Blurred lines of business: Nexus and New Jersey's corporation business tax.

AuthorSchaefer, Frank

A recent series of New Jersey cases has considered the circumstances under which an out-of-state corporate partner holding a limited partnership interest in a partnership doing business in New Jersey will have sufficient nexus to subject it to the state's corporation business tax (CBT). The issue first came to the forefront in BIS LP, Inc. v. Director, Div. of Tax., 26 N.J. Tax 489 (N.J. Super. Ct.

App. Div. 2011), aff'g 25 N.J. Tax 88 (N.J. Tax Ct. 2009)).Two subsequent decisions issued in BIS LP's wake substantially narrow its scope by shedding light on problematic fact patterns that will not pass muster under its holding.

BIS LP

BIS LP involved a taxpayer, BIS LP Inc., that was an out-of-state limited partner with a 99% limited partnership interest in BISYS Information Solutions LP (Solutions), a data processing company based in New Jersey. BIS was wholly owned by an out-of-state holding company, BISYS Inc., which also held the 1% general partner interest in Solutions. Under the limited partnership agreement, BIS did not have the right to manage Solutions or perform any acts on its behalf, and its only connection to New Jersey was its interest in Solutions. Specifically, BIS did not have a location, office, employee, agent, or any other physical presence in the state, and the partnership interest in Solutions was BIS's only asset and source of income.

The Director of the Division of Taxation held that BIS had a unitary business relationship with Solutions and thus had sufficient nexus with the state to be subject to the CBT. The Tax Court of New Jersey disagreed, and the Appellate Division of the New Jersey Superior Court affirmed, holding that BIS lacked nexus with New Jersey and did not owe CBT. In its decision, the appellate court focused on certain key findings to support its conclusion that the businesses were not unitary. Specifically, the court noted that, although the partnership interest was the source of BIS's income and was its only or most substantial asset, BIS and Solutions were not in the same line of business, had no "substantial" overlapping of officers, and had no sharing of offices, operational facilities, technology, or know-how.

Village Super Market of PA

In Village Super Market of PA, Inc. v. Director, Div. of Tax., No. 0210022010 (N.J. Tax Ct. 10/23/13), as part of a reorganization, a New Jersey corporation, Village Super Market Inc. (INC), formed a New Jersey limited partnership, Village Super Market of NJ LP (NJ...

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