The New Jersey Superior Court, Appellate Division upheld the application of New Jersey’s 2020 amendment to its royalty addback regulation retroactively to tax years prior to the regulation’s amendment. In 2020, New Jersey amended its regulation (N.J. Admin. Code § 18:7-5.18) to delete geographical limitations in the addback exception for royalty payments made to a related member because – as the Tax Court ruled – the pre-amendment language violated external consistency and the dormant commerce clause. The taxpayer argued that because the pre-amendment regulation was unconstitutional, it should not apply to allow the denial of its refund claims for pre-2020 tax years. The court rejected the taxpayer’s argument, finding that the 2020 amendment regulation cured the constitutional problems, and the cured regulation could be applied to the pre-amendment tax years. The court noted that the New Jersey Supreme Court has recognized an exception to the general rule against retroactive laws when a retroactive change to a regulation is “ameliorative or curative.” Accordingly, the court upheld the retroactive application of the cured regulation to pre-amendment tax years and upheld the denial of taxpayer’s refund claims based on that regulation.

Lorillard Tobacco Co. v. Dir., Div. of Tax’n, No. A-0595-23, 2025 WL 1226968 (N.J. Super. Ct. App. Div. Apr. 29, 2025).