Administrative Provisions

Administrative Appeals
Payment of Taxes Pending Appeal to County Board or Direct Appeal to Tax Court 1
Administrative Hearings Provide Taxpayers with Less Costly Alternative to Judicial Proceedings 3

Assessments
New Jersey Corporate Tax Law Adopts Uniform Procedure Law for Assessments 5
Practitioners Should Review Options When Faced with Notice of Assessment or Final Determination 7
Caution Must Be Exercised When Mailing Documents to Ensure That Documents Are Timely Filed 10
Establishment of Statute of Limitations for Filing Tax Court Complaints 12
Gross Income Tax Provisions Contain Specific Rules for Deficiency Notices 14

Audits & Investigations
Division of Taxation Has Power to Redistribute Income of Affiliated Groups 16
Record Keeping and Information Required to Be Provided on Audit 19
New Jersey Sets Forth Criteria for Taxpayer Rights and Responsibilities on Audit 21

Collection
Uniform Procedure Law; Collection of Corporate Tax Can Take a Wide Variety of Forms 24
New Jersey Law Contains Rules and Procedures for Obtaining Tax Lien Status Certificates 26
Personal Liability for Sales Tax 28
New Jersey Uses Jeopardy Assessment Provision As Collection Effort for Out-of-State Trucks Delivering to New Jersey Customers 30
Traditional Standards of Criminal Intent May Not Apply to Cases Involving Withheld Taxes Not Paid Over to the State 33
Certain Officers or Employees of Businesses That Fail to Collect And/or Remit Trust Fund Taxes May Be Held Personally Liable for Uncollected Taxes 35

Credits, Overpayments & Refunds
New Jersey Corporate Tax Law Provides for a Ten-Year Limitations Period for Assessment and Collection 37
New Jersey Rules for Filing Refund Claims Sometimes Differ from Federal Rules 39

Failure to Pay Tax
State Can Seek Injunctive Relief to Bar Nonpaying Taxpayers from Transacting Business 41

Interest & Penalties
Underpayment Penalties and Interest 42

Remedies & Rights
New Jersey Taxpayer Bill of Rights Sets Forth Taxpayer Rights and Remedies 44
Tax Court Can Conduct Review Over Judgments Rendered by County Boards 47
New Jersey Law Provides Standard for Recovery of Litigation Costs 49

Settlements
New Jersey Law Allows for Settlement of Tax Issues Using Closing Agreements 51

Tax Withholding
Withholding from Wages Is a Significant Responsibility for Employers 53

Corporate Income & Franchise Taxes

Allocation & Apportionment
With No Bright Line Test, Practitioners Need to Assess Factors Used in Determining “Doing Business” in the State 56
Alert Practitioners Can Use Corporation Business Tax Allocation to Significantly Reduce Tax Burden 59
Establishing a Regular Place of Business Outside the State Can Avoid Some Apportionment Audit Issues 62
Understanding the Sales Factor of the Apportionment Formula Is an Important Part of New Jersey Corporate Tax Planning 65
New Jersey Corporation Business Tax Law Distinguishes Between Operational and Non-Operational Income 68
Evaluating Business vs. Non Business Income Tax Positions 71
Division of Taxation Has Discretionary Authority to Adjust the Apportionment Factor 73

Computation of Tax
Alert Practitioners Must Note Differences in Federal Economic Stimulus Act and New Jersey Treatment of Depreciation and Expensing 76
Defining Entire Net Income for New Jersey Corporation Business Tax Purposes 78
Taxpayers Must Add Back Certain Intangibles and Interest Expenses and Costs from Related Member Transactions in Computing New Jersey CBT Liability 81
New Jersey’s Alternative Minimum Assessment Can Provide a Trap for the Unwary Practitioner with Clients Otherwise Protected by P.L. 86-272 83

Definitions
Defining a Corporation for Purposes of the Corporation Business Tax 86
New Jersey Corporation Business Tax Status Extends to Certain Non-corporate Entities 89
New Jersey Subjects a Wide Variety of Business Entities to Corporation Business Tax 91

Exemptions
Nonprofit Corporations Are Not Subject to Corporation Business Tax, but Businesses Must Show Entitlement to 93

Failure to File & Pay Tax
Corporate Charter Can Be Revoked for Failure to Pay Corporation Tax 96
Receivers and Other Fiduciaries Are Subject to Tax in the Same Manner As the Taxpayer 97

Imposition of Tax
Implementing FIN48: Uncertain Filing Positions in New Jersey Corporation Business Tax Returns 98

Income Items & Deductions
New Jersey CBT Taxpayers Must Make Adjustments to Federal Income for Federal Domestic Production Activities Deduction 101
Certain Technology Companies Can Benefit from Sale of Net Operating Losses to Unaffiliated Corporations 103

Nexus
Economic Nexus Is Jurisdictional Standard for Income Tax Imposition in Many States 106
New Jersey Has Expansive Nexus Approach for CBT Purposes 111
Implementing FIN 48: Nexus and Third Party Independent Contractors 113
Pass Through Entities
Requirements Concerning Returns, Notices, Records and Statements 116

Payments
New Jersey Corporation Business Tax Requires Payments to Be Made in Quarterly Installments 118

Tax Credits
Federal Empowerment Zone Tax Benefits for New Jersey Taxpayers 120
Taxpayers Should Consider EZ Benefits Offered by Other States 122
Enterprise Zone Tax Credits for New Jersey Taxpayers 125
While Modeled on the Federal Research Credit, New Jersey’s R&D Credit Has Some
Different Requirements 128

Estate, Inheritance & Gift Taxes

Estate Tax
New Jersey Inheritance Tax Is Imposed on Most Transfers Unless Specifically Exempted 130
Decoupling of New Jersey Estate Tax from Federal Law Requires Alertness for New Jersey Estate Tax Practitioners . 133
Practitioners Should Pay Close Attention to Due Dates for New Jersey Estate Tax 136
New Jersey Estate Tax Provisions Contain Pitfalls for Practitioners 138
New Jersey Estates Must Include Copy of Federal Estate Tax Return Within 30 Days AfterFiling 140
New Jersey Law Sets Forth the Circumstances Surrounding Requests for Refunds of Estate Tax 142
New Jersey Estate Tax Is Imposed in Conjunction with Federal Estate Tax 144
Regulations Set Forth Rules for Computing Decoupled New Jersey Estate Tax 146
New Jersey Regs Contain Rules for Using Simplified Tax System for Estate Tax Calculation 149

Inheritance Tax
Beneficiary Designation in Life Insurance Policy Can Exempt Transfer from Inheritance Tax 152
New Jersey Regulations Address Issue of Doctrine of Equitable Conversion for Inheritance Tax Purposes 154
Estates Can Enter Into Agreement to Ensure Equitable Treatment of Tax Payments on Current and Future Interests 156
Determining When Inheritance Tax Will Not Be Assessed on Transfers of Reserved Rights Within Three Years of Death 158
Complex Rules Exist When Dealing with Classification of Stepchildren and Mutually Acknowledged Children 160
Caution Should Be Exercised in Determining What Transfers Are Exempt from Inheritance Tax. 162
Practitioners Are Advised to Pay Close Attention to Statutory Requirements When Transferring Stock Held in Trust for Resident Decedent 164
Permissible Deductions Are Specified in Inheritance Tax Law 166
Taking a Credit for New Jersey Inheritance Tax and Taxes Paid to Other Jurisdictions 168
For Transfers That Exceed the Exempt Amount, New Jersey Inheritance Tax Is Imposed on the Total Amount of the Transfer 170
Transfers Made in Contemplation of Death Are Included in Taxable Transfers for Inheritance Tax Purposes 172
New Jersey Regs Set Out Basic Rules for Determining When Transfers to Class A Beneficiaries Are Subject to Tax 174

Personal Income Taxes

General Overview
New Jersey Gross Income Tax Separates Baskets of Income That Cannot Be Offset Against Each Other 177

Computation of Income
New Jersey Tax Base for Net Profits from Business May Be Less Onerous Than Federal 180
New Jersey GIT Taxpayers Must Make Adjustments to Federal Income for Federal Domestic Production Activities Deduction 183
New Jersey Gross Income Tax Law Provides Benefits for Section 529 College Savings Plans 185

Domicile & Residency
Residency and Domicile Present Complex Issues for Tax Practitioners 187

Income Items & Deductions
New Jersey Law Contains Many Favorable Provisions for Retirement and Pension Income 190
New Jersey Law Provides for a Limited Cafeteria Plan Exclusion from Income 193
Payments Nonresident Estates and Trusts Must Complete the Proper Forms to Fulfill Estimated Tax Responsibilities on Sale of Real Property 195
Special Rules Apply to Estimated Tax Payments on a Nonresident’s Sale of Real Property, Where Consideration Is Paid in Installments 197
Persons Subject to Tax
Statutes Governing Income Taxation of Estates and Trusts Must Be Read in Conjunction with One Another 199
Determining Gross Income Tax Liability on Distributive Shares of Partnership Income 201
Source of Income ,br> Practitioners Must Make Estimated Tax Payments for Nonresident Clients Who Sell or Otherwise Dispose of Real Estate in New Jersey 203
Nonresident Sellers Must Complete the Proper Forms to Fulfill Estimated Tax Responsibilities on Sale of Real Property 205

Tax Credits
Seemingly Simple Credit for Tax Paid to Other Jurisdictions Has Some Complex Limitations 208

Property Taxes

Personal Property Taxes Distinction Between Real Property and Personal Property Is Important in Understanding New Jersey Property Taxation 212

Real Property Tax
Uniformity Clause of State Constitution Authorizes Special Treatment for Farmland Assessment 215
Long-Term Tax Exemption Law Sets Basic Framework for Memorializing Exemption Terms 217
Long-Term Tax Exemption for Condominiums 220
Ordinances Establish Eligibility for Exemptions or Abatements 222
Municipal Ordinances Governing Five-Year Exemptions or Abatements Must Contain Alternative Formulas 224
Exemptions and Abatement for Multiple Dwellings 226
Exemption and Abatement for Improvements to Commercial or Industrial Projects 228
Financial Agreements Under Long-Term Tax Exemption Law Can Be Voluntarily or Involuntarily Terminated 230
Entities Must Pay Over Excess Profits to Municipalities Under Long Term Tax Exemption Law 232
Despite the Amendments’ Effective Date, Long-Term Tax Exemption Law Grandfathers Financial Agreements Entered Into Before July 19, 2003 234
Long-Term Tax Exemption Law Defines Limited-Dividend Entity and Allowable Profit Rate 236
Municipalities Can Enter Into Financial Agreements to Grant Long-Term Tax Exemption 238
Long-Term Tax Exemptions Are Reserved for Urban Renewal Entities 240
Eligibility for Long-Term Tax Exemption Requires Compliance with Application Procedure 243
The Elements of a Financial Agreement Must Incorporate All Terms and Conditions Governing Exemption 246
New Construction of Commercial, Industrial or Multiple Dwelling Projects; Tax Agreements; Payments in Lieu of Taxes 249
New Construction of Commercial, Industrial or Multiple Dwelling Projects; Duration of Tax Agreements 251
New Construction of Commercial, Industrial or Multiple Dwelling; Application and Approval Prerequisite to Exemption 253
Five-year Exemption and Abatement Law Defines Relevant Terms, Including Areas in Need of Rehabilitation 254
New Construction of Commercial, Industrial or Multiple Dwelling Projects; Ordinance Authorizing Tax Agreements 256
New Construction of Commercial, Industrial or Multiple Dwelling Projects; Applications for Tax Exemption and Abatement 258
Filing Deadline for Appeals of Assessed Valuation 260
Refunds of Overpaid Taxes 263
New Jersey Law Provides a Test for Taxability of Fixtures 265
Establishment of Assessable Value 267
Fair Market Value Is Often a Matter of Perceptions, Regardless of Definition 269
New Jersey Law Creates Laundry List of Qualifying Activities for Special Farmland and Woodland Assessment 271
Qualification for Farmland Assessment Requires Land to Meet Minimum Income Standard 274
Law Details Steps for Farmland Assessment Qualification 276 Rollback Taxes Are Imposed When Farmland Assessed Property Changes Use 278
Exemption of Property of Non-Profit Organizations 280
Tax Court Uses Common Level Range When Determining Whether Assessed Value Should Be Revised 283
Certain Assessment Errors Can Be Corrected by Tax Court Redress 285
Tax Court Freeze Act 287

Real Property Transfer & Recordation Taxes
Failing to Advise on Real Property Transfer Taxes Can Result in Unhappy Taxpayers When Selling Property 289

Sales & Use Taxes

General Overview
Ending Tax Registration in New Jersey 292
Terminating a Limited Liability Entity in New Jersey 295

Exemptions Taxpayers Need to Focus on Proper Use of Exemption Certificates 297
New Jersey Law Contains Specific Requirements to Qualify for the Chemical and Catalyst Exemption 299
Sales and Use Tax Exemptions Are Complicated Area for Non-profit Organizations 302
Exempt Organization Status Does Not Guarantee Exemption from Sales Tax for All Sales by the Organization 305
Exempt Organization Status Does Not Guarantee Exemption from Sales Tax for All Purchases by an Organization 309
Taxpayers Must Meet All Parts of the Statutory Test to Qualify for the Sales Tax Exemption for Property Used in Research and Development 311

Failure to Pay Tax Certain Officers or Employee of Businesses That Fail to Collect And/or Remit Sales Taxes May Be Held Personally Liable for Uncollected Taxes 313
New Jersey Contains Expansive Provisions for Collection of Unpaid Sales Taxes 315

Computation of Tax
Presumption of Taxability Requires Taxpayers to Maintain Sufficient Documentation to Prevail in Cash Audit 318
Failure to Timely File Appeal of Notice of Intent to File a Certificate of Debt Against Individual for Personal Liability Will Bar Future Relief 321
Customer Bears Ultimate Liability for Sales Tax in New Jersey 323
Tangible Personal Property Is Presumptively Subject to Sales and Use Tax, Unless Specifically Exempted 325
Taxable Receipts Can Be Reduced by Discounts That Reduce Sales Price 328
Transactions Involving Consideration Are Subject to Sales Tax, Even Where Money Does Not Change Hands 331
Presumption of Taxability Applies to Tangible Personal Property, but Not to Services 334
New Jersey Sales Tax Applies Only to Vendors with Sufficient Nexus to the State 335
Provisions Governing Sales Price Considerations Contain Potential Pitfalls for Unwary Practitioners 337
Presumption of Taxability Applies to Tangible Personal Property, but Not to Services 340

Items Subject to Tax
States Face Increasingly More Complex Questions on Sales Tax and Software 341
New Jersey Subjects Floor Covering Installation Services to Sales and Use Taxes 344
New Jersey Imposes Sales and Use Tax on Initiation Fees, Membership Fees, and Dues 346
New Jersey Imposes Sales and Use Tax on Investigation and Security Services 348
New Jersey Limits Cleaning Services Exemption to Clothing-related Services 350
New Jersey Imposes Tax on Storage Services 352
New Jersey Imposes Tax on Landscaping Services 354
Exempt Organizations May Be Subject to Tax on Admission to Certain Events Run by Professionals 356
Special Sales Tax Rules Apply to Contractors 358
New Jersey Exempts Most Professional Services from Sales and Use Tax 361
Professional Services and Sales Tax 363
Special Rules Apply When Taxing Computer Software, Particularly Software That Is Electronically Delivered 366
New Jersey Subjects Information Services to Sales and Use Taxes 368
New Jersey Subjects Parking Services to Sales and Use Taxes 373
New Jersey Tax Is Imposed on the Installation, Maintenance, Servicing and Repairing of Tangible Personal Property 376
Type of Real Property Service Determines Its Taxability 378
Streamlined Sales and Use Tax Provisions Change Definitions of Prepared Food 381
New Jersey Includes Transportation Charges in Purchase Price of Taxable Items 383
A Broad Exemption Exists for Machinery and Equipment Used in Manufacturing 385
New Jersey Sales Tax Law Exempts Equipment That Is Essential to Certain Broadcasting Activities 388
Streamlined Sales and Use Tax Provisions Make Changes to Treatment of Food and Food Products 390
Construction Contractors Can Purchase Certain Materials Tax Free for Qualified Exempt Entities 392
New Jersey Subjects Sales of Fur Clothing, Exempt from Sales and Use Taxes, to Retail Gross Receipts and Use Taxes 396
Streamlined Sales & Use Tax Act New Jersey’s Uniform Sales and Use Tax Administration Act Conforms State to Streamlined Sales and Use Tax Provisions 399
Transactions Subject to Tax New Jersey and New York Cooperative Interstate Agreement Sets Parameters for Taxation for Cross-Border Vendors 403
Sales for Resale Are an Exception to the Rule That Most Sales Are Taxable 406
Sales and Use Tax Considerations in Corporate and Partnership Transactions 409
New Jersey Modifies Motor Vehicle Leasing Rules to Conform State to Streamlined Sales and Use Tax Provisions 411
Use Tax Purchasers Should Remain Aware of Use Tax Consequences of Out-of-State Purchases 413

Refunds & Credits
Application of Sales and Use Tax Exemptions in Urban Enterprise Zones 415
Failing to Follow Sales Tax Refund Provisions Can Preclude Subsequent Relief 418
Special Circumstances May Alter Four-Year Statute of Limitations for Refunds 421

Miscellaneous Taxes

Insurance Companies Tax
Computation of Retaliatory Tax in New Jersey Must Take Into Consideration Insurance Premiums Cap 424
INDEX I-1

Shipley, David

David Shipley is Special Counsel with McCarter & English, LLP¿s multistate tax practice. His practice includes representing clients in state tax controversies before administrative boards and courts throughout the country, providing multistate tax advice regarding business operations and advising clients on the state tax aspects of corporate mergers and acquisitions. Mr. Shipley has written extensively on multistate tax issues and is a frequent speaker for many organizations including the Georgetown Advanced State and Local Tax Institute, the New York University Institute on State and Local Taxation, the Council on State Taxation, the Institute of Professionals in Taxation and the American Bar Association. Mr. Shipley is a member of executive committee of the American Bar Association¿s State and Local Tax Committee and is the Chair of the State and Local Tax Transparency Task Force. He also served as a member of the New Jersey Corporation Business Tax Study Commission. Mr. Shipley graduated cum laude from the University of Richmond, and obtained his law degree from Wake Forest University.