Perspectives

New Jersey Tax Court interprets exceptions to add-back statute

Multistate tax alert | November 24, 2014

The Tax Court of New Jersey recently rendered a decision in Morgan Stanley & Co. v. Director, Division of Taxation, interpreting the application of the “subject-to-tax” and “unreasonable” exceptions to New Jersey’s Corporate Business Tax (“CBT”) related-party add-back statute.¹

“Subject-to-tax” and “unreasonable” exceptions

The Tax Court of New Jersey recently rendered a decision in Morgan Stanley & Co. v. Director, Division of Taxation, interpreting the application of the “subject-to-tax” and “unreasonable” exceptions to New Jersey’s Corporate Business Tax (“CBT”) related-party add-back statute.1 In Morgan Stanley, the Tax Court concluded that the while the taxpayer did not qualify for the “subject-to-tax” exception, the New Jersey Division of Taxation (“Division”) “acted unreasonably” in the application of the “unreasonable” exception.2 In analyzing the “unreasonable” exception, the court also outlined several factors that may be relevant for taxpayers with related-party interest potentially subject to the statutory add-back. In this Tax Alert we summarize the arguments and holdings in the Morgan Stanley decision.

1 Morgan Stanley & Co. v. Director, Div. of Taxation, No. 007557-2007, 2014 N.J. Tax LEXIS 23 (N.J. Tax Ct. Oct. 29, 2014).
2 Morgan Stanley, 2014 N.J. Tax LEXIS 23, at *44.

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The Multistate Tax Alert Archive includes external tax alerts issued by Deloitte Tax LLP's Multistate Tax practice during the last three years. These external alerts highlight selected developments involving state tax legislative, judicial, and administrative matters. The alerts provide a brief summary of specific multistate tax developments relevant to taxpayers, tax professionals, and other interested persons.

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