Schedule O - Nonoperational Activity Packet For Taxable Years Ending On Or After July 31, 2007 Page 3
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8or expenses arising from transactions involving intangible prop-
If property had been classified as operational property in
erty, for example corporate stock, or an ownership interest in a
prior periods and is later demonstrated to have been nonopera-
partnership, is operational in nature if the corporation held that
tional and is subsequently disposed of, all expenses, without lim-
intangible or the underlying property represented as an integral
itation, deducted in prior periods related to the nonoperational
or functional component of its trade or business.
property must be added back and recaptured as income in the tax
period of disposition of such property.
The operational test will determine whether intangible
property served an operational rather than an investment func-
If a prior period’s income had been classified as serving an
tion. The relevant inquiry focuses on the objective characteris-
operational function and is later demonstrated not to have been
tics of the intangible property’s acquisition or use and the rela-
serving an operational function, all expenses, without limitation,
tion to the corporation’s overall activities. This test will include
deducted in prior periods related to such income, shall be added
as operational income all other income or gain that the State is
back and recaptured in the year when that occurs.
not prohibited from taxing by the United States Constitution.
General corporate expenses including administrative, taxes,
and interest which cannot be specifically allocated between oper-
Tax Treatment of Nonoperational Activity
ational and nonoperational activity shall be assigned to same by
Expenses are deductible only to the extent that they are con-
the ratio of the average value of assets producing nonoperational
nected with operational property or income. Corporate expenses
income to the average value of the total assets of the corporation.
related to nonoperational income are not deductible at all except
in terms of assigning and taxing income from nonoperational
Only the receipts, property and payroll expenses attributable
activities which have nexus to New Jersey
to operational activity are to be used in computing the three fac-
tor allocation formula.
INSTRUCTIONS
and the corporation was charged a processing fee of
SCHEDULE O - PART I
$250.00 on the loan. Both the interest expense ($900)
1. Column A represents Federal Taxable Income before net
and the processing fee ($250) are direct expenses of the
operating loss and special deductions and should be the
asset purchased and should be included in the
same amount as reported on Schedule A, Form CBT-100. If
Nonoperational Column (Column B).
Form CBT-100S is being filed, the adjustments made to con-
vert S Corporation income to C Corporation income should
Example 2 - Indirect Expenses
be interpolated to the corresponding lines of this schedule.
Corporation C has a substantial cash flow to the point
that it maintains a separate division to manage and con-
2. Column C represents total operational activity that will be
trol all of its excess funds (both operational and claimed
apportioned to all taxing jurisdictions using the business
nonoperational funds). Corporation C should assign the
allocation factor. Columns B and C should always total to
direct expenses associated with the nonoperational
Column A with respect to lines 1 through 28.
assets and apportion the remaining indirect divisional
expenses on a reasonable basis (e.g., value of opera-
3. Column B represents total nonoperational income, gains,
tional assets to nonoperational assets), and apportion
losses and attributable expenses which are not apportioned
part of the corporate overhead on some reasonable basis
but are specifically assigned. The income and expense items
(e.g., value of the part of the division to the total corpo-
must be related to assets declared on Schedule O - Part II.
ration).
a. Line 4 through Line 11 reflect the revenues, gains or
losses generated by nonoperational assets.
Indirect corporate expenses, including general and
administrative expenses, interest expenses and taxes,
b. Line 12 through Line 27 reflect the direct and indirect
shall be assigned to nonoperational assets by the ratio of
expenses associated with the nonoperational assets.
the average value of assets producing nonoperational
Submit a statement detailing the basis and the account-
income to the average value of the total assets of the
ing controls employed in assigning direct and indirect
corporation.
expenses to the nonoperational assets.
c. Lines 29(a) and (b) reflect the financial activity of non-
Example 1 - Direct Expenses
operational tax exempt assets and operational tax
Corporation A, a manufacturer of shoes, purchased
exempt assets.
1,000 shares of stock of Corporation B, a car wash com-
pany located outside New Jersey, for $15,000 as a pas-
d. Line 30(a) reflects the net income from nonoperational
sive investment which it claims is a nonoperational
activities. It is the total of line 28 plus line 29(a) minus
asset. Corporation A purchased these shares by borrow-
line 29(b). The total from this line should be carried to
ing $10,000 at a 9% interest rate, and by utilizing excess
Page 1, line 4(a) of Form CBT-100.
funds of $5,000. The first year’s interest was $900.00,
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