new jersey state tax news winter · pdf fileyear new jersey resident during 2000, and have...

insideform NJ-1040EZ introduced ......1

what’s new for tax year 2000 ...1

tax year 2000 corrections..........3

sale of subsidiary .......................3

interest rates ..............................3

reporting income .......................4

nonresident decedent waivers...5

e-mail responses to bills ............5

farmland acreage .......................5

FEAC values................................6

system to replace MOD IV..........6

tax deductions certified .............7

tax assessors’ calendar ..............7

criminal enforcement ................8

tax briefs.................................. 10

enforcement summary stats... 11

in our courts ........................... 12

in our legislature .................... 17

tax calendar ............................ 18

from the director’s desk .......... 20

Form NJ-1040EZIntroducedThe Division of Taxation hasdeveloped a simpler, one-page in-come tax return/homestead rebateapplication for residents, FormNJ-1040EZ. Created with NewJersey earned income tax creditfilers in mind, the new form isdesigned to make filing easier andless time-consuming, particularlyfor those who wish to apply for thenew credit, but who are notrequired to file a State returnbecause their income is below theminimum filing threshold. Toqualify to use Form NJ-1040EZ, ataxpayer must have been a fullyear New Jersey resident during2000, and have income limited towages, interest or dividends. Otherlimitations apply. For example,individuals whose filing status ismarried, filing separate return, orthose who wish to use the PensionExclusion or Other RetirementIncome Exclusion cannot useForm NJ-1040EZ. �

What’s New forTax Year 2000In addition to a new tax form, thisyear brings a new earned incometax credit, and several other legis-lative and administrative changes.

• New Jersey Earned IncomeTax Credit — New Jerseyhouseholds that file for and re-ceive a Federal earned incomecredit which is based on having

at least one “qualifyingchild,” and whose NewJersey gross income is $20,000or less, and whose filing statusfor both Federal and New Jer-sey purposes is either married,filing joint return, head of house-hold or qualifying widow(er) areeligible for a refundable NewJersey credit. To apply, eligibleresidents must file a New Jerseyincome tax return and completethe New Jersey Earned IncomeTax Credit Schedule portion ofthe form they file. Benefits arebeing phased in over a four-yearperiod. The amount of the NewJersey credit for 2000 will beequal to 10% of the applicant’sFederal earned income credit.

New Jersey State Tax News

Winter 2000

Important PhoneNumbers

Customer Service Ctr ... 609-292-6400Automated Tax Info ..... 800-323-4400..................................... 609-826-4400Speaker Programs ........ 609-984-4101NJ TaxFax.................... 609-826-4500

Alcoholic Bev. Tax ...... 609-984-4121Corp. Liens, Mergers, Withdrawals

& Dissolutions......... 609-292-5323Director’s Office .......... 609-292-5185Inheritance Tax ............ 609-292-5033Local Property Tax ...... 609-292-7221Motor Fuels Tax

Refunds ................... 609-292-7018Public Utility Tax......... 609-633-2576

http://www.state.nj.us/treasury/taxation

continued on page 2

• Higher Filing Threshold —The thresholds at which tax-payers become subject to theNew Jersey gross income taxand are required to file a NewJersey income tax return arebeing increased over a three-year period which began withtax year 1999. For tax year2000, the minimum threshold is$15,000 or less (married, filingjoint return, head of household,or qualifying widow(er)),$7,500 or less (married, filingseparate return) and $10,000 orless (single filers and estatesand trusts).

• Retirement Income ExclusionsIncreased — The maximumamounts of pension and/or otherretirement income that may beexcluded from New Jerseygross income have increased.The new exclusion amounts arebeing phased in over a four-yearperiod. For tax year 2000, themaximum exclusion is $12,500(filing status married, filingjoint return), $6,250 (filingstatus married, filing separatereturn) and $9,375 (filing statussingle, head of household, orqualifying widow(er)).

• Health Insurance Deduction forSelf-Employed — Effective fortax year 2000, self-employedindividuals and holders of morethan 2% of the shares of an Scorporation may deduct theamount paid for health insur-ance for themselves, theirspouses and their dependents.

• Qualified Conservation Con-tributions — A gross incometax deduction is allowed forqualified contributions made forconservation purposes of certaininterests in real property located

in New Jersey. The amount ofthe deduction is the amount ofthe contribution allowed as adeduction for Federal incometax purposes.

• Online Extensions — Duringthe tax filing season, a four-month extension of time to filethe New Jersey income taxreturn may be requested onlineby using the interactive versionof extension request FormNJ-630 located on the Divisionof Taxation’s home page at:www.state.nj.us/treasury/taxation/

Requests for extensions of timeto file 2000 New Jersey incometax returns may be filed onlineuntil 12 midnight, April 16,2001. If a payment is requiredwith the online extension appli-cation, the payment must bemade by credit card.

• Direct Deposit of Refund — Ataxpayer who files a returnusing NJ TeleFile, NJ PC File,or other electronic method mayrequest that either their NewJersey income tax refund check,or homestead rebate check, orboth, be directly deposited intotheir account at a bank or otherfinancial institution.

• NJ TeleFile Program — TheNJ TeleFile Program has beenexpanded so that even moreNew Jersey residents will beable to use this “paperless” fil-ing method. The changes thisyear include:—No income limit: You can

TeleFile your New Jerseyreturn regardless of your totalincome, if you had incomeonly from wages, interest($2,500 or less) or dividends($2,500 or less).

what’s new for 2000 - from pg. 1

continued on page 3

New Jersey StateTaxnews

is published quarterly by the:

New Jersey Division of TaxationTechnical ServicesInformation & Publications BranchPO Box 281Trenton, NJ 08695-0281

A subscription to the State Tax News isfree. To be placed on the mailing list, or tonotify us of an address change, write to usat the address above or send e-mail to:

[email protected]

This publication is designed to keeptaxpayers, tax practitioners and the generalpublic informed of developments,problems, questions and matters of generalinterest concerning New Jersey tax law,policy and procedure. The articles in thisnewsletter are not designed to addresscomplex issues in detail, and they are not asubstitute for New Jersey tax laws and/orregulations.

Division of Taxation Director:Robert K. Thompson

News Coordinators for This Issue:Audit Barbara DavidsonCompliance Marita SciarrottaCriminal Investigation Rosemary TuthillProperty Admin. Gary AmerineTechnical Services Allette Wooley

Ronald DeMarco

Contributors: Elizabeth Ashton, DanaFrederickson, Denise M. Lambert, DonaldA. Panfile, Michael J. Roach, Patrick J.Ryan, Rande Schutsky, Carol M. Trovato,Fred Wagner, Patty Wright.

Staff: J. Donald Byrnes, Julia G. Matson,Terry A. McWilliams, Joanne M. Monte,Sara E. Murphey.

Editor: Sheri B. Silverstein

—More W-2 forms: You canTeleFile with as many as fiveW-2 forms for yourself andfive for your spouse.

—Excess UI/HC/WD and DIContributions: You can claima credit for excess contri-butions withheld by two ormore employers.

—Direct Deposit: You canhave your refund and/orhomestead rebate check(s)deposited directly into yourchecking or savings account.�

Tax Year 2000CorrectionsMEDICAL EXPENSES DEDUCTIONAs a result of a late change to Fed-eral Form 8853, the instructionsfor completing Line 4 of the NewJersey medical expenses deductionworksheet now contain an error.The worksheet is used for calcu-lating the amount of medical ex-penses taxpayers can deduct ontheir New Jersey resident (FormNJ-1040 and NJ-1040EZ) andnonresident (Form NJ-1040NR)returns.

The instructions for completingLine 4 of the New Jersey medicalexpenses deduction worksheet di-rect taxpayers to enter the amountof qualified medical savings ac-count contributions from “Line 7,Federal Form 8853.” The refer-ence to Line 7 is incorrect.

Taxpayers who are reportingmedical savings account contribu-tions should use the amount fromLine 5 of the 2000 version of Fed-eral Form 8853.

PACKAGE NJX CD ROMThe CD ROM version of PackageNJX for tax year 2000 contains anincorrect version of the 2000 FormNJ-1040X, Amended ResidentIncome Tax Return. The printedversion of Package NJX containsthe correct 2000 Form NJ-1040X.

A correct version of FormNJ-1040X is also available fromthe following sources:

Division of Taxation Web site:www.state.nj.us/treasury/taxation/

Automated Tax Information Sys-tem – Forms Request Service1-800-323-4400

NJ TaxFax609-826-4500 from your faxmachine’s phone

Write to:NJ DIVISION OF TAXATIONTAXPAYER FORMS SERVICESPO BOX 269TRENTON, NJ 08695-0269 �

CORPORATION TAXGain/Loss onSale of SubsidiaryMany taxpayers that sell asubsidiary which has been part ofits consolidated Federal tax returnare not reporting the correctamount of capital gain or loss forNew Jersey purposes.

In general there are two methodsto account for an investment insubsidiary stock. The first is theCost method. The original amountof the investment is recorded andremains constant for as long as it isowned. There are no adjustmentsmade to the investment account forthe subsidiary’s earnings or fordividends received. The secondmethod is the Equity method.Under this method the investment

account is adjusted eachperiod for dividendsreceived and subsidiary earnings,and deferred taxes are recognized.The use of these methods canresult in vastly differentinvestment basis.

When an invested subsidiary ispart of the same combined group,the investment account is elimi-nated in consolidation. The con-solidation results in a similarinvestment basis as if the equitymethod had been used.

Pursuant to N.J.A.C. 18:7-11.15(b)New Jersey corporation businesstax returns must be filed on anunconsolidated basis. If for NewJersey tax purposes the Costmethod of subsidiary investmentwas utilized, the basis used fordetermining the gain/loss from asubsidiary sale will be differentfrom the basis used for Federal

Interest RatesFourth Qtr. ’00 — 11.50%First Qtr. ’01 — 12.50%

The interest rate assessed onamounts due for the fourth quarterof 2000 is 11.50%, and the interestrate for the first quarter of 2001 is12.50%.

The assessed interest rate historyfor the last eight quarters is listedbelow.

Effective InterestDate Rate

4/1/99 10.75%7/1/99 10.75%

10/1/99 10.75%1/1/00 11.50%4/1/00 11.50%7/1/00 11.50%

10/1/00 11.50%1/1/00 12.50%

what’s new for 2000 - from page 2

continued on page 4

purposes which has recognized theeffect of consolidation.

Taxpayers are advised to deter-mine the method used to reportsubsidiary investments on NewJersey’s separate entity returnsand, if necessary, adjust thegain/loss reported. This changemay also have to be taken intoconsideration in the compilation ofthe receipts fraction of the alloca-tion factor. �

GROSS INCOME TAXReporting andRecognition ofIncomeA tax practitioner recently in-quired as to the taxability of distri-butions and deemed distributionsfrom Regulated Investment Com-panies and Passive Foreign In-vestment Companies for grossincome tax purposes. The practi-tioner also asked if a taxpayer whoelects to defer the reporting of theincome or to defer payment of the

tax for Federal purposes would beaccorded the same elections forgross income tax purposes.

The Division published its positionon the reporting of income fromsuch entities in an article entitled“Accounting Methods” in theWinter 1998 issue of the NewJersey State Tax News, Volume27, Number 4, page 11.

The Gross Income Tax Act at54A:8-3(c) Accounting Methods,states in part that “A taxpayer’saccounting method under this actshall be the same as his accountingmethod for Federal income taxpurposes.” A taxpayer’s method ofaccounting for Federal income taxpurposes determines not only themethod used to compute incomebut also determines when incomeis to be recognized and reported.

Taxpayers that receive distribu-tions and/or deemed distributionsfrom Regulated Investment Com-panies or Passive Foreign Invest-ment Companies must recognizeand report the income in the sameperiod as they do for Federal tax

purposes. If a taxpayer makes aFederal election that allows themto defer recognition and reportingof the income until some futuretime or event, they may do so forgross income tax purposes.

A shareholder of a Passive ForeignInvestment Company (PFIC) thatelects to be treated as a QualifiedElecting Fund (QEF) and filesFederal Form 8621 to make anelection to extend the time forpayment of the tax, with interest,on their share of the undistributedearnings of the QEF, cannot makesuch an election for gross incometax purposes.

There is no provision in the GrossIncome Tax Act like thosecontained in IRC sections 1291and 1294 that allow taxpayers toelect a deferral of payment of thetax owing, with interest, onundistributed income from a QEF.For gross income tax purposestaxpayers must pay the tax in thesame period that the income isrecognized and reported. �

sale of subsidiary - from page 3

NJFast File

For information: 1-800-323-4400 or www.state.nj.us/treasury/taxation

INHERITANCE TAXWaivers forNonresidentDecedentsThe nonresident inheritance tax isa privilege levy on the transfer, bya nonresident decedent, of real andtangible personal property locatedin this State. Accordingly, thetransfer of intangible personalproperty is not subject to the tax inthe estate of a nonresident. Intan-gible personal property includessuch items as bank accounts,stocks, bonds, patents and partner-ship interests. The situs of intangi-ble personal property is deemed tobe at the domicile of the decedent.Therefore, any state death taxeswould be levied by the decedent’sdomicile state.

Waivers are needed for the transferof New Jersey real estate only. Anonresident inheritance tax returnis required in all estates containingNew Jersey real estate and tangiblepersonal property.

If the nonresident’s estate includesany items of intangible personalproperty which would have re-quired a waiver had the decedentbeen a resident, the personal repre-sentative must submit an affidavitof domicile directly to the bank,transfer agent, etc., to obtain therelease of those assets. The bank,transfer agent, etc., has the author-ity to transfer those assets if con-vinced, by the proofs submitted,that the decedent was domiciledoutside of New Jersey.

The content of the affidavit ofdomicile utilized to effect thetransfer of such New Jerseyintangible personal property, isdescribed in N.J.A.C. 18:26-11.1(b)2. The affidavit should

include the following informationconcerning the decedent:1. Place of residence and voting;2. Social and business affiliations;3. Where the last five income tax

returns were filed prior todeath;

4. Date of commencement andlength of actual residence inplace claimed as legal domicile;

5. Whether decedent formerlyresided in New Jersey and, ifso, what facts are relied uponto establish abandonment ofNew Jersey and intention not toreturn.

Nonresident estates having onlyintangible personal property needonly follow this procedure. Thereis no need to file a nonresidentinheritance tax return. �

E-Mail Responsesto BillsIn an effort to make it easier fortaxpayers to resolve notices theyreceive, the Division has begun toinclude e-mail addresses on manyof the Statements of Account andBilling Notices being sent out.Taxpayers who have access to e-mail may reply to these addressesto notify the Division of discrep-ancies between their records andthe Division’s, and can be sure thatthe correspondence is being sent tothe appropriate area of the Division.

E-mail addresses are now includedon Statements of Account andBilling Notices for the followingtaxes:

• NJ Gross Income Tax(individual)

• NJ Gross Income Tax(employer withholding)

• Alcoholic Beverage Tax

• Atlantic City LuxurySales Tax

• Business Personal Property Tax• Cape May County Tourism

Sales Tax• Public Community Water

System Tax• Motor Fuels Tax• Petroleum Products Gross

Receipts Tax• Sales and Use Tax (including

Sales and Use-Energy andUrban Enterprise Zone)

• Spill Compensation and ControlTax

• Tobacco Products WholesaleSales and Use Tax

The e-mail address printed on aStatement of Account or BillingNotice should be used for resolu-tion of that notice only and shouldnot be used for requests for infor-mation or general tax inquiries.General e-mail should be sent tothe Division at:[email protected], through the Division’s Website at:www.state.nj.us/treasury/taxation/ �

LOCAL PROPERTY TAXFarmland AcreageA report summarizing data fromfarmland assessment applications(FA-1) has recently been com-pleted. The study shows that thetotal acreage devoted to agricul-tural or horticultural use in 2000was 1,146,500 acres for the entirestate.

The data for tax year 2000 reflectsa continued decline in the amountof qualified farmland since theenactment of Chapter 48, Laws of1964 (the “Farmland AssessmentAct”). Since 1983, the year in whichthe highest acreage, 1,271,882 acres,

continued on page 6

qualified for farmland assessment,the amount of qualified acreagehas declined 9.9% or a total of125,382 acres.

23.9% of New Jersey’s land mass isapproved under the FarmlandAssessment Act. Hudson Countyremains the only county withoutfarmland. Essex and Union eachreport less than 500 acres devotedto agricultural or horticultural use.Conversely, Salem with 54.4% hasthe greatest proportion of its landqualified under the Act. Othercounties with large percentages ofqualified farmland are: Hunterdon,50%; Warren, 49.8%; Gloucester,37.8%; Sussex, 33.7% and Mercer,29.5%.

Copies of the 2000 report havebeen distributed to the County TaxBoard Administrators. Anyoneseeking specific information onqualified farmland acreage orwishing to obtain a copy of thereport may do so by calling609-292-7974. �

LOCAL PROPERTY TAXF.E.A.C. AdoptsValues for 2001The Farmland Evaluation Advi-sory Committee (F.E.A.C.) met onAugust 24, 2000, at the PhillipAlampi Laboratory in WestTrenton to adopt a range of valuesfor each of the several classifi-cations of land in agricultural orhorticultural use by county. Inaddition, the F.E.A.C. establishesvalues for income imputed to landused for grazing.

The thirty-seventh Report of theCommittee, showing the valueranges adopted, is mailed to mu-nicipal assessors and county

boards of taxation in early Octoberof each pre-tax year. Land quali-fying for farmland assessmentmust be assessed in accordancewith its productivity and itsagricultural or horticultural userather than its market value.

The farmland values adopted bythe committee for 2001 increasedin all 20 counties where qualifiedfarmland is located. Increases incropland having a B soil grouprating averaged from $20.00 to$40.00 per acre when compared to2000 values. �

LOCAL PROPERTY TAXNew System toReplace MOD IVThe Division of Taxation has pub-lished an RFI (Request for Infor-mation) to acquire a comprehen-sive system for local propertyassessment and tax administration.This new comprehensive system

will be known as the Property As-sessment and Management System(PAMS).

The new system will replace theState’s current MOD IV batchsystem and individual vendormunicipal applications with a fullyintegrated online transaction sys-tem, which will perform the sametasks, but provide additionalfunctionality, seamless integration,uniform processing, improved per-formance, and streamlined main-tenance functions.

PAMS will achieve the following:

• Internet access to local propertytax data for citizens, businessesand governmental agencies, andelectronic submission of data toand from taxation systems;

• Accurate and uniform data col-lection, utilization and reportingof real property assessmentinformation and the billing

farmland acreage – from page 5

continued on page 7

Pay NJ Taxes By Credit Card*

• Personal and FiduciaryIncome Tax andEstimated Payments

• Sales and Use Tax• Deficiency payments for

Corporation Business TaxSales and Use TaxGross Income Tax WithholdingPersonal Income Tax

By Phone — 1-800-2PAYTAXThrough the Internet — www.officialpayments.com

For more information:http://www.state.nj.us/treasury/revenue/ or

http://www.state.nj.us/treasury/taxation/* Fee of 2.5% of tax payment applies.

process for local taxes;• Enhanced functionality from

that currently provided by theState’s Property Tax Assess-ment System (MOD IV), andseparate vendors’ systems suchas Sales Recording, FarmlandTracking, Assessment AppealScheduling and Disposition,Building Permit Interface,Computer Assisted Mass Ap-praisal, Commercial/IndustrialProperty Assessment, and a TaxCollection component/interface;

• Incorporation of new technolo-gies necessary to accomplishthe above including GIS, PublicAccess, Electronic Mail and AdHoc Reporting;

• A multi-tiered, web-based envi-ronment which will ease theadministration of this statewidesystem and improve the commu-nication and data sharing amongall levels of government. �

LOCAL PROPERTY TAXDeductionsCertifiedThe 2000 State Revenue SharingAct Distribution for senior anddisabled persons, surviving spousesand veterans was delivered to theState Treasurer on September 15,2000.As required by the provisions ofN.J.S.A. 54A: 10-1 et seq., asamended, the Director of theDivision of Taxation certified tothe State Treasurer in this reportthe amount of revenue sharingfunds due each municipality onNovember 1, 2000.The total amount of property taxdeductions for senior and disabledpersons and surviving spouses for

2000 was $28,835,474. That amountrepresents a decrease of 8.9% from1999.The total number of property taxdeductions for senior and disabledcitizens and surviving spouses for2000 was 112,176. When com-pared to tax year 1999 the numberof deductions decreased 7.4%.The amount of veterans’ deduc-tions for tax year 2000 was$33,275,446. For tax year 1999 theamount of veterans’ deductionswas $17,043,098. The large in-crease is due to the fact that for taxyear 2000 the veterans’ deductionincreased from $50 to $100 perdeduction. The veterans’ deduc-tion will increase in $50 incre-ments in each of the next 3 yearsuntil it reaches $250 for tax year2003.The total number of veterans’deductions for 2000 was 337,344.When compared to tax year 1999the number of deductions in-creased .9%.The total amount of property taxdeductions and veterans’ deduc-tions includes the additional 2%each municipality is reimbursedfor administrative costs as a resultof c.30, P.L. 1997. �

LOCAL PROPERTY TAXTax Assessors’CalendarJanuary 1–• Hearings of added assessment

appeals completed by CountyTax Board.

• Hearings of assessors’ omittedassessment appeals completedby County Tax Board.

• One copy of Farmland Assess-ment applications, FA-1s, sent to

County Tax Adminis-trator by assessor.

January 10 (before)–• Taxpayer to give assessor notice

of depreciation to structureoccurring after Oct. 1 andbefore Jan. 1.

January 10–• Copies of Initial Statement and

Further Statement filed withCounty Tax Board.

• Assessment Lists and duplicatesfiled with County Tax Board.

• Duplicate copy of municipal taxmap filed with County TaxBoard.

• Two copies of Form SR-3Afiled with County Tax Board.

• Estimated total amount of ap-proved veteran and property taxdeductions filed with CountyTax Board.

• Assessor to provide Forms JDC-1 and JDC-2, assessed value ofnew construction/improvements, local municipalpurpose rate and allowable mu-nicipal budget cap increase, toCounty Tax Administrator.

• Assessor to file “U.E.Z. Ex-emption Report” with CountyTax Board.

January 25–• Assessor’s schedule of hours

and appointment availabilitygiven to County Tax Adminis-trator and posted in the munici-pal building.

February 1 (prior)–• Notices of current assessment

and preceding year’s taxesmailed to each taxpayer byassessor.

February 1–• Whenever an assessor fails, for

any reason, to mail or otherwise

new PAMS system - from page 6

continued on page 8

deliver a notification of assess-ment or change in assessment,the County Tax Board mayextend the time for appeal withthe approval of the Director ofthe Division of Taxation.

• MOD IV Master file sent toProperty Administration viamagnetic tape.

• Assessors’ office hours fur-nished to Director, Division ofTaxation by County Tax Ad-ministrator.

• Collector to forward AnnualPost-Tax Year Statement (FormPD-5) to recipients of prioryear’s property tax deduction.

February 10–• Certification, by assessor to

County Tax Board or by CountyTax Board to County TaxAdministrator, of the date thebulk mailing of notification ofassessment completed.

February 15–• County Tax Administrator to

forward FA-1 forms to PropertyAdministration in district order.

March 1–• Post-Tax Year Statement, PD5,

filed with tax collector by allrecipients of property taxdeduction.

• County Tax Administrator tosubmit equalization table toCounty Tax Board, each asses-sor, Division of Taxation, andpost a copy at the courthouse.

March 10 (before)–• Equalization table hearings com-

pleted by County Tax Board.March 10–• Confirmed equalization table

sent by County Tax Board toeach taxing district in the county,

to Director, Taxation, and to TaxCourt. �

CriminalEnforcementCriminal Enforcement over thepast several months included:

• On June 22, 2000, Ahmed O.Mohammed of Brooklyn, NewYork, was arrested by the Of-fice of Criminal Investigation(OCI) when he was observedloading his vehicle with contra-band cigarettes (1,166 cartons)from a storage unit in Fairview,New Jersey. As a result of theinvestigation, we determinedthat Mr. Mohammed was in-volved in an ongoing multi-statecigarette smuggling enterprise.The evidence shows that thecontraband cigarettes werepurchased in the State ofVirginia. Thus, the case wasreferred to the U.S. Attorney’sOffice for the Eastern Districtof Virginia for Federal prose-cution. On August 1, 2000,Ahmed O. Mohammed was in-dicted by the Federal GrandJury sitting in Richmond, Vir-ginia. This case is part of OCI’sinvolvement in a multi-statetask force involving the U.S.Attorney General’s Office toprosecute the multi-state traf-fickers. OCI received substan-tial assistance in this case fromthe New York City Departmentof Finance, Office of TaxEnforcement.

• On July 10, 2000, Anthony J.Billings, a real estate appraiserbased in New Brunswick, NewJersey, was sentenced to five (5)years probation. The sentencewas a result of his guilty pleafor tampering with time sheets

he submitted to North Bruns-wick Township and failing tofile New Jersey gross incometax returns for the years 1995,1997, and 1998. Mr. Billingswas ordered to make full resti-tution in the amount of$12,439.22 to the State of NewJersey. This investigation was ajoint effort with the MiddlesexCounty Prosecutor’s Office andthe Office of CriminalInvestigation.

• On July 18, 2000, in Old BridgeTownship Municipal Court,KRSM, Inc., trading as MadisonExxon, a gasoline retailer/convenience store/auto repairfacility, pled guilty to recklesslyor negligently filing false taxreturns for the period January 1,1997 through December 31,1999. The false returns resultedin the underreporting and under-payment of $16,141.52 in salesand use tax.

• On July 21, 2000, in HudsonCounty Superior Court, GeorgeJ. Halpern, of Short Hills, NewJersey, was sentenced on a guiltyplea he had entered on May 1,2000, to one count of failing tofile a 1997 New Jersey personalincome tax return in connectionwith his business as a tax pre-parer. Mr. Halpern was sen-tenced to three (3) yearsprobation, ordered to perform300 hours of community service,fined $5,000, and is precludedfrom acting as an accountant ortax preparer, except under thesupervision of another personwho will be responsible for theaccuracy of his work, for threeyears. Prior to sentencing, Mr.Halpern had made restitution tothe State of New Jersey of$26,492. In the same proceed-

assessors’ calendar - from pg. 7

continued on page 9

ings, Mr. Halpern’s son, ToddHalpern, of West Orange, NewJersey, was accepted into a Pre-Trial Intervention Program (PTI)pursuant to a plea of guilty hehad entered on May 1, 2000, to acharge of filing a fraudulent1997 New Jersey personal in-come tax return (phony W-2s).The term of Todd Halpern’s su-pervision under PTI is one year,during which time he must com-plete 100 hours of communityservice, pay $125.00 in courtfees, and is precluded from act-ing as an accountant or tax pre-parer except under thesupervision of another personwho will be responsible for theaccuracy of his work. Prior toacceptance into PTI, Todd Hal-pern had made restitution to theState of New Jersey in theamount of $3,392. The Office ofCriminal Investigation investi-gated this case with the substan-tial assistance of the Division ofTaxation’s Audit Activity andInvestigations Branch, and thecase was prosecuted by the At-torney General’s Office.

• On August 11, 2000, SuperiorCourt Judge Irvin J. Snydersentenced Dok Yu Ryu, ofBrowns Mills, New Jersey, tofour (4) years imprisonment forattempting to bribe a StateDivision of Taxation SpecialAgent. Mr. Ryu, owner of Tri-State Wholesale Distributors,Inc., (a New Jersey cigarettedistributor) pled guilty tobribery in State Superior Courtin March. He was also fined$10,000 personally, and hiscompany was fined $75,000.

• On August 28, 2000, in Tren-ton, New Jersey, a State Grand

Jury indicted Truyen T. Vo onseparate counts of filing fraud-ulent New Jersey State incometax returns and failure to pay taxfor the years 1995 to 1998. It isalleged that Mr. Vo failed toreport $281,409 in illegalgambling income resulting inthe failure to pay $26,099 inpersonal income tax, penaltyand interest. Mr. Vo and fourassociates were also indicted forpromoting gambling in a sportsbetting operation. This case wasinvestigated jointly by the NewJersey State Police, the Divisionof Criminal Justice, and the Of-fice of Criminal Investigationand was presented to the GrandJury by the Attorney General’sOffice.

• On August 29, 2000, a jointinvestigation was entered intowith the Cumberland CountyProsecutor’s Office based on in-formation that several individu-als in Cumberland County mayhave filed multiple fraudulentNew Jersey Homestead RebateApplications and may have re-ceived multiple rebates. As aresult of the investigation, threeBridgeton, New Jersey, resi-dents have been charged withTheft by Deception. The inves-tigation is continuing.

• On September 12, 2000, MisaCorp t/a Metro Liquors of EastRutherford, New Jersey, wasfound to be operating without acurrent retail cigarette license.Office of Criminal Investigation(OCI) personnel visited the lo-cation at the request of NewarkField Audit personnel, who in-dicated that the company hadfailed to cooperate by supplyingrequested cigarette invoices.Those documents were obtained

from the distributorand turned over toNewark Field Audit forexamination. One count ofOperating without a CurrentRetail Cigarette License andone charge of No Invoices havebeen filed in the NewarkMunicipal Court.

• On September 20, 2000, mem-bers of the Office of CriminalInvestigation participated in theexecution of a search warrant inPhiladelphia, Pennsylvania, withagents from the United StatesPostal Inspection Service. Thelocation was the residence of anindividual suspected of filingover 380 fictitious New JerseyHomestead Rebate Applicationsand the fraudulent receipt of$113,000 in rebates. The suspectused a sophisticated schemeinvolving banks in Pennsylvania,New York, Virginia and Cali-fornia to launder the proceedsand avoid detection. Evidencerelating to homestead rebatefraud in New Jersey was seizedat the residence together with$4,900 in cash and $17,000 inUnited States Savings Bonds.The resident was arrested onFederal charges of Mail Fraud,Forgery, Identity Fraud andFraudulent Use of a FinancialAccess Device.

• The Office of Criminal Inves-tigation assisted the OfficeAudit Motor Fuels Group in theprevention of the retail sale ofgasoline at less than cost bythree (3) New Jersey shore areagas stations.

• One hundred (100) complaintsalleging tax evasion were eval-uated from July to September2000 in the Office of Criminal

criminal enforcement - from page 8

continued on page 10

Investigation.

• From July to September 2000,fifty-four (54) charges werefiled in court on seventeen (17)cases for violating the CigaretteTax Act including possession of1,452.4 cartons of contrabandcigarettes, valued at $50,834.00and resulting in seventeen (17)arrests. �

Tax BriefsSales and Use TaxFarming Use Exemption — Leg-islation expanding the scope of thefarming use exemption from salesand use tax was signed into law asP.L. l999, c. 314, on January 6,2000. The exemption applies tosales made on or after January 1,2000. The legislation amends thefarming use exemption by sub-stantially expanding the scope ofthe exemption and reducing thescope of certain exclusions fromthe exemption.

The exemption provided byN.J.S.A. 54:32B-8.16 now appliesto purchases of tangible personalproperty, production services andconservation services. However, itapplies only when the property orservice is purchased for use orconsumption directly and primar-ily in the production for sale, orhandling for sale, or preservationfor sale of agricultural or horti-cultural commodities. In addition,the exemption applies only to pur-chases by a farmer of property orservices used in his own farm, i.e.it does not apply to purchases bycontractors or other serviceproviders doing work for thefarmer.

Three categories of tangible per-sonal property are not eligible forthe farm exemption: purchases ofautomobiles, energy, or materialsused to construct a building orstructure. However, the law hascarved out an exception to thisexclusion. Thus, a farmer’s pur-chases of materials to construct asilo, greenhouse, grain bin or ma-nure handling facility might beeligible for the farming use ex-emption if the facility will be useddirectly and primarily in pro-duction, handling or preservationfor sale of the farmer’s agriculturalor horticultural commodities.

Farmers making exempt purchasesof goods or services underN.J.S.A. 54:32B-8.16 must presenttheir vendor with a properly com-pleted Farmer’s Exemption Cer-tificate (ST-7). The Form ST-7was amended in February 2000 toreflect the recent changes in thelaw, and copies of the updatedform are now available.

P.L. l999, c. 314, also amends thecontainer and wrapping supply ex-emption provided by N.J.S.A.54:32B-8.15. The amendment al-lows an exemption for the sale ofcontainers used in a farming en-terprise. Farmers claiming an ex-emption under this provision mustuse an Exempt Use Certificate(ST-4) to support their exemption.

The policies implementing theamended farming use exemptionhave been codified in the Divi-sion’s new sales tax regulations atN.J.A.C. 18:24-19.1 et seq.

In Ground Pools — The Divisionresponded to an inquiry concern-ing the installation of a safetycover for an in ground pool. Theinstallation of the pool itself, withassociated plumbing and decking,is a capital improvement to real

property. As such, the contractorpays tax on the materials and sup-plies and the labor is exempt fromtax. The property owner is notcharged any tax on the improve-ment and may issue a Certificateof Capital Improvement (Form ST-8).

A safety cover is not permanentlyaffixed to the realty. Rather, it re-mains tangible personal propertythat may only be utilized duringperiods of extended non-use.Therefore, the cover is subject totax when sold to the propertyowner. N.J.S.A. 54:32B-3(a). Acharge for installing the cover isalso subject to tax. N.J.S.A.54:32B-3(b)(2).

Manufacturer Rebates — For thepurposes of the New Jersey Salesand Use Tax Act, sales tax must becharged on the total “receipt” froma retail sale; i.e., the actual amountof the sales price payable to theretailer. See N.J.A.C. 54:32B-2(d).This is so regardless of whether thatsales price will be paid entirely bythe customer, or by moneys paid bythe customer’s friends and family,or by a combination of the customerand the manufacturer.

If the retailer chooses to sell anitem at a discounted price, thecustomer should be charged tax onthe discounted price payable to theretailer, not on the original pricebefore reductions. The reducedprice is the “receipt” on which the6% sales tax is calculated.

When a customer pays full price,but is reimbursed by the manu-facturer for part of that price in theform of a manufacturer’s rebate,the tax is due on the full priceoriginally payable to the retailer.This is because the retailer is re-ceiving the full price and sales tax


criminal enforcement - from pg. 9

is calculated on the total “receipt”payable to the retailer. Similarly, ifa customer pays the retailer a re-duced price by using a manufac-turer’s coupon or by relying on arebate that the manufacturer willsend to the retailer as part of thecustomer’s payment, the customerwill owe tax on the full price. The“receipt” payable to the retailerwill be the total of the reducedprice payable by the customer plusthe amount that the retailer will re-ceive from the manufacturer(measured by the face value of thecoupon or rebate). Sales tax iscalculated on the total “receipt,”not just on the portion of the re-ceipt paid by the customer.

Discounts Offered Through“Vendor Allowance” Programs— A vendor has contractual ar-rangements with some merchan-dise suppliers whereby the vendoragrees to provide the supplierswith certain promotional and ad-vertising services in exchange forvarious vendor allowances. Exam-ples of such services are: reducedprices charged on a product for alimited time, partial refunds forproducts already delivered andbilled, permanent price reductionson an item, payments to the vendorfor featuring the supplier’s prod-ucts in the vendor’s promotional

materials, and payments to thevendor based on the volume of thesupplier’s merchandise sold. Bythe terms of these contracts, thevendor is not obligated to passthese monetary benefits on to itscustomers; it is free to retain theallowances as additional profit.

The vendor has decided to offerproduct discounts to customers whoparticipate in a promotional pro-gram that involves the use of scancards. Customers who present thecard receive a discount on certainproducts chosen by the vendor.Some or all of the discountedproducts may be supplied by com-panies that have given the vendor a“vendor allowance” in exchange forits promotional services.

Based on the above facts, the dis-count connected with a customer’suse of the scan card will be treatedas a vendor discount rather than amanufacturer’s discount. This isbecause, even if the customers’discounts are funded by the specialallowances the vendor has re-ceived from its supplier, the ven-dor allowance, by its terms, wasnot required to be passed on to theretail customer and is not tied to aspecific sale by the vendor. Thevendor allowance in thesesituations is not third-partypayment for the merchandise thevendor sold to the customers. The

vendor is neitherreimbursed nor paid inadvance for discounts offered tocustomers on specific saletransactions. Therefore the vendorallowance will not be deemed tobe part of the vendor’s “receipt”for the retail sale of a specific itemto a specific customer. SeeN.J.S.A. 54:32B-2(d); N.J.A.C.18:24-1.4(h). Sales tax shouldtherefore be charged on the pricecharged after deducting thevendor’s discount provided throughuse of the scan card.

Sale of Medical Equipment —Although they are frequently usedfor therapeutic or physical reha-bilitative purposes, whirlpools,power massagers, bath tub neckpillows, and chair back supportsare also commonly used to en-hance the comfort of people whodo not have any illness or injury.Therefore, they generally do notqualify for exemption as durablemedical equipment pursuant toN.J.S.A. 54:32B-8.1. However, insome cases, such equipment mightqualify for exemption if it is spe-cifically designed for a medicalpurpose and is not generally useful

to a person who does not have anillness, injury or disability. For ex-ample, a whirlpool designed forthe hand rather than the full bodyis not generally used in the ab-

Enforcement Summary StatisticsThird Quarter 2000

Following is a summary of enforcement actions for the quarter ending September 30, 2000.

• Certificates of Debt: • Jeopardy Seizures 0Total Number 1,305 • Seizures 34Total Amount $22,351,300 • Auctions 6

• Jeopardy Assessments 229 • Referrals to the Attorney General’s Office 1,128

For more detailed enforcement information, see our Home Page at: http://www.state.nj.us/treasury/taxation/

tax briefs - from page 10


sence of some physical injury, dis-ability or pain involving the handand may therefore qualify for ex-emption. A specific determinationletter is required in such a case.

Moist heat packs are not generallyuseful in the absence of someinjury or illness, and they are cus-tomarily and primarily used toserve a medical purpose. There-fore, moist heat packs can qualifyfor exemption under N.J.S.A.54:32B-8.1. The exemption doesnot apply if the heat packs are soldto a medical services provider(e.g., doctor, physical therapist,nursing home, hospital) whichuses it in providing services forcompensation and does nottransfer it to the patient for homeuse. N.J.S.A. 54:32B-8.1 (lastparagraph). However, if it is soldto the patient for home use, theexemption applies even if aninsurer, rather than the patient, isactually paying for the item.

Recalibration Services — The Di-vision replied to an inquiryregarding the taxability of“recalibration” services. Theinquirer sells precision weights,balances and laboratory apparatusto vendors of this equipment andalso provides recalibration servicesto the end users of this equipment.It performs the service at its NewJersey location and then shipsworldwide. It charges a fee for thisservice.

The recalibration service isdeemed to be a service of main-taining or servicing tangible per-sonal property, which is taxablepursuant to N.J.S.A. 54:32B-3(b)(2). The service is subject toNew Jersey sales or use tax underthe provision even if the equip-ment itself was exempt at the time

of purchase pursuant to the manu-facturing of research and devel-opment exemptions, N.J.S.A.54:32B-8.13a or N.J.S.A. 54:32B-8.14, respectively. However, theNew Jersey tax applies only if therecalibrated items are then shippedto a New Jersey address, or pickedup in New Jersey. The service willnot be subject to New Jersey tax ifthe recalibrated items are shippedto customers outside of the state. �

In Our CourtsAdministrationAdequate Notice – LeonardSantos v. Director, Division ofTaxation, decided January 21,2000; Tax Court No. 002138-1999.

By letter dated January 10, 1995,the Division notified plaintiff’scorporation that it intended toconduct an audit of plaintiff’sbusiness. The letter was addressedto the business at their P.O. Box inTrenton. After plaintiff allegedthat there was a complete loss ofits accounting records, the Divi-sion mailed an arbitrary assess-ment to the corporation at itsNorth Broad Street, Trenton siteaddress on December 5, 1995. Thepostal service could not deliver theletter and returned it to the Divi-sion. On December 8, 1995, thearbitrary assessment was mailed tothe Trenton P.O. Box. This letterwas also returned to the Divisionby the postal service with a “BoxClosed” notation on the envelope.

On July 15, 1996, the Divisionsent a notice and demand forpayment of tax to the corporationat the Trenton P.O. Box address.Plaintiff’s wife signed the mailingreceipt. This notice advised thecorporation that it had 90 days toappeal the Division’s determina-

tion of tax liability. The corpora-tion neither protested the noticewith the Division nor did it file acomplaint with the Tax Court.

On July 15, 1996, the Divisionalso sent a notice to plaintiffstating that he was personallyliable for unpaid corporate taxes.This notice was sent to plaintiff’saddress at Monmouth Junction,New Jersey, but was returned bythe postal service with a notation“Attempted, Not Known.” There-after, the Division secured aPennsylvania address for plaintiffthrough a credit-reporting agency.On October 3, 1996, the Divisionsent a notice to the PA addressconcerning plaintiff’s personal li-ability for corporate taxes andstated that he had a right to anadministrative hearing provided hecomplied with N.J.A.C. 18:1-1.8by filing a proper protest. Thismailing was signed as received byplaintiff’s wife. On November 5,1996, plaintiff’s accountant filed anonconforming N.J.A.C. 18:1-1.8protest. The Division’s Conference& Appeals Branch denied theprotest as untimely and advisedthat an appeal to the New JerseyTax Court must be made within a90 day period. Plaintiff neitherinquired as to why the protest wasuntimely nor did it file a complaintwith the Tax Court.

On December 17, 1996, the Divi-sion’s Judgment Section advisedplaintiff that his protest wasreceived and that the corporate taxliability was fixed because therewas no timely challenge to thecorporate determination. Plaintiffwas simultaneously advised thatthe issue of his personal liabilityfor taxes could be challenged if hefiled a proper protest. Further-

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more, plaintiff was notified that aCertificate of Debt would be filedagainst the plaintiff if the infor-mation were not supplied by Janu-ary 10, 1997. Neither the plaintiffnor plaintiff’s representative re-sponded to the Division’s Decem-ber 17, 1996, letter. On January17, 1997, the Division sent anotice to plaintiff advising himthat on January 16, 1997, theDivision entered a Certificate ofDebt against him as a responsibleperson of his corporation.There was no communication fromplaintiff or his representatives untilMarch 25, 1999, when plaintifffiled a motion in Superior Courtseeking an order to vacate thejudgment. The Superior Courtjudge denied the motion becausethe Tax Court had jurisdiction andallowed plaintiff 30 days to file theapplication with the Tax Court.Plaintiff then filed a motion simi-lar to the one filed in SuperiorCourt.

The Court granted the Division’smotion to dismiss the complaint for

untimely filing. The Court ruledthat plaintiff had adequate notice ofthe nature and extent of the tax li-ability imposed both on the corpo-ration and him personally because(1) plaintiff’s wife had signed fornotices of both the corporate as-sessment and the responsible per-son assessment, (2) the certificationof plaintiff’s accountant indicatedthat plaintiff was aware of the no-tices at least by November 1996,(3) although plaintiff requested ahearing in November 1996, plaintiffdid not file a conforming protest inaccordance with N.J.A.C. 18:1-1.8or respond to or comply withDivision communications thereaf-ter, and (4) plaintiff did nothingmore until over two years laterwhen it filed a motion in SuperiorCourt. The Court also ruled thatthe Division’s notices providedplaintiff with an opportunity to beheard but plaintiff did not availhimself of that opportunity in astatutorily timely manner.

Division’s Duty to ProvideNotice of Changes to TaxStatutes – Schirmer-National Co.v. Director, Division of Taxation,

17 N.J. Tax 495 (TaxCourt 1998); Motion forReconsideration, denied January 4,1999; No. M00348-96, aff’d,Appellate Division, No. A-3877-98T2 (March 31, 2000).

The Tax Court followed its deci-sion in Aetna Burglar & FireAlarm Co. v. Director, Div. of Tax-ation, 16 N.J. Tax 584 (Tax Court1997) that alarm monitoring serv-ices carried through telephone tele-communications are subject to salestax pursuant to P.L. 1990 c.40.

Plaintiff also argued that theprovisions of P.L. 1990 c.40 wereso broad in taxing telecommunica-tions that the sale of burglar alarmmonitoring services should not besubject to tax until the time theDivision provided proper notice ofthe tax law change. The Tax Courtruled that taxpayers are “put onnotice of legislative enactments onthe date the legislation becomeseffective.” Consequently, the Divi-sion of Taxation was not obligatedto provide taxpayers with notice ofchanges in the tax law. TheAppellate Division affirmed.

Bankruptcy Discharge – Lloyd M.Cohen v. Director, Division ofTaxation, decided June 13, 2000;Tax Court No. 008458-96.

Plaintiff confessed to embezzlingapproximately two million dollarsfrom his clients/creditors. TheChancery Division of the SuperiorCourt appointed a custodial re-ceiver to marshal assets and collectembezzled monies to satisfy theclaims of the victims. In theprocess, the receiver entered into aclosing agreement with the Inter-nal Revenue Service and the Divi-sion where New Jersey GrossIncome Tax returns (NJ-1040s)were filed for the periods 1986

in our courts - from page 12

TAXATION REGIONAL OFFICESNew Jersey Division of Taxation Regional Offices provide individualassistance at locations throughout the State. Normal hours ofoperation* are 8:30 a.m. to 4:30 p.m., Monday through Friday.Offices are closed weekends and holidays.

Camden Suite 200, One Port Center, 2 Riverside DriveFair Lawn 2208 Route 208 SouthNewark 124 Halsey Street, 2nd floorNorthfield 1915-A New Road (Route 9)Sea Girt 2100 Highway 35, Old Mill PlazaSomerville 75 Veterans Memorial Drive East, Suite 103Trenton Taxation Building, 50 Barrack Street, 1st floor lobby

*Offices will be open for extended hours during the week prior to theApril 16, 2001 deadline for filing 2000 income tax returns.


through 1994 and taxpayer, not thereceiver, would be responsible forpayment of any tax, penalty, andinterest. Pursuant to a court order,plaintiff and other interested par-ties were notified of the proceed-ing that approved of the terms andconditions of the closing agree-ment including the understandingthat plaintiff was the sole and pri-mary person responsible for pay-ments of tax, penalty, and interest.On July 24, 1996, the Division is-sued an assessment against plain-tiff for the above mentioned taxliability. Plaintiff filed a timelycomplaint in Tax Court challeng-ing the Division’s assessment pri-marily on the grounds that theassessment was not valid againsthim personally because theNJ-1040s were filed by his custo-dial receiver. Plaintiff also filedfor Chapter 7 with the UnitedStates Bankruptcy Court and thepetition included the tax liabilitiespertaining to the July 24, 1996, as-sessment. On or about Febru-ary 14, 2000, the BankruptcyCourt granted plaintiff a Chapter 7discharge.On January 6, 2000, the Divisionfiled a motion for summary judg-ment to dismiss plaintiff’s com-plaint. After numerous adjourn-ments to allow plaintiff time torespond, plaintiff’s only submis-sion was a copy of the ordergranting his Chapter 7 discharge.

The Court validated the Division’sJuly 24, 1996, assessment bygranting summary judgment infavor of the Division becauseplaintiff failed to present facts inopposition to the Division’s mo-tion. Failure to do so deemed thefacts, as set forth by the Division,undisputed. The Court ruled that

the receipt of a bankruptcy dis-charge does not invalidate TaxCourt proceedings and that theissue of the discharge should belitigated in Bankruptcy Courtbecause of its significant expertise.

Statute of Limitations andRecord Retention – Alpha I, Inc.,v. Director, Division of Taxation,decided June 13, 2000; Tax CourtNo. 00373-1999.

Plaintiff did not provide theDivision with purchase records tosupport the expenses pertaining tothe first quarter of 1994. Therefore,the Division determined the use taxliability for the first quarter of 1994by extrapolating the results of theirexamination of records pertainingto subsequent periods two to threeyears thereafter.

Plaintiff claims that the use taxassessment should be set asidebecause there was no requirementto retain purchase records forlonger than three years pursuant toN.J.S.A. 54:32B-16. However,under N.J.S.A. 54:32B-27(b), theDirector is permitted to issueassessments of sales and use taxfor up to four years from the dateof the filing date of the return.

In upholding the Division’s as-sessment as timely in conformitywith the statute of limitations onassessments, the Court rationalizedthat to quash the assessment“would in effect reward taxpayerfor destroying records that are stillsubject to an audit and additionalassessment.” The Court ruled thatthe three-year retention period seta minimum time period to retainrecords and that “[a]lthough thetaxpayer was not required to keeprecords beyond this three-year pe-riod, destruction of the recordswould put the taxpayer in jeopardy

because additional assessmentsmay be levied until the expirationof the four-year statute of limita-tions.” Therefore, the Court opinedthat taxpayer placed itself in perilby disposing of their records priorto the expiration of the statute oflimitations period.

Corporation Business TaxIncome Includable in theNumerator of Receipts Fraction– Stryker Corporation, v. Director,Division of Taxation, 18 N.J. Tax270 (Tax Court 1999); aff’d,Appellate Division, No. A-736-99T5 (July 21, 2000).

At issue is whether the Divisionproperly included in the numeratorof Stryker’s receipts fraction allreceipts generated by drop-shipment transactions that occurredin New Jersey but which weredestined for out-of-State customers.

Osteonics Corporation, a NewJersey corporation, is the whollyowned subsidiary of plaintiffStryker Corporation, a Michigancorporation. Although Stryker andOsteonics are located in the samebuilding in Allendale, New Jersey,Stryker paid all the real estaterelated costs.

Stryker manufactured hip and kneereplacements. Stryker sold its prod-ucts to its customers through itscorporation Osteonics, whose solefunction was to receive and processorders for Stryker’s products.Osteonics’ computers transmittedcustomers’ orders to Stryker’s com-puters. Then, Stryker packed andshipped the products to Osteonics’customers throughout the UnitedStates, via common carrier F.O.B.Allendale, without any interventionby Osteonics. Thereafter, Osteonicswould bill its customers.



Upon the receipt of customers’payments, Osteonics would retain aportion of the receipts and remit thebalance to Stryker. AlthoughStryker did not invoice Osteonicsfor each order, company represen-tatives reviewed Osteonics’ salesreceipts in order to determine priceand profit allocations. Essentially,Osteonics retained an approximatetwenty-percent gross margin andthe payments from Osteonics toStryker include a profit to Stryker.

In calculating the numerator of thereceipts fraction, Stryker allocatedsales to Osteonics by the ship-ment’s destination state. Accord-ingly, for tax purposes, Strykerincluded sales of only New Jerseycustomer destination shipments inthe numerator of the receiptsfraction. Pursuant to an audit, theDivision determined that all sales toOsteonics should be included in thenumerator of the receipts fractionregardless of the ultimate desti-nation state of the customer.

The Tax Court held that plaintiff’ssales receipts from its directshipments to Osteonics’ out-of-State customers are includable inthe numerator under N.J.S.A.54:10A-6(B)(6). The Tax Courtfound that this statute requiredinclusion in the numerator of allreceipts earned by the taxpayer inNew Jersey including the intrastatetransactions between plaintiff andOsteonics. The Tax Court alsonoted that the sales at issue werenot includable under N.J.S.A.54:10A-6(B)(1) because there wereno physical shipments to Osteonics.

On appeal, the Tax Court wasupheld. The Appellate Divisionfound throughout all Stryker’sarguments there existed a constant,single theme that for tax purposes

the two transactions, the sale of theproduct to Osteonics and the saleby Osteonics to its customers,should be treated as one trans-action. However, the AppellateDivision disagreed, opining thatthese sales were includable in thereceipts numerator under N.J.S.A.54:10A-6(B)(6) because Strykerrealized income from sales ofmanufactured products located inNew Jersey to New Jersey basedOsteonics.

Gross Income TaxPeriod to File Refund Claim –Clifford D. Wenrick v. Director,Division of Taxation, decidedMay 12, 2000; Tax Court No.003571-99.

Plaintiff filed his 1994 New JerseyGross Income Tax return (NJ-1040)on May 28, 1998, claiming a $699refund due to excess employerincome tax withholding. Althoughplaintiff alleges that he filed for andwas granted an extension for the1994 Federal tax return, anextension was not requested in NewJersey.

The Court found that N.J.S.A.54A:9-8(a) was the operativestatute relating to limitations onrefund claims concerning NewJersey Gross Income Tax. Thisstatute states that the amount ofthe refund “shall not exceed theportion of tax paid within the threeyears immediately preceding the

filing of the claim plusthe period of anyextension of time for filing thereturn.”

The Court ruled that obtaining aFederal extension in and of itselfdoes not automatically trigger aNew Jersey extension. N.J.A.C.18:35-6.1(a) permits a four-monthextension to file the NJ-1040 whereby the original due date of theNJ-1040 the taxpayer at the time ofapplication for Extension To File(1) paid 80% of the tax liabilitycomputed on the NJ-1040 whenfiled and (2) attached a copy of theapplication for automatic Federalextension. As plaintiff never filed arequest for extension with NewJersey, the Court ruled that plaintiffwas not entitled to the four-monthextension.

Due to the May 28, 1998, filing ofthe NJ-1040, the Court ruled thatplaintiff was entitled to a refund of1994 taxes to the extent they wereoverpaid three years preceding thedate the return was filed, betweenMay 28, 1998, and May 25, 1995.As the employer-withheld taxeswere deemed paid on April 15,1995, per N.J.S.A. 54A:9-8(h), theoriginal 1994 NJ-1040 due date,the taxes at issue are more thanthree years after the date ofpayment. Therefore, the Courtdenied plaintiff’s refund request.


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Partner’s Distributive Share –Ronald J. Gumbaz v. Director,Division of Taxation, decidedMarch 30, 2000; Tax Court No.3494-97.

Since 1981, plaintiff retained a25% partnership interest inMTSG. Plaintiff’s capitalcontributions to the MTSGpartnership had a balance of$20,883 as of 1993. However,plaintiff’s balance in his MTSGcapital account was negative$28,403 as of December 31, 1993due to partnership losses over theyears.

In 1993, MTSG’s amount of netincome earned from its onlyinvestment in One ArkansasAssociates was $60,528 and itreceived $868 in cash. MTSGreported plaintiff’s distributiveshare of partnership income as$15,132 and distributed $217 toplaintiff. Plaintiff’s Federal taxreturn also reported a $47,010 lossfrom an S corporation. Plaintiffdid not own interests in any otherpartnership in 1993.

Plaintiff’s 1993 NJ-1040 reportedzero income for plaintiff’s dis-tributive share of partnership in-come. The Division adjustedplaintiff’s 1993 NJ-1040 returnLine 20, Distributive Share ofPartnership Income, from $0 to$15,132. Plaintiff claims that thisincome is not taxable because ei-ther (1) the income should be con-sidered as a return of capital, (2)that the partnership income shouldbe netted against the Subchapter Scorporation loss or (3) that only thedistribution received by him shouldbe subject to tax. As discussedbelow, the Court rejected plaintiff’stheories and held that plaintiff’s

$15,132 distributive income shareof partnership income is taxableunder N.J.S.A. 54A:5-1k.

Distribution: N.J.S.A. 54A:5-4states that a partner’s distributiveshare of partnership income orgain received by the partnershipshall be subject to tax whether ornot distributed. Plaintiff claimsthat the partnership actually re-ceived $868 and therefore that, notthe $15,132, should be the basisfor his New Jersey income tax ashe is a cash basis taxpayer. TheCourt responded that the $60,528of net income MTSG earned fromOne Arkansas Associates indicatesthe amount of income that MTSGhas the power to demand distribu-tion of from One Arkansas Asso-ciates. The fact that MTSG chosenot to withdraw the full amountdoes not mean it was not earned oravailable to the partnership. Fur-thermore, the Court stated that“received” does not mean that theincome must be physically or ac-tually put in your hand. Therefore,the Court ruled that regardless ofMTSG’s actual withdrawals,MTSG received $60,528 of in-come from One Arkansas Associ-ates of which $15,132 is plaintiff’s25% taxable portion regardless ofwhether the partnership actuallyreceived the money.

Return of Capital: Plaintiffclaims that he is being taxed on thereturn of capital because he has anegative MTSG capital accountbalance and he has not yet realizedhis investment in the partnership.The Court ruled that plaintiff’sdistributive share of partnershipincome could not be considered areturn of capital because in orderfor the income to be characterizedas a return of capital thepartnership interest must be sold.

Netting of Income and Losses:Plaintiff contends that he shouldbe permitted to offset the 1993partnership income against prioryear partnership losses because hereceived no New Jersey tax benefitfor partnership losses prior to1993. The Court ruled that theGross Income Tax Act does notspecifically provide for a losscarryforward and therefore ataxpayer forfeits the loss if itcannot be offset by income in thesame tax year.

Alternatively, plaintiff claims thathe should be able to offset his1993 $15,132 partnership gainagainst the 1993 $47,010 loss ofthe S corporation. The Court foundthat N.J.S.A. 54A:5-2 prohibits aninter-category offset by not per-mitting a taxpayer to apply losseswithin one category of gross in-come against gross income of an-other category. In 1993, NewJersey did not recognize S corpo-rations and therefore there was nocategory of gross income to offset.In 1994, N.J.S.A. 54A:5-1p wasadded to tax the net pro rata shareof S corporation income; however,the Court found that these are twoseparate categories of gross in-come and an inter-category offsetis prohibited.

Sales and Use TaxAdmission Charges Imposed byGovernment Entities – Meadow-lands Basketball Associates, v.Director, Division of Taxation,decided July 24, 2000; Tax CourtNo. 000665-98.

Plaintiff is the owner of the Netsof the National Basketball Asso-ciation. Pursuant to a licenseagreement, the New Jersey Sports




and Exposition Authority (NJSEA)leased the Continental AirlinesArena to plaintiff for the Nets toplay their home basketball games.The license agreement includedthe requirement that plaintiffcharge, collect, and transfer to theNJSEA a 10% “admission impost”on the price of admission of eachticket sold to home games. Theimpost fee was included andseparately stated on the face ofeach ticket.

Plaintiff did not charge or collectsales tax on the impost charge;however, it did collect and remitsales tax on the price of admission.Pursuant to an audit, the Divisionassessed plaintiff sales tax due onthe 10% admission impost fee.

Plaintiff argued that the impost feeis exempt under N.J.S.A 54:32B-9(a)(1), which exempts from salestax the purchase and sale of certaingoods and services by specifiedgovernmental agencies. It wasclear that NJSEA was a specifiedgovernmental agency as it wascreated pursuant to the New JerseySports and Exposition AuthorityLaw, P.L. 1971 c.137, N.J.S.A.5:10-1 to -38. However, the Courtruled this particular exemptiononly applies to situations whereNJSEA is the vendor, purchaser,user or consumer, not where itimposes an admission charge.

The Court found that N.J.S.A.54:32B-9(a) does not apply to ad-mission charges imposed by gov-ernment entities to athletic eventsbecause it is addressed in N.J.S.A.54:32B-9(f). Paragraph (f) states

that admission charges collectedby State agencies are exempt fromsales and use tax except in the caseof collection of admission chargesto athletic games. In the case ofathletic games, the statute statesthat admission charges are exemptonly if they inure exclusively tothe benefit of elementary or sec-ondary schools. As NJSEA usedthe impost charge to fund itsstatutory mandate of constructingand operating professional sportsfacilities in New Jersey, the ad-mission charges were held to besubject to sales tax.

Finally, the Court reviewed a NewYork Tax Appeal Tribunal deci-sion concerning nearly identicalfacts that granted an exemption inthis situation after finding thatadmission charges are a service.The Court found three reasons asto why the New York decision wasnot persuasive. (1) Decisions ofNew York courts are not bindingon New Jersey courts or control-ling in interpreting New Jerseystatutes. (2) The New York deter-mination was decided by an ad-ministrative tribunal, not a court,and was not subject to judicial re-view. In New York, the taxingauthority cannot seek review of anadverse administrative tribunal de-cision. (3) A comparison of theNew York and New Jersey statutesconcerning admission chargesreveals a significant difference inthat New York does not includepolitical subdivisions or stateagencies in the admission chargediscussion. On the other hand,

N.J.S.A. 54:32B-9(f) isdispositive of the issue oftaxability. �

In Our LegislaturePetroleum Products GrossReceipts TaxPhase-Out — P.L. 2000, c.156(signed into law on November 16,2000) phases out, over a three-yearperiod, the Petroleum ProductsGross Receipts Tax for fuel usedto generate certain electricity. Thelegislation eliminates the applica-tion of this tax to the sale of fuelused by a utility, co-generationfacility or wholesale generationfacility to generate electricity soldat wholesale or through certainretail sales channels. This law tookeffect January 1, 2001.

Unclaimed PropertyEnergy Assistance Funding —P.L. 2000, c.132 (signed into lawon September 21, 2000) providesfunding to an existing statewidenon-profit energy assistanceorganization that helps needyfamilies pay their energy bills withtemporary financial assistance.The supplemental funding wouldbe derived from the unclaimedproperty held by the State’s elec-tric and gas utilities that is trans-ferred to the State under the“Uniform Unclaimed Property Act(1981).” The law also creates theUnclaimed Utility Deposits TrustFund to hold unclaimed utilitydeposits. This legislation tookeffect immediately. �

tax calendarjanuary

SUN. MON. TUE. WED. THU. FRI. SAT.

1 2 3 4 5 6

7 8 9 10�

11 12 13

14 15 16�

17 18 19 20

21 22�

23 24 25�

26 27

28 29 30�

31

January 10CWIP-1 Cigarette Tax—Informational

report by wholesalersCWIP-2 Cigarette Tax—Informational

report by wholesalers

January 16CBT-100 Corporation Business Tax—

Annual return for accountingperiod ending September 30

continued

January 16 - continued

CBT-150 Corporation Business Tax—Installment payment of esti-mated tax for 4th, 6th, 9th or12th month of current tax year

January 22CR-1 & Cigarette Tax—Monthly reportCNR-1 of cigarettes sold or used by

distributors, manufacturers,representatives and consumers

GA-1D Motor Fuels Tax—Distributor’smonthly report of gallons of fuelsold or used

GA-1J Motor Fuels Tax—Jobber’smonthly report of gallons of fuel

MFT-10 Motor Fuels Tax—Monthlyreport by seller-user of specialfuels for sales and/or use in theprevious month

SCC-5 Spill Compensation andControl Tax—Monthly return

ST-20 New Jersey/New YorkCombined State Sales andUse Tax—Quarterly return

continued

January 22 - continued

ST-50 Sales and Use Tax—Quarterlyreturn

ST-250 Combined Atlantic CityLuxury Tax/State Sales Tax—Monthly return

ST-350 Cape May County TourismSales Tax—Monthly return

ST-450 Sales and Use Tax–SalemCounty—Quarterly Return

TP-20 Tobacco Products Whole-sale Sales and Use Tax—Monthly return

UZ-50 Combined State Sales Tax/Urban Enterprise Zone SalesTax—Monthly return

January 25PPT-40 Petroleum Products Gross

Receipts Tax—Quarterly return

January 30NJ-927 & Gross Income Tax—NJ-927-W Employer’s quarterly return

februarySUN. MON. TUE. WED. THU. FRI. SAT.

1 2 3

4 5 6 7 8 9 10

11 12 13�

14 15�

16 17

18 19 20�

21 22 23 24

25 26�

27 28

February 13CWIP-1 Cigarette Tax—Informational



February 15CBT-100 Corporation Business Tax—

Annual return for accounting period ending October 31

continued

February 15 - continued


NJ-500 Gross Income Tax—Employer’s monthly remittance

February 20CR-1 & Cigarette Tax—Monthly reportCNR-1 of cigarettes sold or used by






continued

February 20 - continued

ST-21 New Jersey/New YorkCombined State Sales andUse Tax—Monthly return

ST-51 Sales and Use Tax—Monthlyremittance

ST-250 Combined Atlantic CityLuxury Tax/State SalesTax—Monthly return


ST-451 Sales and Use Tax–SalemCounty—Monthly Return



February 26PPT-41 Petroleum Products Gross

Receipts Tax—Monthly return

2001

2001

marchSUN. MON. TUE. WED. THU. FRI. SAT.

1 2 3

4 5 6 7 8 9 10

11 12�

13 14 15�

16 17

18 19 20�

21 22 23 24

25 26�

27 28 29 30 31

March 12CWIP-1 Cigarette Tax—Informational



March 15CBT-100 Corporation Business Tax—

Annual return for accountingperiod ending November 30

continued

March 15 - continued


NJ-500 Gross Income Tax—Employer’s monthly remittance

March 20CR-1 & Cigarette Tax—Monthly reportCNR-1 of cigarettes sold or used by






continued

March 20 - continued

ST-21 New Jersey/New YorkCombined State Sales andUse Tax—Monthly return

ST-51 Sales and Use Tax—Monthlyremittance

ST-250 Combined Atlantic CityLuxury Tax/State Sales Tax—Monthly return


ST-451 Sales and Use Tax–SalemCounty—Monthly Return



March 26PPT-41 Petroleum Products Gross

Receipts Tax—Monthly return

To order copies of the 2000 Package NJX: Complete the form below (be sure to include your daytimetelephone number), detach at the dotted line and mail the order, along with payment, to:

STATE OF NEW JERSEYPACKAGE NJXPO BOX 286TRENTON NJ 08646-0286

�� -------------------------------------------------------------------------------------------------------------------------------

2000 Package NJX Order Form(For office use only)

ITEM QTY. PRICE EACH TOTAL

2000 Package NJX printed version (loose leaf pages) $10.00

NJX 3-Ring Binder (Empty binder – does not include loose leaf pages) $7.00

CD-ROM NJX PLUS (2000 Package NJX plus tax information publications) $15.00

Total Enclosed

Name_______________________________________________________

Address _____________________________________________________

____________________________________________________

City, State _________________________________ Zip Code _________

Make your check or money order payableto: State of New Jersey - NJX.

Telephone ( )

E-mail_________________________M-5037 (W2000)

2001

from the director’s deskAs the 2000 filing season begins, I would once again like to remind you about our paperlessfiling methods and encourage you to try one. Whether it’s NJ TeleFile, NJ PC File or e-file,you’ll find that it’s easier and less taxing than you might think to file your NJ income taxesand you’ll get your refund in about two weeks. And this year, when you file using one ofthe paperless methods, you have the option of requesting direct deposit of your refundand/or homestead rebate check so you’ll have access to your money that much faster. Foreligibility requirements for each of these programs visit our Web site, or call 1-800-323-4400.

Be sure to take a look at the articles on thefront page of this issue to learn about all thechanges that affect this year’s returns.

new jersey state tax news winter · pdf fileyear new jersey resident during 2000, and have...

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