, California, and Ohio. The client hires the payroll processing corporation
				  to process its payroll. The taxpayer's receipts from the payroll services will be
				  sourced to New Jersey based on the number of the client's employees located in New
				  Jersey since the monies for those employees are remitted to New Jersey.
4. All receipts
				obtained by the taxpayer in payment for services provided in the regular course of
				business are allocable, regardless of whether such services were performed by
				employees or agents of the taxpayer, by subcontractors, or by any other persons and
				regardless of whether the taxpayer reports the receipt as an item of income or a
				reduction in expense.
5. It is
				immaterial where the receipts from the sales of services were payable or where they
				were actually received.
6. Lump sum
				payments for services where the benefit is received both inside and outside of New
				Jersey must be apportioned in the manner described at (a)6i and ii below in order to
				result in a fair and reasonable receipts fraction. For transportation companies that
				meet the qualifications at N.J.S.A. 54:10A-4.7(b), see N.J.A.C. 18:7-21for
				additional information and applicable rules for transportation combined groups
				filing New Jersey combined returns.
i.
				Transportation revenues of an airline are from services in New Jersey based on the
				ratio of an airline's revenue miles in New Jersey divided by an airline's total
				revenue miles. Where an airline is engaged in the transportation of passengers, the
				transportation of freight, or the rental of aircraft, the ratio shall be determined
				by 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.
(1) "Revenue miles" means passenger revenue miles
				for passenger transportation, freight revenue miles for freight, or transportation
				rental revenue miles for aircraft rentals.
(2) The passenger revenue mile fraction is
				determined by multiplying the number of revenue-paying passengers aboard the
				aircraft by the distance traveled in New Jersey divided by the number of
				revenue-paying passengers aboard the aircraft multiplied by the distance traveled
				everywhere.
(3) The freight revenue mile
				fraction is determined by dividing the freight ton revenue miles in New Jersey by
				the freight revenue miles everywhere. A freight revenue ton mile is equal to one ton
				carried one mile.
(4) The rental revenue
				mile fraction is determined by dividing the number of rental miles flown in New
				Jersey by total rental miles flown.
ii. Trucking companies deriving revenues from
				transporting freight will calculate their receipts fraction using mileage as
				follows: The taxpayer's receipts are multiplied by a fraction, the numerator, which
				is the number of miles in New Jersey and the denominator, which is the mileage in
				all jurisdictions. For convenience, taxpayers required to maintain mileage records
				in compliance with the International Fuel Tax Agreement pursuant to N.J.S.A.
				54:39A-24 and
				N.J.A.C. 13:18-3.12 shall make
				calculations using such records. For transportation companies that meet the
				qualifications at N.J.S.A. 54:10A-4.7(b), see N.J.A.C. 18:7-21for additional
				information and applicable rules for transportation combined groups filing New
				Jersey combined returns.
7.
				If a taxpayer receives a lump sum in payment for services and for materials or other
				property, the sum received must be apportioned on a reasonable basis by providing:
i. The part apportioned to services is includible
				in receipts from services;
ii. The part
				apportioned to materials or other property is includible in receipts from sales;
				and
iii. Full details must be submitted
				with the taxpayer's return.
8. Receipts arising from the sale of asset
				management services shall be allocated to New Jersey in accordance with the
				procedures described in this paragraph.
i. In the
				case of asset management services directly or indirectly provided to individuals,
				receipts shall be allocated to New Jersey if the domicile of the individual is in
				New Jersey.
ii. In the case of asset
				management services directly or indirectly provided to a pension plan, retirement
				account, or institutional investor, such as private banks, national and private
				investors, international traders, or insurance companies, receipts shall be
				allocated to New Jersey to the extent the domicile of the beneficiaries of the plan,
				beneficiaries of the account or beneficiaries of the similar pool of assets held by
				the institutional investor is in New Jersey.
(1)
				In the event the domiciles of the beneficiaries are not or cannot be obtained, a
				reasonable proxy may be used to allocate receipts to New Jersey that reflects the
				trade or business practice and economic realities underlying the generation of
				receipts from the asset management services. The burden of demonstrating the
				reasonableness of the method rests on the taxpayer. Based on specific facts and
				circumstances, reasonable proxies used to allocate receipts to New Jersey may take
				into account, among other things, the latest available population census data, the
				domicile of the sponsor of the plan, account, or pool of assets, the sponsor's
				payroll apportionment factor or the sponsor's ratio of New Jersey employees to total
				employees.
iii. In the case
				of asset management services directly or indirectly provided to a regulated
				investment company, receipts shall be allocated to New Jersey to the extent that
				shareholders of the regulated investment company are domiciled in New Jersey in
				accordance with:
(1) The portion of receipts deemed
				to arise from services within New Jersey shall be determined by multiplying the
				total of such receipts from the sale of such services by a fraction. The numerator
				of the fraction is the average of the sum of the beginning of the year and the end
				of year balance of shares owned by the regulated investment company shareholders
				domiciled in New Jersey for the regulated investment company's taxable year for
				Federal income tax purposes that ends within the taxable year of the taxpayer. The
				denominator of the fraction is the average sum of the beginning of the year and end
				of year balance of shares owned by the regulated investment company shareholders. A
				separate computation is made to determine the allocation of receipts from each
				regulated investment company.
iv. As used in this paragraph, the following words
				and terms shall have the following meanings:
(1)
				"Asset management services" means the rendering of investment advice, making
				determinations as to when sales and purchases are to be made, or the selling or
				purchasing of assets and related activities. As used in this sub-subparagraph,
				"related activities" means administration services, distribution services,
				management services, and other related services;
(2) "Administration services" means and includes
				clerical, accounting, bookkeeping, data processing, internal auditing, legal, and
				tax services, but does not include trust services;
(3) "Distribution services" means the services of
				advertising, servicing investor accounts (including redemptions), marketing shares,
				or selling shares of a regulated investment company;
(4) "Management services" means the rendering of
				investment advice, making determinations as to when sales and purchases of
				securities are to be made, or the selling or purchasing of securities and related
				activities;
(5) "Domicile" shall have
				the meaning ascribed to it at N.J.S.A. 54A:1-2.m in the case of an individual and
				under N.J.S.A. 54A:1-2.o in the case of an estate or trust and in the case of a
				business entity where the actual seat of management or control is located in this
				State; provided; however, "domicile" shall be presumed to be the mailing address of
				the beneficiary of the plan, account, or other similar pool of assets based upon the
				sponsor's records with respect to any such beneficiary or the shareholder's mailing
				address on the records of the regulated investment company. For purposes of (a)8iii
				above, in the case of a nominee holding the investment on behalf of its customers,
				the mailing address of the customer shall be deemed to be the domicile of the
				shareholder;
(6) In addition to amounts
				received directly from a regulated investment company, "receipts" shall also include
				amounts received directly from the shareholders of such regulated investment company
				in their capacity as such;
(7)
				"Regulated investment company" means a regulated investment company as defined at N.
				J.S.A. 54:10A-4(g) and meets the requirements of Section 851 of the Federal Internal
				Revenue Code; and
(8) "Sponsor" means
				the party that has contracted directly with the beneficiaries of the plan, account,
				or similar pools of assets.
v. See
				N.J.A.C.
				18:7-1.6 regarding foreign advisors having
				customers in New Jersey.
9.
				Receipts from the services of a registered securities or commodities broker or
				dealer shall be sourced to New Jersey, if the customer is located within this State.
i. For purposes of this paragraph, the following
				words or terms shall have the following meanings:
(1) "Securities" has the meaning provided by
				paragraph (2) of subsection (c) of section 475 of the Federal Internal Revenue Code
				of 1986,
				26 U.S.C.
				§
													475;
(2) "Commodities" has the meaning provided by
				paragraph (2) of subsection (e) of section 475 of the Federal Internal Revenue Code
				of 1986,
				26 U.S.C.
				§
													475; and
(3) "Registered securities or commodities broker
				or dealer" means a broker or dealer registered as such by the Federal Securities and
				Exchange Commission or the Federal Commodities Futures Trading Commission.
10. Receipts from a
				broadcaster's licensing of film programming to a broadcast customer shall be sourced
				to New Jersey based on the broadcast customer's viewing audience in New Jersey in
				proportion to the viewing audience in all jurisdictions in which the broadcast
				customer has viewers. If the information is indeterminable, including lack of any
				information that is a reasonable approximation, a broadcast customer shall be deemed
				to receive the benefit of such license in New Jersey and the receipts from the
				licensing of the film programming shall be sourced based on the ratio of the
				population of New Jersey over the population of the other jurisdictions in which the
				broadcast customer has viewers. However, if a broadcaster can prove to the Director
				of the Division of Taxation by cogent evidence that is definite, positive, and
				certain in quantity and quality that the broadcast customer does not have any
				viewers in New Jersey, the receipts from licensing of film programming to the
				broadcast customer shall be sourced to the commercial domicile of the broadcast
				customer.
i. For purposes of this paragraph, the
				following words or terms shall have the following meanings:
(1) "Broadcast customer" means a person,
				corporation, partnership, limited liability company, or other entity, such as a
				platform distribution company, that has a direct connection or contractual
				relationship with the broadcaster under which revenue is derived by the broadcaster.
				The term "broadcast customer" includes, but is not limited to, a licensee of film
				programming (for example, a platform distribution company paying a licensing fee to
				the broadcaster to air the broadcaster's film programing);
(2) "Broadcaster" means a taxpayer that is engaged
				in the business of broadcasting, and includes a television broadcast network, a
				cable program network, or a television distribution company. The term "broadcaster"
				does not include a platform distribution company;
(3) "Broadcasting" means the transmission of film
				programming by an electronic or other signal conducted by microwaves, wires, lines,
				coaxial cables, wave guides, fiber optics, satellite transmissions, or through any
				other means of communication directly or indirectly to viewers and
				listeners;
(4) "Commercial domicile"
				means, in the case of a business entity, the principal place where the actual seat
				of management or control is located;
(5)
				"Film programming" means one or more performances, events, or productions (or
				segments of performances, events, or productions) intended to be distributed for
				visual and auditory perception, including, but not limited to, news, entertainment,
				sporting events, plays, stories, or other literary, commercial, educational, or
				artistic works; and
(6) "Platform
				distribution company" means a cable service provider, a direct broadcast satellite
				system, an Internet content distributor (domestic and/or international), or any
				other distributor that directly charges viewers for access to any film programming.
Example: Taxpayer Network Corp. is a broadcaster that licenses
				  rights to its film programming to platform distribution companies (broadcast
				  customers). Broadcast Customer A pays licensing fees to Network Corp. for the rights
				  to distribute Network Corp.'s film programming to Broadcast Customer A's customers
				  who are located inside and outside of New Jersey. Broadcast Customer A broadcasts to
				  viewers in New Jersey, Pennsylvania, New York, and Maine. If Network Corp. is unable
				  to source such receipts based on the broadcast customer's viewing audience and it
				  has no other information that is a reasonable approximation, then Network Corp.'s
				  receipts from Broadcast Customer A will be sourced to New Jersey based on a ratio of
				  the New Jersey population over the population of New Jersey, Pennsylvania, New York,
				  and Maine.