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Pass-Through Business Alternative Income Tax Act – FAQ

The purpose of this guidance is to provide answers and clarification to commonly asked questions regarding P.L.2019, c.320 (C.54A:12-1 et al), the Pass-Through Business Alternative Income Tax.

Some forms may not be available at this time.

Please check this page often for updates.

What is the Pass-Through Business Alternative Income Tax?
For New Jersey tax purposes, income and losses of a pass-through entity are passed through to its members. However, for taxable years beginning on or after January 1, 2020, pass-through entities may elect to pay a Pass-Through Business Alternative Income Tax due on the sum of each of the member’s share of distributive proceeds. The member(s) may then claim a tax credit for the amount of tax paid by the pass-through entity on their share of distributive proceeds.

Is the Pass-Through Business Alternative Income Tax mandatory?
No. The Pass-Through Business Alternative Income Tax is elective.

What is the Pass-Through Business Alternative Income Tax return form and when is it due?
Pass-through entities that filed an election to pay the Business Alternative Income Tax must file Form PTE-100 and pay the tax due. They must also provide Schedule PTE-K-1 to each member reporting the amount of the member’s share of distributive proceeds and Business Alternative Income Tax. The pass-through entity’s tax return is due on the 15th day of the third month after the close of the tax year (i.e. March 15 for calendar year filers).

Can a pass-through entity request an extension of time to file its tax return?
Pass-through entities that have elected to pay the Pass-Through Business Alternative Income Tax must use Form PTE-200-T to apply for a six-month extension of time to file Form PTE-100. The pass-through entity can electronically file form PTE-200-T by the original due date of the return to request an extension of 6 months to file its tax return, providing it has 80% of its current year tax paid. There is no extension of time to pay the tax due.

Revocation and refund forms are not currently available.

Must the entity make an election to pay the Pass-Through Business Alternative Income Tax each year?
Yes. The entity must make an election to pay the Pass-Through Business Alternative Income Tax each year.

Which entities may elect to pay the Pass-Through Business Alternative Income Tax?
Pass-through entities include

  • Partnerships;
  • Federal S corporations that have made the New Jersey S corporation election; and
  • Limited liability companies (LLC).

The entity must have at least one member who is liable for tax on their share of distributive proceeds pursuant to the New Jersey Gross Income Tax Act, N.J.S.A. 54A:1-1 et seq., in a taxable year.

Single member LLCs and sole proprietorships may not elect to pay the Pass-Through Business Alternative Income Tax.

When is a pass-through entity required to make an election?
The annual election should be made electronically on or before the original due date of the entity’s return. The election cannot be made retroactively.

What is the last date a pass-through entity can revoke its election?
A pass-through entity can electronically revoke its election on or before the original due date of the entity’s return.

When is a fiscal year partnership eligible to make the Pass-Through Business Alternative Income Tax election?
A fiscal year pass-through entity may make the election for taxable years beginning on or after January 1, 2020.

Are pass-through entities that elect to pay the Pass-Through Business Alternative Income Tax required to make estimated tax payments?
Estimated tax payments must be made electronically on a quarterly basis with specific due dates. If a due date falls on a weekend the due date is the next business day.

Schedule for Calendar Year Entities Due Dates
Quarter 1 April 15
Quarter 2 June 15
Quarter 3 September 15
Quarter 4 January 15 (of the following tax year)

Fiscal Year Entities. Payments are due on or before the 15th day of each of the fourth, sixth, and ninth months of the tax year and the first month of the following tax year.

Will an entity be penalized if estimated tax payments are not made for tax year 2020?
No. Since 2020 is the first year the Pass-Through Business Alternative Income Tax is available, taxpayers will not be penalized under the safe harbor provisions in N.J.S.A. 54A:9-6 for the failure to file or make estimated tax payments this year.

What happens to the estimated tax payments made by the pass-through entity if it revokes its election?
If the pass-through entity revokes its election, the pass-through entity will receive all its estimated tax payments made for the Pass-Through Business Alternative Income Tax back by electronically filing the Revocation and Claim for Refund form.

The revocation and claim for refund form is not currently available.

Can estimated tax payments made for the business alternative income tax return be transferred to other taxes?
No. Estimated tax payments made for the business alternative income tax return will not be transferred to other taxes.

If a pass-through entity elects to pay the Pass-Through Business Alternative Income Tax, should its resident members with a Gross Income Tax filing obligation cease making their NJ-1040-ES estimated tax payments to avoid a double payment of their New Jersey Income Tax?
The Pass-Through Business Alternative Income Tax is only calculated on income derived from or connected with sources from New Jersey. If the resident member has income from jurisdictions that do not have an Income Tax, they may be underpaid if they cease making their NJ-1040-ES estimated tax payments. In addition, pass-through entity owners may still need to make NJ-1040-ES estimated tax payments to cover the tax on other income they receive, aside from pass-through entity income, such as personal investment income or retirement distribution income. Finally, depending on the facts, tax rate disparities may occur between the Pass-Through Business Alternative Income Tax rate and the gross income tax rate applicable at the individual level.

If the pass-through entity makes the Pass-Through Business Alternative Income Tax election, is the pass-through entity still responsible to remit tax on behalf of its nonresident partners?
The pass-through entity is still responsible to remit tax on behalf of its nonresident partners in accordance with N.J.S.A. 54A:12-3c. The election made by a pass-through entity to pay the Pass-Through Business Alternative Income Tax at the entity level does not eliminate the requirement to file any other tax return or pay any other tax that is required by the pass-through entity, such as the NJ-CBT-1065.

Will nonresident members still have a New Jersey Gross Income Tax filing obligation when the pass-through entity is their only source of New Jersey income?
Individuals, estates and trusts are still required to file a nonresident tax return if they meet the Gross Income Tax filing threshold.

How will the pass-through entity source its income?
Since the Pass-Through Business Alternative Income Tax is enacted under the rules of the Gross Income Tax Act, pass-through entities will use the sourcing rules under N.J.S.A. 54A:5-8. The pass-through entity will use Form NJ-NR-A to allocate its income.

Can Pass-Through Business Alternative Income Tax electing entities still file a composite return, NJ-1080-C on behalf of qualified nonresident members who elect to be included in the composite filing?
Yes. Entities can elect the Pass-Through Business Alternative Income Tax and still file a composite return, NJ-1080-C on behalf of its qualified nonresident members who elect to be included in the composite filing. A line will be added to the composite return allowing credit for the amount of tax paid by the pass-through entity on the participating member’s share of distributive proceeds.

Can a taxpayer transfer an overpayment from a composite return to a pass through entity’s account?
No. The Pass-Through Business Alternative Income Tax is a separate tax apart from the composite Gross Income Tax return filed on behalf of individuals. The overpayment from the composite return cannot be transferred to the pass through entity’s tax account.

How does the pass-through entity determine its tax liability?

To calculate the amount of tax due, the pass-through entity must determine the sum of each member’s share of distributive proceeds attributable to the pass-through entity for the taxable year. Distributive proceeds means income sourced to New Jersey.

The tax is then imposed in accordance with the following table.

Sum of Each Member's Share of Distributive Proceeds Tax Rate
First $250,000 5.675%
Amount over $250,000 but not over $1 million ($14,187.50 plus 6.52% of excess over $250,000) 6.52%
Amount over $1 million but not over $5 million ($63,087.50 plus 9.12% of excess over $1 million) 9.12%
Amount over $5 million ($427,887.50 plus 10.9% of the excess over $5,000,000) 10.9%

Example 1: Pass-through entity AB has 2 New Jersey resident members with total income of $1,500,000 that is 100% sourced to New Jersey. Each are 50% members. The distributive proceeds (sourced to New Jersey) are allocated $750,000 to Member A and $750,000 to Member B.

Tax is imposed on the sum of each member’s share of distributive proceeds, which is $1,500,000.

Using the table above, tax is calculated on the $1,500,000 as follows:

$63,087.50 + $45,600 ($1,500,000-$1,000,000 =$500,000 x 9.12% =$45,600) = $108,687.50

The elective entity tax is $108,687.50.

Each New Jersey resident member’s share of the entity level tax equals ($108,687.50*50%) = $54,343.75

Example 2: Pass-through entity AB has 2 New Jersey resident members with total income of $1,500,000 that is 60% sourced to New Jersey resulting in New Jersey sourced income of $900,000. Each are 50% members. The distributive proceeds (sourced to New Jersey) are allocated $450,000 to Member A and $450,000 to Member B.

Tax is imposed on the sum of each member’s share of distributive proceeds, which is $900,000.

Using the table above, tax is calculated on the $900,000 as follows:

$14,187.50 + $42,380 ($900,000-$250,000 =$650,000 x 6.52% =$42,380) = $56,567.50

The elective entity tax is $56,567.50.

Each New Jersey resident member’s share of the entity level tax equals ($56,567.50*50%) = $28,283.75

Is the Pass-Through Business Alternative Income Tax required to be calculated on every member's share of distributive proceeds?
Yes. Tax must be calculated on every member's share of distributive proceeds including tax exempt members. This Includes corporations that are exempt from the Corporation Business Tax Act pursuant to N.J.S.A. 54:10A-3, members that are exempt IRC 501(c)(3) entities, as well as members that are retirement plans approved by the Internal Revenue Service.

Can a pass-through entity utilize a New Jersey Economic Development Authority (EDA) credit; i.e. BEIP, Grow NJ, etc., against the pass-through entity tax liability?
No. There are no credits that can reduce the pass-through entity tax liability.

Will the Division allow a resident taxpayer a credit for the Connecticut pass-through entity tax?
Yes. The Division will allow a resident taxpayer to take a credit for the Connecticut pass-through entity tax against their gross income tax liability.

How will the Pass-Through Business Alternative Income Tax apply for tiered partnerships?
A tiered partnership will claim a credit for the amount of tax paid by the pass-through entity on its share of distributive proceeds on Form NJ-CBT-1065.

Note: If a New Jersey S corporation is a partner in a tiered partnership, the New Jersey S corporation will claim a credit for the amount of tax paid by the pass-through entity on its share of distributive proceeds on Form CBT-100S.

If a corporation is a member of a pass-through entity which elects to pay the Pass-Through Business Alternative Income Tax, is that corporation’s share of distributive proceeds included in entire net income of the corporation for the purposes of the Corporation Business Tax?
If a corporation is a member of a pass-through entity which elects to pay the Pass-Through Business Alternative Income Tax, the corporation’s share of distributive proceeds from the pass-through entity are included in the entire net income of the corporation for the purposes of the Corporation Business Tax. The corporation may also be entitled to a corporation business tax credit pursuant to N.J.S.A. 54:10A-5.43.

A pass-through entity is owned by a corporation, part of the unitary business of the combined group, and the corporation is included as a member of a combined group. Is that pass-through entity which elects to pay the Pass-Through Business Alternative Income Tax included in the combined group?
The pass-through entity is not a member of the combined group. The corporation is a corporate member of the pass-through entity and is a member of the combined group. The pass-through entity’s attributes will flow-through to the corporation that is the member of the pass-through entity and will be included in the entire net income of the corporation and that of the combined group, and its receipts will be included in the combined group denominator and the corporation’s numerator of the allocation factor. The corporation is entitled to a credit under N.J.S.A. 54:10A-5.43 that is shareable with the other members of the combined group.

A New Jersey S corporation, which elected to pay the Pass-Through Business Alternative Income Tax, did not elect to be a member of a combined group filing a New Jersey combined return. Is the New Jersey S corporation included in the combined group?
A New Jersey S corporation has to elect to be included as a member of the combined group filing a New Jersey combined return.

To what extent can the Pass-Through Business Alternative Income Tax credit reduce a corporate member’s corporation business tax liabilities in a tax year?
The tax credit can be used against the surtax imposed pursuant to N.J.S.A. 54:10A-5.41 or the regular tax imposed pursuant N.J.S.A. 54:10A-5; however, the credit cannot reduce the corporate member’s tax liability below the statutory minimum tax. Any excess credit can be carried over for a period of up to 20 tax years.

Revocation and refund forms are not currently available.

Can an exempt corporation that is a member of a pass-through entity electing to pay the Pass-Through Business Alternative Income Tax receive a refund?
An exempt corporate member that is a corporation exempt from tax pursuant N.J.S.A. 54:10A-3 can claim a refund for the amount of tax paid by the pass-through entity on its share of distributive proceeds.


Last Updated: Tuesday, 11/24/20