On June 28, the New Jersey Tax Court held that the state’s alternative minimum tax (known as the “Alternative Minimum Assessment,” or AMA) – which was repealed for tax years beginning on or after January 1, 2018 – is preempted by P.L. 86-272, a federal statute that bars states from imposing a net income tax on certain out-of-state sellers of tangible goods with specific limited contacts in the State.
The New Jersey Tax Court characterized the AMA as a “de facto CBT [Corporation Business Tax]” and stated: “While attempts to tax everyone fairly is certainly a laudable purpose, the second phase of the AMA obliterates the protections of P.L. 86-272 and is thereby contrary to supremacy of Congressional action as required by the Constitution.”
The court explained: “As pointed out by the taxpayer in this case, to argue that the AMA compensates for the CBT is to recognize that the AMA stands as an obstacle to the congressional mandate of P.L. 86-272. The Legislature’s attempt to “compensate” in this case is nothing more than an effort to ignore P.L. 86-272.”
Out-of-state companies that claim P.L. 86-272 protection could be entitled to AMA refunds for tax years after June 30, 2006, and prior to January 1, 2018.