New Jersey State Tax Alert
We hope that you find our first Tax Alert focused solely on New Jersey state tax matters informative and helpful. We intend to continue to provide clients and friends with periodic alerts that address pertinent New Jersey state tax issues.
New Jersey Now Issuing Letter Rulings
The New Jersey Division of Taxation recently announced that it will implement new procedures for taxpayers to obtain letter rulings. Similar to letter rulings issued by the Internal Revenue Service with regard to federal tax issues, letter rulings issued by the Division will be limited to the facts set forth in the taxpayer's request for a letter ruling and be binding on the Division and the taxpayer requesting the ruling. A letter ruling may not be used as precedent by other taxpayers.
While letter rulings will not be issued on an anonymous basis, a taxpayer may initially approach the Division anonymously to seek informal guidance on an issue and later make a formal letter ruling request providing the identity of the taxpayer.
Letter rulings may be published by the Division. However, the Division would redact all identifying taxpayer information.
A taxpayer may withdraw a letter ruling request if not satisfied with the conclusion reached by the Division. However, Division representatives have indicated that the Division may publish guidance on issues raised in withdrawn letter ruling requests.
The Division has indicated that it will attempt to respond to letter ruling requests within 30 days of receipt.
The new letter ruling program is a welcome development for taxpayers seeking comfort regarding New Jersey tax issues that they face. Further, the quick response time indicated by the Division will enable taxpayers to resolve issues in real time, making the letter ruling program a practical tool for taxpayers.
New Jersey Supreme Court Grants Leave to Appeal Decision Upholding the Constitutionality of the "Throwout Rule"; Taxpayers Should Consider Making Protective Refund Claims
The New Jersey Supreme Court recently granted leave to appeal the New Jersey Appellate Division's decision that the "Throwout Rule" is facially constitutional in Whirlpool Properties, Inc. v. Director, Division of Taxation and Pfizer, Inc. v. Director, Division of Taxation.
Taxpayers subject to the New Jersey Corporation Business Tax that paid additional tax due to the Throwout Rule should consider making refund claims for open tax years to protect their right to a refund in the event the New Jersey Supreme Court finds that the Throwout Rule is unconstitutional. Taxpayers may generally file refund claims within four years of making a payment of New Jersey Corporation Business Tax.
The Throwout Rule was added to the New Jersey Corporation Business Tax Act in 2002 to address concerns that taxpayer receipts allocated to jurisdictions that do not impose a tax on or measured by profits or income, business presence or business activity escaped taxation. Such receipts are sometimes referred to as "nowhere sales."
New Jersey uses an allocation factor to determine the portion of a taxpayer's income that is taxable by New Jersey. The allocation factor consists of three fractions: the property fraction, the payroll fraction and the sales fraction. The numerator of each fraction consists of the property, payroll or sales, as applicable, within New Jersey and the denominator of each such fraction is property, payroll or sales everywhere. The Throwout Rule excludes from the denominator of the sales fraction receipts allocated to a jurisdiction that does not subject taxpayers to a tax on or measured by profits or income, business presence or business activity. This results in an increase in the sales fraction and, therefore, the amount of New Jersey Corporation Business Tax paid by the taxpayer.
Note that the Throwout Rule has been repealed for tax periods beginning after June 30, 2010.
Anonymous Voluntary Disclosure Program Available in New Jersey to Deal With Unreported State Taxes
While New Jersey is not the only state to have a voluntary taxpayer disclosure program, its program is unique in that you do not have to disclose your identity until the New Jersey Division of Taxation sends a letter confirming your acceptance into the program. New Jersey's Voluntary Disclosure Program is available to both individual and business taxpayers who want to "come clean" on unreported taxes. The benefit of contacting the Division before they contact you is that you will be eligible for relief from late filing and late payment penalties. In addition, the general look-back period is four years (i.e., you must file returns for the current year and the three prior years), whereas without this relief in many cases the Division may go back additional years. Utilizing the Voluntary Disclosure Program should also reduce the chance of any criminal prosecution.
Generally, taxpayers are eligible to participate in the Voluntary Disclosure Program if:
- There has been no previous contact with the taxpayer by the Division;
- The taxpayer is not merely filing an amended return;
- The taxpayer is not currently under any criminal investigation; and
- The taxpayer is willing to pay outstanding tax liabilities and file returns within a reasonable period of time.
Riker Danzig Welcomes Heidi I. Hansen
Heidi Hansen has returned to the Firm after working for four years in the Office of Chief Counsel at the Internal Revenue Service. Ms.Hansen's work at the IRS included handling all aspects of Tax Court cases including discovery, trial and settlement negotiations. She also provided advice and assistance to the Department of Justice and the United States Attorney's Office in tax cases filed in District Court and the Court of Claims. As such, Ms.Hansenreturns to Riker Danzig with extensive experience which will further enhance the Firm's Tax Controversy Practice.
Ms.Hansen earned her B.S. from Weber State University and her J.D., with honors, from Rutgers University School of Law - Newark, where she was inducted into the Order of the Coif. In addition, Ms.Hansen holds an LL.M. in taxation from New York University School of Law
If you have any questions about the topics covered in this Alert, contact Robert Daleo who heads the Firm's State Tax and Tax Controversy Practice Groups, or any of the attorneys in Riker Danzig's Tax Group.