October 09, 2014

Recent New Jersey Tax Court Decision Creates Income Tax Refund Opportunity

By Kaitlin McKenzie-Fiumara

In the recently decided case PPL Electric Utilities Corp. v. Director, Drinker Biddle was successful in convincing the New Jersey Tax Court that neither the Pennsylvania capital stock tax nor the gross receipts tax are subject to New Jersey’s state income tax addback for purposes of computing a company’s New Jersey corporation business tax liability.1

In computing entire net income, the New Jersey Corporation Business Tax Act does not permit a deduction for state or local taxes that are measured by profits, income, business presence or business activity.2  Because the court agreed with the taxpayer that Pennsylvania’s capital stock tax is a “property tax” and its gross receipts tax is an “excise tax,” and therefore are not taxes measured by profits, income, business presence, or business activity, the court found that neither tax must be added back.

New Jersey’s statute of limitations for refund claims runs four years from the date a corporation business tax return is filed on extension.3 Therefore, the deadline for filing refund claims related to tax year 2009 returns filed on extension is likely coming up in just a few days for many companies.  If significant Pennsylvania capital stock or gross receipts taxes were added back on your company’s New Jersey corporation business tax returns, you should consider filing refund claims promptly to capture all open tax years. 

For more information on the PPL case or the resulting refund claim opportunity, please contact the authors, or the Drinker Biddle lawyer with whom you regularly work.

1 PPL Electric Utilities Corp. v. Director, Division of Taxation, N.J. Tax Ct., Dkt. No. 000005-2011 (10/02/2014)

2 N.J. S.A.  54:10A-4(k)(2)(C).

N.J.S.A. 54:49-14(a); N.J.A.C. 18:7-13.8(a).

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