New Jersey Division of Taxation Issues Guidance on the NJ Supreme Court’s Decision in Whirlpool Properties, Inc.

On September 7, 2011, the New Jersey Division of Taxation released a Notice setting forth its interpretation of the New Jersey Supreme Court's decision in Whirlpool Properties, Inc. v. Director, Division of Taxation (July 28, 2011).  As set forth below, the Division has narrowly interpreted the Court's decision in its favor, and will allow relief to taxpayers only for receipts sourced to states that do not impose corporate income or similar business activity taxes, or for receipts sourced to states in which the taxpayer is actually filing an income or business activity return.

Pursuant to the Notice, the Division has indicated that it has revised its audit policy concerning the application of throw-out to receipts assigned to Nevada, Wyoming, and South Dakota.  As these states do not impose a corporate income or similar business activity tax, the Division will not throw out receipts assigned to these states.  However, the Division also indicated that it has not changed its existing throw-out policy for receipts assigned to states other than Nevada, Wyoming, and South Dakota as a result of the decision.  Accordingly, it appears that the Division will continue to exclude receipts from the denominator of the receipts factor unless the taxpayer can show that such receipts are sourced to a state in which the taxpayer is actually filing an income or business activity return.  Moreover, according to the Notice, if no further appeal is taken regarding the facial constitutionality of the throw-out rule, the Whirlpool matter will be decided by the Tax Court based on an "as applied" analysis.

Irrespective of the Division's audit policy as set forth in the Notice, taxpayers adversely affected by the Division's application of the throw-out rule should consider filing refund claims for open years and/or taking alternate reporting positions when filing their 2010 New Jersey corporate income tax returns as a result of the Whirlpool decision.