On appeal from the Tax Court of New Jersey, Docket No. 7847-2007, whose opinion is reported at 25 N.J. Tax 88 (Tax 2009).
The opinion of the court was delivered by: Lisa, P.J.A.D.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Before Judges Lisa, Reisner and Sabatino.
The opinion of the court was delivered by LISA, P.J.A.D.
In a published Tax Court opinion, Judge Vito L. Bianco granted the summary judgment motion of plaintiff, BIS LP, Inc. (BIS), and denied the summary judgment motion of defendant, Director of the Division of Taxation (Director), thus ordering a refund to BIS for corporation business tax (CBT) paid for fiscal year 2003 and abating an assessment for an additional amount. BIS LP, Inc. v. Dir., Div. of Taxation, 25 N.J. Tax 88, 91 (Tax 2009). What follows is a brief summary of the undisputed facts, as set forth more fully in the Tax Court opinion, id. at 91-93, and as contained in the record before us.
BIS is a foreign corporation. It has no place of business, property, employees, agents, or representatives in New Jersey. Its only interest in New Jersey (and its only asset) is a ninety-nine percent limited partnership interest in BISYS Information Solutions L.P. (Solutions), which does business in New Jersey. This status was achieved through a series of reorganization steps by BISYS Group, Inc. (BISYS Group), which provides processing and technology outsourcing services for its clients, including banks, investment management and mutual fund companies, and insurance companies. As a result of the restructuring, BIS is a wholly owned subsidiary of a holding company, BISYS, Inc. (BISYS), which, in turn, is a holding company in the BISYS Group.
The limited partnership, Solutions, was formed thusly: BISYS transferred ninety-nine percent of the assets and liabilities of its banking information solutions division to BIS and one percent to Solutions. BIS then contributed the assets and liabilities it had received from BISYS to Solutions. Pursuant to a limited partnership agreement, BISYS, with a one percent interest, is the general partner, and BIS, with a ninety-nine percent interest, is the limited partner. The agreement conferred on the general partner the "sole and exclusive right to manage the business and affairs" of Solutions, with some limited exceptions reserved for the limited partner. Conversely, the agreement provided that BIS "shall not have either the obligation or the right to take part, directly or indirectly, in the active management" of Solutions, "perform any act in the name of or on [its] behalf," or "have a voice in or take part in [its] business affairs or business operations." BIS and BISYS are both Delaware corporations, and the partnership was formed under the Delaware Revised Uniform Limited Partnership Act.
BIS filed its 2003 CBT Return, electing to be taxed as an "Investment Company" pursuant to N.J.S.A. 54:10A-4(f), which limits tax liability to measurement by forty percent of entire net income and forty percent of entire net worth. N.J.S.A. 54:10A-5(d). The Director disallowed the investment company election. Judge Bianco reversed that determination. The Director does not appeal from that aspect of the Tax Court's decision.
BIS also contended it owed no CBT because it did not have a constitutional presence in New Jersey. The Director rejected that position, concluding that BIS had a unitary relationship with the business conducted by Solutions in New Jersey. The Director also imposed certain addbacks to BIS' reported income. Judge Bianco disagreed and found that BIS lacked a sufficient nexus to New Jersey to make it subject to the New Jersey CBT. Because no tax was due, the judge found it unnecessary to address the validity of addbacks. It is from these decisions by the Tax Court that the Director appeals.
More particularly, the Director presents these arguments on appeal:
THE TAX COURT'S NEXUS AND ADDBACK RULINGS SHOULD BE REVERSED BECAUSE UNDER THE GOVERNING CBT STATUTES AND REGULATIONS, THE UNDISPUTED MATERIAL FACTS OF THIS CASE DEMONSTRATED THAT BIS WAS "DOING BUSINESS" IN NEW JERSEY AND, THROUGH ITS $49M PARTNERSHIP DISTRIBUTION, HAD TAXABLE NEW JERSEY RECEIPTS FOR FY 2003.
A. The Tax Court's Entry of Summary Judgment Should Be Reversed Because It Overlooked or Underevaluated Evidence and Drew Incorrect Legal Conclusions from the Undisputed Material Facts Presented by BIS and [the Director].
B. BIS Is Not Entitled to a Refund of the CBT Solutions Properly Remitted to New Jersey on Behalf of BIS Because BIS Had CBT Nexus for FY 2003 Since It Was Doing Business in New Jersey and Deriving Taxable Receipts from Solutions.
C. The Tax Court Should Have Found That BIS'S ENI [entire net income] Included Addbacks Consistent with the Royalty and Tax Expenses Solutions Added Back to Its Income Because BIS and Solutions Were Unitary and BIS Had Nexus Here.
We reject the Director's arguments and affirm substantially for the reasons stated by Judge Bianco in his published opinion. We add the following ...