New Jersey Modifies Voluntary Disclosure Program

The New Jersey Division of Taxation announced it has modified the terms of its Voluntary Disclosure Program effective after June 15, 2009. The new terms and conditions of its Voluntary Disclosure Agreements under the program will be more stringent than its prior policy.

Overview

New Jersey’s Voluntary Disclosure Program allows certain taxpayers to come forward and file appropriate tax return(s), registration materials, and to pay outstanding tax obligations when they determine that their activity creates a taxable presence, or nexus, for New Jersey state tax purposes.

Taxpayer’s participating in the Voluntary Disclosure Program will be permitted certain favorable terms and conditions include anonymity pending an agreement. The general look-back period will be seven (7) years (6 prior years and the current year). Before the 2009 Tax Amnesty program that ended June 15, the Division had accepted a four (4) year look-back period (three prior years and the current year). With this change, New Jersey adopts one of the longer look-back periods of any state offering a Voluntary Disclosure Program.

For example, if the date of the application were January 1, 2010, the look-back period would be the six years from December 31, 2009 back to January 1, 2004. The potential tax liability prior to the look-back period that the Division would waive would be all potential liability of the type of tax at issue from December 31, 2003 back to the commencement of potentially taxable business activity in New Jersey.

All taxes administered by the Division are eligible for the program. The most common include Corporation Business Tax, Sales & Use Tax, Litter Tax, Gross Income Tax and Employer Withholding Taxes.

The taxpayer must pay all outstanding tax liabilities that are included in the Agreement and file the prior year returns within a reasonable period after the agreement is made (typically 60 days). The Division will not accept deferred payment plans under this program.

Eligibility

To be eligible for the Voluntary Disclosure Program there must have been no previous contact with the taxpayer by the Division or any of its agents. A taxpayer who has received a nexus survey or has otherwise been previously contacted regarding their activities in New Jersey is not eligible for the program.

The Voluntary Disclosure Program is not available to certain other taxpayers:

  • New Jersey resident individuals, trusts and estates for Gross (Personal) Income Tax purposes
  • Taxpayers who are already registered for the taxes they propose to cover under the VDA; and
  • Any taxpayer currently under any criminal investigation

Application Process

A taxpayer may request a VDA by submitting a written proposal to the Division detailing all of the taxpayer’s New Jersey business activity. This proposal should include the commencement date of the activity and the tax(es) to be filed. The application may be made anonymously with the taxpayer’s identity being disclosed only after a VDA is reached.

All applications made with the Division will be assigned an identifying number and are subject to review by Division management. The terms of an agreement will state which taxes are covered by the agreement and the effective date of the tax eligibility. The agreement will indicate when the returns must be submitted (within 60 days). The taxpayer will also be required to complete Tax Registration forms and a Nexus Questionnaire.

Once an agreement with the taxpayer is reached, the Division will sign copies of the agreement and return them for the taxpayer’s signature.

The taxpayer is expected to remain compliant with all on-going tax obligations.

Penalties and Interest

The Division will waive the late filing penalties and criminal penalties relating to the tax returns and periods subject to the agreement. An unabateable amnesty penalty of 5% will be imposed for failure to take advantage of the Tax Amnesty Program ending on June 15, 2009. In addition, the 5% late payment penalty will be imposed in all instances. Statutory interest will be assessed and calculated at the prime rate plus three percent for the tax returns and periods included in the agreement.

Multistate Tax Commission

For taxpayer’s doing business in multiple states, the Multistate Tax Commission (through its National Nexus Program) also has a Voluntary Disclosure Program. Referrals from MTC will have to meet the new terms and conditions required by the Division.

Closing Agreements

Closing agreements may offer an alternative resolution for taxpayers considering a VDA and taxpayers ineligible for a VDA under the Divisions guidelines. The Division is willing to enter into negotiations leading to a taxpayer specific closing agreement with a taxpayer who is prepared to come forward with full disclosure of all pertinent information. Since each request for a VDA or closing agreement is considered on a case-by-case basis, the Division may request additional information during the evaluation process.

Kulzer & DiPadova helps its clients and their accounting and financial professionals determine whether activities in New Jersey or another state create tax registration and filing obligations. If a VDA is appropriate, Kulzer & DiPadova will help identify the type of taxes that must be addressed and the periods to be included in a VDA request.