New Jersey Looks to Expand Nexus Rules for Corporations

On February 18, 2025, the New Jersey Division of Taxation proposed new corporate tax regulations that would significantly alter how businesses are taxed. If approved, these rules will take effect later this year, potentially as early as July 1, 2025.

Under the current federal standard known as P.L. 86-272, businesses that only solicit sales of tangible personal property in a state without a physical presence are shielded from paying state corporate income taxes. However, New Jersey’s new regulations explicitly state that financial services, digital products, and subscriptions are not protected. This means businesses providing such services to New Jersey residents may now be considered to have economic nexus in the state—making them subject to New Jersey’s Corporate Business Tax (CBT) for the first time.

The Unexpected Tax Bill

The impact on various industries is substantial. Companies generating revenue from financial advisory fees, portfolio management, subscription services, and other digital offerings may now be taxable in New Jersey. Historically, many of these businesses assumed that a lack of physical presence in the state exempted them from taxation, but under the new law, an online presence alone could establish tax liability.

Industries and businesses that could now be subject to taxation include:

• Crypto and NFT Platforms like Coinbase and OpenSea, which facilitate transactions for New Jersey customers.
• Streaming and Subscription Services like Netflix and Spotify, whose contracts with New Jersey users create tax nexus.
• E-commerce Retailers Using Fulfillment Centers in New Jersey, which lose their P.L. 86-272 protection and will be required to pay CBT.
• Marketing & Data Firms that collect and sell consumer data using online cookies in New Jersey.

Regulatory Process and Approval

Unlike a legislative bill that requires passage through the New Jersey Legislature, these proposed tax regulations were issued by the New Jersey Division of Taxation as part of the state’s regulatory process. The Division of Taxation has the authority to propose and implement tax regulations under New Jersey law.

Once proposed, the regulations enter a public comment period, typically lasting 60 days, where businesses, industry groups, and other stakeholders can provide feedback. After reviewing comments and making any necessary revisions, the Division of Taxation finalizes the regulation and submits it to the Office of Administrative Law (OAL) for approval. Once the OAL accepts the regulation, it is published in the New Jersey Administrative Code and becomes legally binding—without requiring legislative approval.

While legal challenges may arise, recent trends in state taxation suggest that courts tend to uphold states’ efforts to expand tax collection authority, particularly in digital commerce.

Likelihood of Passage

The likelihood that these new regulations will be enacted is high for several reasons:

• Administrative Authority – Because this is a regulatory proposal rather than a legislative bill, it does not require approval from the state legislature, making passage more straightforward.
• Economic Nexus Trends – States have increasingly sought to expand their taxation powers on remote businesses following the South Dakota v. Wayfair decision in 2018, which allowed states to impose tax obligations based on economic presence rather than physical location.
• Revenue Considerations – New Jersey has one of the highest corporate tax rates in the U.S. and is actively looking to expand its tax base, particularly targeting digital and financial services.
• Low Political Resistance – Governor Phil Murphy’s administration has historically supported tax expansions, and there is little significant political opposition to this regulatory move within the state government.
• Potential Legal Challenges – While affected businesses may challenge the regulations in court, recent legal trends suggest that courts are likely to side with states in expanding tax collection authority.

Legal and Industry Response

Legal experts and tax advocacy groups have raised concerns regarding constitutional and federal preemption questions. Some argue that New Jersey’s move could set a precedent, potentially prompting other states to follow suit and creating a scenario where digital businesses are taxed in every state where they have even a single customer.

The proposed regulations are expected to face scrutiny and possible legal challenges from affected businesses and industry groups, who may argue that the expansion oversteps legal boundaries and creates an undue burden on businesses operating across state lines.

What’s Next?

As these rules await finalization, businesses face a difficult choice:

• Do they register for the New Jersey Corporate Business Tax and start paying up?
• Or do they challenge the regulations and risk legal battles that could take years to resolve?

For now, affected businesses are bracing for potential tax liabilities and reassessing their strategies. If these regulations hold, they could signal a broader shift in how states define economic nexus—one that all digital businesses must closely monitor.