New Jersey Parts I, II, and III with Instructions

Parts I, II, and III with Instructions
Schedule O - Nonoperational Activity
Schedule O

Nonoperational Activity

(10-23)

	

Corporation Name

Part I

Federal ID Number

Unitary ID Number, if applicable

NU

Computation of Nonoperational Activity Elimination
Column A
Federal

Column B
Nonoperational

Column C
Operational

1.

Gross receipts
Less returns and allowances

1.

1.

1.

2.

Cost of goods sold and/or operations

2.

2.

2.

3.

Gross Profit – Subtract line 2 from line 1.

3.

3.

3.

4.

Dividends and Inclusions

4.

4.

4.

5.

Interest

5.

5.

5.

6.

Gross Rents

6.

6.

6.

7.

Gross Royalties

7.

7.

7.

8.

Net Capital Gain (attach federal Schedule D)

8.

8.

8.

9.

Net Gain or (Loss) (attach federal Form 4797)

9.

9.

9.

10.

10.

10.

10.

11. Total Income – Add lines 3 through 10

Other Income (attach schedule)

11.

11.

11.

12.

12.

12.

12.

Compensation of Officers (Schedule F-1)

13.

Salaries and Wages
Less Jobs Credit

13.

13.

13.

14.

Repairs

14.

14.

14.

15.

Bad Debts

15.

15.

15.

16.

Rents

16.

16.

16.

17.

Taxes (Schedule H)

17.

17.

17.

18.

Interest

18.

18.

18.

19.

Contributions

19.

19.

19.

20a. Depreciation (attach federal Form 4562)

20a.

20a.

20a.

20b. Less: Depreciation claimed elsewhere

20b.

20b.

20b.

21.

Depletion

21.

21.

21.

22.

Advertising

22.

22.

22.

23.

Pension, profit-sharing plans, etc.

23.

23.

23.

24.

Employee benefit programs

24.

24.

24.

25.

Energy efficient commercial buildings deduction (attach federal
Form 7205)

25.

25.

25.

26.

Other deductions (attach schedule)

26.

26.

26.

27.

Total Deductions – Add lines 12 through 26

27.

27.

27.

28.

Taxable Income before federal net operating loss deductions and
federal special deductions (subtract line 27 from line 11)

28.

28.

28.

29a.

29a.

29b. Expenses from Income in line 29a above

29b.

29b.

30a. Column B – Net Nonoperational Income (line 28 plus line 29a minus line 29b)

30a.

29a. Interest from federal, state, municipal and other obligations not included in line 11

30b. Column C – Net Operational Income (line 28 plus line 29a minus line 29b)
31.

Less: Operational Capital Losses no longer offset by a Nonoperational Capital
Gain (see instruction 3e)

30b.
31.

(

)

31.

32.

Net Statutory Adjustments in Nonoperational Activity (see instruction 3f)

32.

32.

33.

Other adjustments. Attach rider (see instruction 3g)

33.

33.

34.

Net Effect of Current Period Nonoperational Activity (combine lines 30a, 31, 32,
and 33). Enter total on Form CBT-100S, Schedule K or Schedule K Liquidated,
Part III, line 1a.

34.

34.

35.

Recapture of Prior Period Nonoperational Expenses (see instruction 3i)

35.

35.

36.

Adjustment required to eliminate effect of Nonoperational Activity (line 34 plus 35). Carry
to Schedule A, Part II, line 13a of Form CBT-100, Schedule A, Section I, Part II, line 14a of
CBT-100U, or Schedule A, Part I, line 38b of Form CBT-100S.

36.

36.

Part II
1.
2.

Nonoperational Asset Declaration and/or Reclassification

Prior years’ net nonoperational assets acquired	

1.
N.J.
Nexus

Current year’s nonoperational assets acquired
Description

Date Acquired

Federal Basis

Yes

No

1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
Total Current Year Acquisitions	

2.

3.

Current year’s disposition of current year’s purchases	

3.

4.

Net current year’s acquisitions (line 2 less line 3)	

4.

5.

Current year’s disposition of prior year’s purchases	

5.

6.

Total Nonoperational Assets (line 1 plus line 4 minus line 5)	

6.

(1) Have you made a claim to any other taxing jurisdiction with respect to currently held assets (whether or not
included above) that nonoperational, nonunitary, or nonbusiness income was derived therefrom?......................

Yes	

No

Yes	

No

Yes	

No

If yes, identify by asset the income, states, and years involved.
a
b
c
(2) Are there or were there liabilities or expenses related to the nonoperational assets declared above?.................
If yes, specify by asset the expenses and liabilities below for all years since acquisition.
a
b
c
(3) Have assets considered operating in nature in prior periods been reclassified during this reporting period
as nonoperating?....................................................................................................................................................
If yes, on a separate rider identify all expenses, by year, previously deducted in prior years. The aggregate
total of all years’ expenses must be recaptured and included in Entire Net Income in this reporting period.
(Schedule O – Part I, line 35).

Part III

Computation of Tax Due on Nonoperational Activity
Activity

Activity

Total

1. Gross receipts
Less returns and allowances

1.

1.

1.

2. Cost of goods sold and/or operations

2.

2.

2.

3. Gross Profit – Subtract line 2 from line 1

3.

3.

3.

4. Dividends and Inclusions

4.

4.

4.

5. Interest

5.

5.

5.

6. Gross Rents

6.

6.

6.

7. Gross Royalties

7.

7.

7.

8. Net Capital Gain (attach federal Schedule D)

8.

8.

8.

9. Net Gain or (Loss) (attach federal Form 4797)

9.

9.

9.

10. Other Income (attach schedule)

10.

10.

10.

11. Total Income – Add lines 3 through 10

11.

11.

11.

12. Compensation of Officers (Schedule F-1)

12.

12.

12.

13.

13.

13.

14. Repairs

14.

14.

14.

15. Bad Debts

15.

15.

15.

16. Rents

16.

16.

16.

17. Taxes (Schedule H)

17.

17.

17.

18. Interest

18.

18.

18.

19. Contributions

19.

19.

19.

20a. Depreciation (attach federal Form 4562)

20a.

20a.

20a.

20b. Less: Depreciation claimed elsewhere

20b.

20b.

20b.

21. Depletion

21.

21.

21.

22. Advertising

22.

22.

22.

23. Pension, profit-sharing plans, etc.

23.

23.

23.

24. Employee benefit programs

24.

24.

24.

25. Energy efficient commercial buildings deduction (attach
federal Form 7205)

25.

25.

25.

26. Other deductions (attach schedule)

26.

26.

26.

27. Total Deductions – Add lines 12 through 26

27.

27.

27.

28. Net Nonoperational Income before federal net operating loss
and federal special deductions (subtract line 27 from line 11)

13. Salaries and Wages
Less Jobs Credit

28.

28.

28.

29a. Interest from federal, state, municipal, and other obligations
not included above

29a.

29a.

29a.

29b. Expenses from Income in line 29a and not included in
line 28 above

29b.

29b.

29b.

30. Net Current Year’s Nonoperational Income (line 28 plus
line 29a minus line 29b)

30.

30.

30.

31. New Jersey’s Taxable Portion – Attach schedule of
computation (see Instruction 5). Carry total to Schedule A,
Part III, line 3a of the CBT-100, Schedule A, Section I, Part
III, line 2a of Form CBT-100U, or enter total on Form CBT100S, Schedule K or Schedule K Liquidated, Part III, line 5.

31.

31.

31.

32. Listing of states where Nonoperational Income is being assigned:

Instructions for Schedule O
Purpose

Schedule O must be completed and included with
the Corporation Business Tax return (Form CBT-100,
CBT-100U, or CBT-100S) filed by any corporation
seeking to treat income, expenses, or assets as nonoperational pursuant to N.J.S.A. 54:10A-6.1 and not
subject to apportionment using the business allocation
factor.
Schedule O, Part I details the items of nonoperational income and expenses and computes the net
adjustment required to eliminate the effect of the
nonoperational activity on allocable net income.
Schedule O, Part II allows corporations to declare
nonoperational assets or report the reclassification of
assets previously deemed operational.
Schedule O, Part III allows the aggregate nonoperational activity to be broken down into separate and
discrete activities. If any of these separate activities
have nexus with New Jersey, the schedule computes
the amount of New Jersey Corporation Business Tax
due.
General Provisions
Pursuant to U.S. Supreme Court decisions, New Jersey
has made statutory changes to the New Jersey Corporation Business Tax Act (N.J.S.A. 54:10A-6.1). This legislation recognizes that a Constitutional distinction based
on the Due Process and Commerce Clauses exists that
restricts states from apportioning income, gains, losses,
or expenses from activities that have no rational relationship with this State. The terminology used by New
Jersey classifies these activities and/or assets as being
either operational or nonoperational.
Generally, activities of a multijurisdictional corporation
that are operational in nature are apportioned to a taxing
jurisdiction by the use of a business allocation formula.
New Jersey uses a single sales factor. Activities that are
deemed to be nonoperational are not apportioned by
general formula but are specifically assigned to the jurisdiction where the nonoperational activity has nexus.
Where the trade or business of the taxpayer is directed
or managed in New Jersey, all nonbusiness income will
be specifically assigned to New Jersey to the extent
permitted by the United States Constitution.
In all cases, whether assigned to New Jersey or another
jurisdiction, nonbusiness income will not be subject to
allocation.
There is a presumption, which must be overcome by the
taxpayer by clear and convincing evidence, that all the
activities of a separate corporate entity are operational
in nature. It is the intention of the New Jersey Division

of Taxation to consider activities to be operational to the
maximum extent permitted by the United States Constitution. However, for corporations making nonbusiness or
nonoperational claims (or nonunitary claims for taxpayers filing separate returns) to this State, or to other
jurisdictions, if it is determined that the nonoperational
activity has nexus to New Jersey, the resulting assignment of income may exceed the New Jersey tax liability
that would otherwise have been due had a nonoperational claim not been made.
Nonoperational Income Explained
Nonoperational income is derived from tangible and
intangible property when either the acquisition, management, use, or disposition did not constitute an integral
part of the taxpayer’s trade or business operations.
Nonoperational assets are not acquired, managed, used,
or disposed of in the normal or ordinary course of business. They also do not generate operational expenses
or income during their holding period.
In making the operational or nonoperational determination, the Division will classify income as being operational if it meets either the transactional, functional, or
operational test.
The transactional test will determine whether the acquisition, management, use, or disposition of property is in
the regular course of the corporation’s trade or business.
A transaction or activity can occur in the regular course
of business even though the taxpayer has not regularly engaged in such transactions if it is reasonable to
conclude that transactions or activities of that type are
customary for the kind of business being conducted. The
determination of operational income under the transactional test requires not only knowledge of how often the
taxpayer’s trade or business has engaged in transactions of the type at issue, but also whether such transactions are likely to occur at all in that trade or business.
The functional test will determine whether property
or activities that do not rise to the level of constituting
a trade or business would still be deemed operational
if that property from which income and expenses are
derived is or was an integral or functional component
to or a part of the taxpayer’s regular trade or business
operations.
Income and expenses derived from activities occurring
infrequently, including transactions made in liquidation,
are operational if that property was used in the business
operations. The functional test focuses on the function
played by the property in the corporation’s trade or
business, and it applies similarly to tangible as well as
intangible property. Income, gains, losses, or expenses
arising from transactions involving intangible property,
for example corporate stock, or an ownership interest in

a partnership, is operational in nature if the corporation
held that intangible or the underlying property represented as an integral or functional component of its trade
or business.
The operational test will determine whether intangible
property served an operational rather than an investment
function. The relevant inquiry focuses on the objective
characteristics of the intangible property’s acquisition or
use and the relation to the corporation’s overall activities.
This test will include as operational income all other income or gain that the State is not prohibited from taxing
by the United States Constitution.
Tax Treatment of Nonoperational Activity
Expenses are deductible only to the extent that they are
connected with operational property or income. Corporate expenses related to nonoperational income are not
deductible at all except in terms of assigning and taxing
income from nonoperational activities that have nexus to
New Jersey.
If property had been classified as operational property
in prior periods and is later demonstrated to have been
nonoperational and is subsequently disposed of, all expenses, without limitation, deducted in prior periods related to the nonoperational property must be added back
and recaptured as income in the tax period of disposition
of such property.
If a prior period’s income had been classified as serving
an operational function and is later demonstrated not to
have been serving an operational function, all expenses,
without limitation, deducted in prior periods related to
such income must be added back and recaptured in the
year when that occurs.
General corporate expenses including administrative,
taxes, and interest that cannot be specifically allocated
between operational and nonoperational activity shall
be assigned to same by the ratio of the average value of
assets producing nonoperational income to the average
value of the total assets of the corporation.
Only the receipts attributable to operational activity are
to be used in computing the allocation factor.

Instructions

Combined groups must complete a separate
Schedule O for each member claiming nonoperational
income.
Part I
1.	Column A represents Federal Taxable Income before
net operating loss and special deductions and must
be the same amount as reported on Schedule A,
Form CBT-100 or CBT-100U. If Form CBT-100S is
being filed, the adjustments made to convert S corporation income to C corporation income should be interpolated to the corresponding lines of this schedule.

2.	Column C represents total operational activity that
will be apportioned to all taxing jurisdictions using
the business allocation factor. Columns B and C
should always total to column A with respect to lines 1
through 28.
3.	Column B represents total nonoperational income,
gains, losses, and attributable expenses that are not
apportioned but are specifically assigned. The income
and expense items must be related to assets declared
on Schedule O – Part II.
a.	Lines 4 through 11 reflect the revenues, gains, or
losses generated by nonoperational assets.
b.	Lines 12 through 27 reflect the direct and indirect expenses associated with the nonoperational
assets. Submit a statement detailing the basis and
the accounting controls employed in assigning
direct and indirect expenses to the nonoperational
assets.
Example 1 – Direct Expenses
Corporation A, a manufacturer of shoes, purchased
1,000 shares of stock of Corporation B, a car wash
company located outside New Jersey, for $15,000
as a passive investment that it claims is a nonoperational asset. Corporation A purchased these
shares by borrowing $10,000 at a 9% interest rate,
and by utilizing excess funds of $5,000. The first
year’s interest was $900, and the corporation was
charged a processing fee of $250 on the loan. Both
the interest expense ($900) and the processing fee
($250) are direct expenses of the asset purchased
and should be included in the nonoperational column (column B).
Example 2 – Indirect Expenses
Corporation C has a substantial cash flow to
the point that it maintains a separate division to
manage and control all of its excess funds (both
operational and claimed nonoperational funds).
Corporation C must assign the direct expenses
associated with the nonoperational assets and apportion the remaining indirect divisional expenses
on a reasonable basis (e.g., value of operational
assets to nonoperational assets) and apportion part
of the corporate overhead on some reasonable
basis (e.g., value of the part of the division to the
total corporation).
Indirect corporate expenses, including general and
administrative expenses, interest expenses, and
taxes, shall be assigned to nonoperational assets
by the ratio of the average value of assets producing nonoperational income to the average value of
the total assets of the corporation.
c.	 Lines 29a and 29b reflect the financial activity of
nonoperational tax-exempt assets and operational
tax-exempt assets.

d.	Line 30a reflects the net income from nonoperational activities. It is the total of line 28 plus line 29a
minus line 29b.
e.	Line 31 – If nonoperational capital gains are used
to offset operational capital losses in determining
Federal Taxable Income, the amount of the operational capital loss offset must be subtracted from
the total nonoperational income to effect the elimination of the nonoperational activity from entire net
income.
f.	 Line 32 – Enter the adjustments required to reflect
the elimination of New Jersey adjustments to
Federal Taxable Income on nonoperational activity reported originally on the applicable lines of
Schedule A (Part II of Forms CBT-100, CBT-100U, ,
or Part I of CBT-100S).
Example 3
Corporation D reported dividend income of $1,000
from various nonsubsidiary companies, of which
the corporation claimed that $300 in dividends from
Corporation E is nonoperational income. Since
50% of the $300 is excluded on line 27, an adjustment subtracting $150 from nonoperational income
is required to eliminate the double exclusion.
g.	Line 33 – Enter any other adjustments required
to properly reflect the elimination of the nonoperational income. Submit a separate rider detailing this
amount.
h.	Line 34 is the sum of lines 30a, 31, 32, and 33 and
represents the net adjustments required to eliminate the effect of nonoperational income from entire net income for current period activity. Enter the
total on Form CBT-100S, Schedule K or Schedule
K Liquidated, Part III, line 1a.
i.	 Line 35 reflects the recapture of prior period
deductions when in prior periods property had
been classified as operational property and is later
demonstrated to have been nonoperational property and is subsequently disposed of, all expenses,
without limitation, deducted in prior periods related
to the nonoperational property must be added back
and recaptured as income in the period of disposition of such property.
j.	 Line 36 is the sum of lines 34 and 35 and is the
total adjustment required to eliminate the effect of
nonoperational activity from entire net income. The
total on this line is carried to Schedule A, Part II,
line 13a of Form CBT-100, Schedule A, Section I,
Part II, line 14a of Form CBT-100U or Schedule A,
Part I, line 38b of Form CBT-100S.

Part II
1.	Nonoperational assets defined. Nonoperational
assets are assets not acquired, managed, used,
or disposed of in the normal or ordinary course of
business, or that did not generate business expenses
or income during their holding period. In determining
the operational versus nonoperational asset status,
and hence the income and gains, and expenses and
losses associated therewith, the corporation shall not
recognize as nonoperational any asset that does not
meet either the transactional, functional, or operational tests.
2.	Line 1 – Prior Years’ Net Nonoperational Assets
	 Enter the total original federal basis for all nonoperational assets acquired prior to the current period that
the corporation still owns and claims to be nonoperational assets to New Jersey.
3.	Line 2 – Current Year’s Nonoperational Assets
a.	Description – Enter the quantity purchased and
the general nature of the asset purchased (e.g., 1
each – machinery, 1 each – building, 100 shares –
XYZ, $2,000 – Bonds, etc.).
b.	Date Acquired – Indicate the date the asset was
first acquired. If the asset was acquired in a prior
year and its status changed from operational to
nonoperational in the current reporting period,
then enter as a second date the date such status
changed in this reporting period.
c.	 Federal Basis – Indicate the original federal tax
basis used to carry the asset for federal income tax
purposes.
d.	New Jersey Nexus – Indicate whether the nonoperational asset has a New Jersey nexus. Answer
“YES” where the asset was physically located in
New Jersey or where any of the activity related to
its purpose, or its management, or its use, or its
disposition, took place in whole or in part within this
State during any portion of its holding period.
4.	Line 3 – Current Year’s Disposition of Nonoperational Assets. Enter the original federal tax basis
of any assets purchased in the current period and
disposed of during the current period and included on
line 2 of the Schedule O, Part II.
5.	Line 5 – Current Year’s Disposition of Prior Year
Purchases. Enter the original federal tax basis of any
prior year purchases disposed of during the current
period.
6.	Additional Questions – All questions must be
answered. Provide the appropriate responses and,
where necessary, provide the additional information
requested. If additional space is required, provide
supplementary riders.

Part III
1.	Part III details and computes the applicable amounts
of New Jersey Corporation Business Tax due on nonoperational activities that may be wholly or partially
taxable by New Jersey.
2.	Lines 1 through 30 separately detail the income and
expense items applicable for each nonoperational
activity. Attach additional schedules as required if the
number of activities exceeds two.
3.	Line 31 – Enter the portion of the net nonoperational
income for each activity taxable to New Jersey. Detail
the methodology and the computation on a separate
rider. See instruction 6 below for specific guidelines
on the extent nonoperational activity is taxable by
New Jersey. Carry the total nonoperational income to
Schedule A, Part III, line 3a of the CBT-100, or Schedule A, Section I, Part III, line 2a of Form CBT-100U.
Enter the total on Form CBT-100S, Schedule K or
Schedule K Liquidated, Part III, line 5.
4.	Line 32 – List all other states, if any, to which each
nonoperational activity or income has been taxed. If
the income was taxed as part of a combined reporting
group as operational income, place an asterisk by that
state’s name.
5.	Nonoperational income, less attributable expenses,
will be taxed by New Jersey when either the activity or
property itself has nexus to New Jersey or when the
corporation’s principal place of business management
or direction is in New Jersey.
a.	When the nonoperational activity itself does not
have nexus to New Jersey other than by reason of
the taxpayer’s principal place of business management being in New Jersey, the nonoperational
income related to that activity, less attributable
expenses, will be assigned to and taxed in New
Jersey using the business allocation factor from
the entity’s Schedule J to the extent it is not taxed
in other jurisdictions. If 100% of the income is
attributable to New Jersey, carry the total income
subject to tax to Schedule A, Part III, line 3a of the
CBT-100, or Schedule A, Section I, Part III, line 2a
of Form CBT-100U.
b.	Nonoperational net rents and royalties from real or
tangible personal property located in New Jersey
for at least a portion of the filing period are 100%
taxable by New Jersey to the extent the asset
maintained physical situs in New Jersey.
c.	 Nonoperational gains and losses from sales or
exchanges of real or tangible personal property
located in New Jersey during at least part of the
filing period or the holding period of the assets are
100% taxable to New Jersey to the extent the asset
maintained physical situs in New Jersey.

d.	Nonoperational gains and losses from sales or
exchanges of intangible property, including capital
assets where intangible property is wholly or in part
managed, controlled, or accounted for by employees or agents located in New Jersey during at least
part of the holding period of the asset are 100%
taxable to New Jersey to the extent of the ratio of
expenses for the controlling employees or agents
in New Jersey to those expenses everywhere.
e.	 Nonoperational interest and dividends where the underlying investment is wholly or in part researched,
managed, controlled, or accounted for by employees or agents located in New Jersey are 100%
taxable to New Jersey to the extent of the ratio of
expenses of the controlling employees or agents in
New Jersey to those expenses everywhere.
f.	 Nonoperational rents and royalties from patents,
copyrights, trademarks, service marks, secret processes, and formulas, franchises and like property
are 100% taxable to the extent of the business allocation factor reported to New Jersey by the user of
the underlying property for that period.
g.	Other nonoperational income constitutionally taxable by New Jersey will be taxed to a reasonable
extent based upon the facts and circumstances.
6.	Net nonoperational losses cannot be used to offset
taxable operational income in current, prior, or future
periods.
a.	A net loss in any discreet, separate, nonoperational
activity may not be used to reduce the net income
or tax liability of any other discrete, separate,
nonoperational activity in current, prior, or future
periods.
For the rare instances that FDII could be
considered nonoperational income Include the
FDII income amounts on Part I, line 4 and Part
III, line 4, as applicable.