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Schedule O                                                            Nonoperational Activity
      (10-23)
Corporation Name                                    Federal ID Number                               Unitary ID Number, if applicable
                                                                                                    NU
Part I                                            Computation of Nonoperational Activity Elimination
                                                                                    Column A             Column B                   Column C
                                                                                    Federal         Nonoperational                  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.  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.  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. Interest from federal, state, municipal and other obligations not included in line 11         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.
 30b. Column C – Net Operational Income (line 28 plus line 29a minus line 29b)                                     30b.
 31.  Less: Operational Capital Losses no longer offset by a Nonoperational Capital
      Gain (see instruction 3e)                                                                   (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.

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Part II Nonoperational Asset Declaration and/or Reclassification
1. Prior years’ net nonoperational assets acquired 1.
N.J.
2. Current year’s nonoperational assets acquired Nexus
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
If yes, identify by asset the income, states, and years involved.

c
(2) Are there or were there liabilities or expenses related to the nonoperational assets declared above? ................ Yes No
If yes, specify by asset the expenses and liabilities below for all years since acquisition.

c
(3) Have assets considered operating in nature in prior periods been reclassified during this reporting period
as nonoperating? ................................................................................................................................................... Yes No
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).

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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.  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.  Net Nonoperational Income before federal net operating loss 
     and federal special deductions (subtract line 27 from line 11) 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 CBT-
     100S, Schedule K or Schedule K Liquidated, Part III, line 5.   31.           31.           31.
32.  Listing of states where Nonoperational Income is being assigned:

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                                      Instructions for Schedule O

                                                            of Taxation to consider activities to be operational to the 
Purpose
Schedule O must be completed and included with              maximum extent permitted by the United States Consti-
the Corporation Business Tax return (Form CBT-100,          tution. However, for corporations making nonbusiness or 
CBT-100U, or CBT-100S) filed by any corporation             nonoperational claims (or nonunitary claims for tax-
seeking to treat income, expenses, or assets as non-        payers filing separate returns) to this State, or to other 
operational pursuant to N.J.S.A. 54:10A-6.1 and not         jurisdictions, if it is determined that the nonoperational 
subject to apportionment using the business allocation      activity has nexus to New Jersey, the resulting assign-
factor.                                                     ment of income may exceed the New Jersey tax liability 
                                                            that would otherwise have been due had a nonopera-
Schedule O, Part I details the items of nonopera-           tional claim not been made.
tional income and expenses and computes the net 
adjustment required to eliminate the effect of the          Nonoperational Income Explained
nonoperational activity on allocable net income.            Nonoperational income is derived from tangible and 
                                                            intangible property when either the acquisition, manage-
Schedule O, Part II allows corporations to declare          ment, use, or disposition did not constitute an integral 
nonoperational assets or report the reclassification of     part of the taxpayer’s trade or business operations.
assets previously deemed operational.
                                                            Nonoperational assets are not acquired, managed, used, 
Schedule O, Part III allows the aggregate nonoper-          or disposed of in the normal or ordinary course of busi-
ational activity to be broken down into separate and        ness. They also do not generate operational expenses 
discrete activities. If any of these separate activities    or income during their holding period.
have nexus with New Jersey, the schedule computes 
the amount of New Jersey Corporation Business Tax           In making the operational or nonoperational determi  -
due.                                                        nation, the Division will classify income as being oper-
                                                            ational if it meets either the transactional, functional, or 
General Provisions                                          operational test.
Pursuant to U.S. Supreme Court decisions, New Jersey 
has made statutory changes to the New Jersey Corpora-       The transactional test will determine whether the acqui-
tion Business Tax Act (N.J.S.A. 54:10A-6.1). This legis-    sition, management, use, or disposition of property is in 
lation recognizes that a Constitutional distinction based   the regular course of the corporation’s trade or business. 
on the Due Process and Commerce Clauses exists that         A transaction or activity can occur in the regular course 
restricts states from apportioning income, gains, losses,   of business even though the taxpayer has not regu-
or expenses from activities that have no rational rela-     larly engaged in such transactions if it is reasonable to 
tionship with this State. The terminology used by New       conclude that transactions or activities of that type are 
Jersey classifies these activities and/or assets as being   customary for the kind of business being conducted. The 
either operational or nonoperational.                       determination of operational income under the transac-
                                                            tional test requires not only knowledge of how often the 
Generally, activities of a multijurisdictional corporation  taxpayer’s trade or business has engaged in transac-
that are operational in nature are apportioned to a taxing  tions of the type at issue, but also whether such transac-
jurisdiction by the use of a business allocation formula.   tions are likely to occur at all in that trade or business.
New Jersey uses a single sales factor. Activities that are 
deemed to be nonoperational are not apportioned by          The functional test will determine whether property 
general formula but are specifically assigned to the juris- or activities that do not rise to the level of constituting 
diction where the nonoperational activity has nexus.        a trade or business would still be deemed operational 
                                                            if that property from which income and expenses are 
Where the trade or business of the taxpayer is directed     derived is or was an integral or functional component 
or managed in New Jersey, all nonbusiness income will       to or a part of the taxpayer’s regular trade or business 
be specifically assigned to New Jersey to the extent        operations.
permitted by the United States Constitution.
                                                            Income and expenses derived from activities occurring 
In all cases, whether assigned to New Jersey or another     infrequently, including transactions made in liquidation, 
jurisdiction, nonbusiness income will not be subject to     are operational if that property was used in the business 
allocation.                                                 operations. The functional test focuses on the function 
                                                            played by the property in the corporation’s trade or 
There is a presumption, which must be overcome by the       business, and it applies similarly to tangible as well as 
taxpayer by clear and convincing evidence, that all the     intangible property. Income, gains, losses, or expenses 
activities of a separate corporate entity are operational   arising from transactions involving intangible property, 
in nature. It is the intention of the New Jersey Division   for example corporate stock, or an ownership interest in

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a partnership, is operational in nature if the corporation 2. Column C represents total operational activity that
held that intangible or the underlying property repre- will be apportioned to all taxing jurisdictions using
sented as an integral or functional component of its trade the business allocation factor. Columns B and C
or business. should always total to column A with respect to lines 1
through 28.
The operational test will determine whether intangible
property served an operational rather than an investment 3. Column B represents total nonoperational income,
function. The relevant inquiry focuses on the objective gains, losses, and attributable expenses that are not
characteristics of the intangible property’s acquisition or apportioned but are specifically assigned. The income
use and the relation to the corporation’s overall activities. and expense items must be related to assets declared
This test will include as operational income all other in- on Schedule O – Part II.
come or gain that the State is not prohibited from taxing
by the United States Constitution. a. Lines 4 through 11 reflect the revenues, gains, or
losses generated by nonoperational assets.
Tax Treatment of Nonoperational Activity
Expenses are deductible only to the extent that they are b. Lines 12 through 27 reflect the direct and indi-
connected with operational property or income. Corpo- rect expenses associated with the nonoperational
rate expenses related to nonoperational income are not assets. Submit a statement detailing the basis and
deductible at all except in terms of assigning and taxing the accounting controls employed in assigning
income from nonoperational activities that have nexus to direct and indirect expenses to the nonoperational
New Jersey. assets.

If property had been classified as operational property Example 1 – Direct Expenses
in prior periods and is later demonstrated to have been Corporation A, a manufacturer of shoes, purchased
nonoperational and is subsequently disposed of, all ex- 1,000 shares of stock of Corporation B, a car wash
penses, without limitation, deducted in prior periods re - company located outside New Jersey, for $15,000
lated to the nonoperational property must be added back as a passive investment that it claims is a nonop-
and recaptured as income in the tax period of disposition erational asset. Corporation A purchased these
of such property. shares by borrowing $10,000 at a 9% interest rate,
and by utilizing excess funds of $5,000. The first
If a prior period’s income had been classified as serving year’s interest was $900, and the corporation was
an operational function and is later demonstrated not to charged a processing fee of $250 on the loan. Both
have been serving an operational function, all expenses, the interest expense ($900) and the processing fee
without limitation, deducted in prior periods related to ($250) are direct expenses of the asset purchased
such income must be added back and recaptured in the and should be included in the nonoperational col-
year when that occurs. umn (column B).

General corporate expenses including administrative, Example 2 – Indirect Expenses
taxes, and interest that cannot be specifically allocated Corporation C has a substantial cash flow to
between operational and nonoperational activity shall the point that it maintains a separate division to
be assigned to same by the ratio of the average value of manage and control all of its excess funds (both
assets producing nonoperational income to the average operational and claimed nonoperational funds).
value of the total assets of the corporation. Corporation C must assign the direct expenses
associated with the nonoperational assets and ap-
Only the receipts attributable to operational activity are
portion the remaining indirect divisional expenses
to be used in computing the allocation factor.
on a reasonable basis (e.g., value of operational
assets to nonoperational assets) and apportion part
Instructions of the corporate overhead on some reasonable
Combined groups must complete a separate
basis (e.g., value of the part of the division to the
Schedule O for each member claiming nonoperational
total corporation).
income.
Indirect corporate expenses, including general and
Part I
administrative expenses, interest expenses, and
1. Column A represents Federal Taxable Income before
taxes, shall be assigned to nonoperational assets
net operating loss and special deductions and must
by the ratio of the average value of assets produc-
be the same amount as reported on Schedule A,
ing nonoperational income to the average value of
Form CBT-100 or CBT-100U. If Form CBT-100S is
the total assets of the corporation.
being filed, the adjustments made to convert S cor-
poration income to C corporation income should be in- c. Lines 29a and 29b reflect the financial activity of
terpolated to the corresponding lines of this schedule. nonoperational tax-exempt assets and operational
tax-exempt assets.

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d. Line 30a reflects the net income from nonopera- Part II
tional activities. It is the total of line 28 plus line 29a 1. Nonoperational assets defined. Nonoperational
minus line 29b. assets are assets not acquired, managed, used,
or disposed of in the normal or ordinary course of
e. Line 31 – If nonoperational capital gains are used business, or that did not generate business expenses
to offset operational capital losses in determining or income during their holding period. In determining
Federal Taxable Income, the amount of the oper- the operational versus nonoperational asset status,
ational capital loss offset must be subtracted from and hence the income and gains, and expenses and
the total nonoperational income to effect the elimi- losses associated therewith, the corporation shall not
nation of the nonoperational activity from entire net recognize as nonoperational any asset that does not
income. meet either the transactional, functional, or opera-
tional tests.
f. Line 32 – Enter the adjustments required to reflect
the elimination of New Jersey adjustments to 2. Line 1 – Prior Years’ Net Nonoperational Assets
Federal Taxable Income on nonoperational ac- Enter the total original federal basis for all nonopera-
tivity reported originally on the applicable lines of tional assets acquired prior to the current period that
Schedule A (Part II of Forms CBT-100, CBT-100U, , the corporation still owns and claims to be nonopera-
or Part I of CBT-100S). tional assets to New Jersey.

Example 3 3. Line 2 – Current Year’s Nonoperational Assets
Corporation D reported dividend income of $1,000 a. Description – Enter the quantity purchased and
from various nonsubsidiary companies, of which the general nature of the asset purchased (e.g., 1
the corporation claimed that $300 in dividends from each – machinery, 1 each – building, 100 shares –
Corporation E is nonoperational income. Since XYZ, $2,000 – Bonds, etc.).
50% of the $300 is excluded on line 27, an adjust-
ment subtracting $150 from nonoperational income b. Date Acquired – Indicate the date the asset was
is required to eliminate the double exclusion. first acquired. If the asset was acquired in a prior
year and its status changed from operational to
g. Line 33 – Enter any other adjustments required nonoperational in the current reporting period,
to properly reflect the elimination of the nonopera- then enter as a second date the date such status
tional income. Submit a separate rider detailing this changed in this reporting period.
amount.
c. Federal Basis – Indicate the original federal tax
h. Line 34 is the sum of lines 30a, 31, 32, and 33 and basis used to carry the asset for federal income tax
represents the net adjustments required to elimi- purposes.
nate the effect of nonoperational income from en-
tire net income for current period activity. Enter the d. New Jersey Nexus – Indicate whether the nonop-
total on Form CBT-100S, Schedule K or Schedule erational asset has a New Jersey nexus. Answer
K Liquidated, Part III, line 1a. “YES” where the asset was physically located in
New Jersey or where any of the activity related to
i. Line 35 reflects the recapture of prior period its purpose, or its management, or its use, or its
deductions when in prior periods property had disposition, took place in whole or in part within this
been classified as operational property and is later State during any portion of its holding period.
demonstrated to have been nonoperational prop-
erty and is subsequently disposed of, all expenses, 4. Line 3 – Current Year’s Disposition of Nonoper-
without limitation, deducted in prior periods related ational Assets. Enter the original federal tax basis
to the nonoperational property must be added back of any assets purchased in the current period and
and recaptured as income in the period of disposi- disposed of during the current period and included on
tion of such property. line 2 of the Schedule O, Part II.

j. Line 36 is the sum of lines 34 and 35 and is the 5. Line 5 – Current Year’s Disposition of Prior Year
total adjustment required to eliminate the effect of Purchases. Enter the original federal tax basis of any
nonoperational activity from entire net income. The prior year purchases disposed of during the current
total on this line is carried to Schedule A, Part II, period.
line 13a of Form CBT-100, Schedule A, Section I,
Part II, line 14a of Form CBT-100U or Schedule A, 6. Additional Questions – All questions must be
Part I, line 38b of Form CBT-100S. answered. Provide the appropriate responses and,
where necessary, provide the additional information
requested. If additional space is required, provide
supplementary riders.

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Part III d. Nonoperational gains and losses from sales or
1. Part III details and computes the applicable amounts exchanges of intangible property, including capital
of New Jersey Corporation Business Tax due on non- assets where intangible property is wholly or in part
operational activities that may be wholly or partially managed, controlled, or accounted for by employ-
taxable by New Jersey. ees or agents located in New Jersey during at least
part of the holding period of the asset are 100%
2. Lines 1 through 30 separately detail the income and taxable to New Jersey to the extent of the ratio of
expense items applicable for each nonoperational expenses for the controlling employees or agents
activity. Attach additional schedules as required if the in New Jersey to those expenses everywhere.
number of activities exceeds two.
e. Nonoperational interest and dividends where the un-
3. Line 31 – Enter the portion of the net nonoperational derlying investment is wholly or in part researched,
income for each activity taxable to New Jersey. Detail managed, controlled, or accounted for by employ-
the methodology and the computation on a separate ees or agents located in New Jersey are 100%
rider. See instruction 6 below for specific guidelines taxable to New Jersey to the extent of the ratio of
on the extent nonoperational activity is taxable by expenses of the controlling employees or agents in
New Jersey. Carry the total nonoperational income to New Jersey to those expenses everywhere.
Schedule A, Part III, line 3a of the CBT-100, or Sched-
ule A, Section I, Part III, line 2a of Form CBT-100U. f. Nonoperational rents and royalties from patents,
Enter the total on Form CBT-100S, Schedule K or copyrights, trademarks, service marks, secret pro-
Schedule K Liquidated, Part III, line 5. cesses, and formulas, franchises and like property
are 100% taxable to the extent of the business allo-
4. Line 32 – List all other states, if any, to which each cation factor reported to New Jersey by the user of
nonoperational activity or income has been taxed. If the underlying property for that period.
the income was taxed as part of a combined reporting
group as operational income, place an asterisk by that g. Other nonoperational income constitutionally tax-
state’s name. able by New Jersey will be taxed to a reasonable
extent based upon the facts and circumstances.
5. Nonoperational income, less attributable expenses,
will be taxed by New Jersey when either the activity or 6. Net nonoperational losses cannot be used to offset
property itself has nexus to New Jersey or when the taxable operational income in current, prior, or future
corporation’s principal place of business management periods.
or direction is in New Jersey.
a. A net loss in any discreet, separate, nonoperational
a. When the nonoperational activity itself does not activity may not be used to reduce the net income
have nexus to New Jersey other than by reason of or tax liability of any other discrete, separate,
the taxpayer’s principal place of business man- nonoperational activity in current, prior, or future
agement being in New Jersey, the nonoperational periods.
income related to that activity, less attributable
expenses, will be assigned to and taxed in New For the rare instances that FDII could be
Jersey using the business allocation factor from considered nonoperational income Include the
the entity’s Schedule J to the extent it is not taxed FDII income amounts on Part I, line 4 and Part
in other jurisdictions. If 100% of the income is III, line 4, as applicable.
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.

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