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A.H. Robins Company, Inc. v. Director, Division of Taxation

182 N.J. 77, 861 A.2d 131 (2004)

TAXATION—The corporate survivor of a merger and bankruptcy reorganization is not entitled to a net operating loss deduction for losses suffered by the merged corporation in previous years.

A company succeeded to a corporation in bankruptcy. It claimed refunds for the net operating losses that were transferred to it as part of a bankruptcy reorganization. When the dispute reached the Tax Court, that court determined that the taxpayer was not entitled to carryover the net operating losses (NOL’s) “because: 1) nowhere in New Jersey law does it state that NOL carryovers may be utilized when they emanate from a merged corporation; 2) there is nothing in the U.S. Bankruptcy Code that indicates the legislative intent to preempt state taxing laws concerning post-reorganization income-tax liabilities of a non-debtor entity; 3) this case [did] not fit under the Bankruptcy Code’s exemption… that certain transfers made pursuant to a reorganization would be exempt from taxation; and 4) [Administrative Regulations] and the New Jersey Supreme Court’s holding in Richard’s Auto City, Inc. v. Director, Division of Taxation prohibit the carryover of NOLs for use by a corporation other than the corporation that incurred the losses.”

The taxpayer appealed, and while the appeal was pending, New Jersey’s Business Tax Reform Act (BTRA) was enacted. The Appellate Division remanded the matter to the Tax Court for reconsideration after adoption of BTRA. “On remand, the Tax Court adhered to its original order.” Additionally, it held that because the new statute merely restated existing law, it was not retroactive. It found the BTRA to be constitutional as applied to the taxpayer. Further, the Tax Court concluded that there was “a rationale basis to codify existing law and to limit NOL carryovers, even if the statute [was] retroactive.”

“The Appellate Division affirmed the decision of the Tax Court,” holding that “the new statute providing that NOLs could be carried over and allowed as a deduction only by the corporation that sustained the loss [was] retroactive; federal law did not preempt the BTRA; the new section of the BTRA [was] consistent with the prior version of the Corporate Business Tax Act (CBTA) and its regulations; there [was] no legitimate issue of retroactivity flowing from the adoption and application of the amended statute and, therefore, there [was] no constitutional or due-process concern; and the BTRA provision [was] not special legislation.”

The Supreme Court affirmed the Appellate Division’s decision, finding that the Tax Court properly held that “the corporate survivor of a merger and bankruptcy reorganization [is] not entitled to a net-operating-loss deduction for losses suffered by the merged corporation in previous years.”

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