New Jersey to offer tax amnesty in 2018

New Jersey is preparing to offer a tax amnesty program to encourage taxpayers with outstanding taxes to pay the taxes they owe.

The legislature originally called for a six-month amnesty period ending no later than December 31, 2018. That would have given the Division of Taxation little time to get its ducks in a row. Governor Phil Murphy issued a partial veto, returning the measure to the legislature with changes proposed by the Division of Taxation, “so that it is able to administer the program in a manner consistent with similar past programs.”

Due to the partial veto, the amnesty period is now set to last no more than 90 days and must conclude by January 15, 2019. Several other proposed changes were also adopted.

The upcoming amnesty period will apply to tax periods from February 1, 2009, to September 1, 2017. Taxpayers who apply for amnesty and are accepted into the program must file and remit in full to the Division of Taxation the tax due as of November 1, 2018, plus one-half of any interest owed as of that date. For taxpayers who comply with the terms of the amnesty, the Division will halve the interest owed on the delinquent tax as of November 1, 2018.

Gov. Murphy vetoed the line calling for the Division to waive any applicable civil or criminal penalties, inserting, “The taxpayer shall be required to pay any civil fraud or criminal penalty.” However, the following penalties will be waived for taxpayers who fulfill the terms of amnesty:

• Cost of collection
• Delinquency penalties
• Late filing penalties
• Late payment penalties
• Recovery fees

Tax amnesty is closed to any taxpayer who, at the time of payment, is under criminal investigation or charge for any state tax matter. Additional details are available in the text of AB 3438.

States can often predict approximately how much revenue a tax amnesty program will generate. According to the fiscal analysis for AB 3438, however, “the Office of Legislative Services (OLS) is unable to estimate a precise amount of revenue that a new tax amnesty may collect.” Past amnesty programs in New Jersey have generated wildly varying amounts:

• $68 million in 1987
• $244 million in 1996
• $647.1 million in 2009

Given the fact that the state offered an amnesty program in 2014 (bringing in approximately $75 million in either net or gross collections — the OLS isn’t sure which), the OLS predicts the 2018 tax amnesty program could bring in revenue that is “noticeably lower than past programs.”

Tax amnesty programs provide a terrific opportunity for taxpayers with outstanding tax balances to wipe the slate clean. If you’re considering tax amnesty but want a second opinion, the Avalara Professional Services team can help. Learn more.