A bill (S 61) was introduced in the New Jersey Senate on January 12, 2016 that would require combined reporting of the corporation business tax by certain members of unitary business groups.
According to the media, the version of the bill on New Jersey's legislature website is not accurate. The new version of the bill includes a water's-edge election and language regarding tax havens.
You may recall that a New Jersey think tank recommended New Jersey adopt combined reporting last year. The think tank estimated that New Jersey is losing out on $200 million per year to more than $400 million in tax revenue per year due to multistate corporations shifting profits out of state.
According to a New Jersey Senator, "by closing this loophole, we would end unfair -- and often unscrupulous -- tax avoidance on the part of multi-state (and in many cases multi-national) companies. In short, it's not a tax increase we're after, it's tax fairness."
The bill itself describes combined reporting as an "enhanced compliance tool." The bill also states:
"Most large businesses are structured as a family of corporations, commonly consisting of a “parent” corporation and its subsidiaries. Many corporate tax shelters depend on the relationship, or legal distance, among related corporations. Combined reporting, by effectively treating the parent and most or all of its subsidiaries as a single corporation for state income tax purposes. wipes out the intercorporate transactions that effectuate these shelters.
More than half of the states with corporate income taxes have adopted combined reporting. A major reason for states' growing interest is their recognition of how badly corporate tax shelters that exploit separate reporting are eroding state corporate income tax payments. Corporations have devised a wide variety of strategies to artificially shift profits to out-of-state subsidiaries to reduce their tax liabilities. Combined reporting largely squelches these strategies by enabling a state to tax a fair share of the profit that would otherwise be shifted into a related, out-of-state corporation.
New Jersey has been a leader in combating avoidance techniques by “traditional” means: case-by-case litigation of particular transactions and the development of anti-shelter legislation targeting classes of abusive inter-corporate arrangements. These traditional means are time consuming and labor intensive. Combined reporting, which eliminates most profit-shifting strategies, can be an important component of maintaining a fair and effective state corporate income tax."
State legislatures often use these arguments to persuade other members of the state government to enact combined reporting. However, these efforts can backfire and cause large corporations to leave the state (i.e., Connecticut combined reporting and General Electric).