United States: New Jersey Appellate Division Holds Limited Corporate Partner Entitled To CBT Refund Of Tax Paid By Related Entity

On April 11, in an unpublished decision, the Appellate Division of the New Jersey Superior Court affirmed the New Jersey Tax Court and held that an out-of-state limited corporate partner of a New Jersey limited partnership was entitled to a refund of New Jersey corporation business tax (CBT) paid on its behalf by a related entity.1 In a prior decision, the Appellate Division affirmed the Tax Court's determination that the out-of-state limited partner did not have sufficient nexus with the state of New Jersey to be subjected to the CBT, but remanded the matter to the Tax Court for the limited purpose of determining whether the out-of-state limited partner was entitled to receive the associated CBT refund.2 On remand, the Tax Court determined, and the Appellate Court has now affirmed, that the limited partner should be eligible to receive the refund.3


The taxpayer, BIS LP, Inc. (BIS), was an out-of-state limited partner with a 99 percent limited partnership interest in a limited partnership, BISYS Information Solutions, LP (Solutions), a data processing company headquartered in New Jersey. BIS was wholly owned by an out-of-state holding company, BISYS, Inc. (BISYS), which held the other one percent interest in Solutions as a general partner. Under the limited partnership agreement, BISYS had the "sole and exclusive right to manage the business and affairs" of Solutions, with limited exceptions reserved for BIS. The agreement provided that BIS did not have the right to manage Solutions or perform any acts on its behalf. BIS' only connection to New Jersey was its interest in Solutions. BIS did not have a location, office, employee, agent or any other physical presence in the state. The limited partnership interest in Solutions was BIS' only asset and source of income.

In April 2004, Solutions filed its 2003 New Jersey partnership return and reported BIS' distributive share of partnership income, which resulted in BIS' corporate partner's share of CBT in an amount over $2 million. Solutions, on behalf of BIS, remitted approximately $2 million to New Jersey. BIS filed a CBT return for the same year, electing to be treated as an "investment company."4

The Director of the Division of Taxation audited BIS' CBT return and denied BIS' investment company status. After determining that BIS had a unitary business relationship with Solutions, the Director found that BIS had sufficient nexus with the state to be subject to CBT. As a result, the Director issued a Notice of Assessment for additional CBT, including penalties and interest. After its filed protest was denied, BIS appealed the matter to the Tax Court.

The Tax Court held BIS lacked substantial nexus with New Jersey to be subjected to the CBT.5 The Appellate Division affirmed the Tax Court's decision and agreed that BIS did not have sufficient nexus with New Jersey to be subjected to the CBT, 6 but remanded the matter back to the Tax Court for the limited purpose of determining whether BIS, or Solutions, was entitled to the refund.7 On remand, the Tax Court determined that BIS was the proper entity to receive the refund and granted BIS' motion for summary judgment.8

Limited Corporate Partner Entitled to Refund

The Appellate Division summarily affirmed the Tax Court's decision and held that BIS was entitled to the refund of CBT. The Appellate Division commenced its opinion by noting that the issue as to whether BIS had substantial nexus with the state of New Jersey for CBT purposes had previously been decided and that the only remaining issue was whether BIS was entitled to a CBT refund. In holding that BIS was entitled to a refund of CBT, the Appellate Division explained that BIS filed a CBT return and that this action thereby provided consent to taxation in order to apply for refunds of any amounts in excess of actual tax liability paid on its behalf.9


While the issue of nexus was decided in the initial hearings before the Tax Court and Appellate Division, the matter also has consequences after it was remanded back to the Tax Court for the limited purpose of determining whether an out-of-state company could receive refunds on an amount of CBT paid on its behalf. The Appellate Division looked to the fact that the out-of-state entity filed a CBT return and found that this action was enough to entitle the right to a refund of CBT paid on its behalf.

This decision may have ramifications for refund claims and statutes of limitations because, as noted by the Tax Court, a determination to only allow the entity that remitted the CBT to claim the refund would have resulted in the state holding the CBT refund because the statute of limitations had expired for the tax due despite the determination that the tax was improper. Effectively, the state was seeking a second bite at the apple on procedural grounds. Therefore, this case provides a framework under which refunds potentially may be received for excess tax paid by related entities. The Division of Taxation is not expected to appeal this decision.


1 BIS LP, Inc. v. Director, Division of Taxation, New Jersey Superior Court, Appellate Division, No. A-1647-12T3, Apr. 11, 2014.

2 BIS LP, Inc. v. Director, Division of Taxation, 26 N.J. Tax 489 (App. Div. 2011), aff'g 25 N.J. Tax 88, (Tax Ct. 2009).

3 BIS LP, Inc. v. Director, Division of Taxation, 27 N.J. Tax 58 (Tax Ct. 2012), aff'd, New Jersey Superior Court, Appellate Division, No. A-1647-12T3, Apr. 11, 2014.

4 N.J. REV. STAT. § 54:10A-4(f). For investment companies, tax liability is limited to a measurement of 40 percent of entire net income and 40 percent of entire net worth. N.J. REV. STAT. § 54:10A-5(d).

5 BIS LP, Inc. v. Director, Division of Taxation, 25 N.J. Tax 88 (Tax Ct. 2009).

6 BIS LP, Inc. v. Director, Division of Taxation, 26 N.J. Tax 489 (App. Div. 2011).

7 The Appellate Division found that this issue was not properly raised by the Director, but nonetheless remanded it back to the Tax Court for a decision on the merits because it involved an important "public interest."

8 For further commentary regarding the Tax Court's decision on remand and for the CBT nexus issue, see GT SALT Alert: New Jersey Tax Court Holds Out-of-State Corporate Limited Partner That Lacked Nexus Is Entitled to CBT Refund.

9 Statement to Assembly Committee Substitute for A.B. 3045, 209th Leg. (N.J. 2001)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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