Deemed Asset Sale Gain Should Be Sourced to New Jersey, State Tax Court Rules

Peter Faber, assessing a New Jersey Tax Court ruling which applied the corporate business tax sourcing rules to a deemed asset sale gain under a section 338(h)(10) election, said most state revenue departments disagree and hold that gain from a section 338(h)(10) transaction is apportionable business income, so taxpayers must litigate treating it as nonbusiness income. “This issue is likely to be a continuing one in other states that source business and nonbusiness income differently,” Mr. Faber added.