Spring 1994 ˘ˇˆ˙˝ - New Jersey · 1, 1994, and take into account the ... rate for accounting periods ending between January 1 and June 30, ... Spring 1994 ˚˜" ˜" " "1. 2

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��Volume 23, Number 1

Spring 1994

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Income TaxRates ReducedRecent tax legislation (Chapter 2,P.L.1994) reduces the New JerseyGross income tax rates 5% for alltaxpayers for tax years 1994 andthereafter. The reduction is retroac-tive to January 1, 1994, and willaffect the amount of tax employersare required to withhold and remit tothe State.

The Division is currently sendingnotices and revised withholding tablesto all employers registered in theState. The tables are effective May1, 1994, and take into account theadditional reduction in withholdingrequired because tax was withheld atthe old (higher) rates on wages paidbetween January 1, 1994 andApril 30, 1994.

Corp SurtaxEliminatedRecent tax legislation (Chapter 3,P.L. 1994) discontinues the surtaxon corporate net income as of Janu-ary 1, 1994. The surtax was enactedin 1986 (Chapter 144, P.L. 1986) asa temporary measure, and affectsreturns for tax years ending in fiscalyears 1989 through 1994.

The legislation provides a formulafor determining an adjusted surtaxrate for accounting periods endingbetween January 1 and June 30,1994. That rate is determined bymultiplying the surtax rate for theperiod (.00375) by a quotient, thenumerator of which is the number of

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complete calendar monthsin the taxpayer’s accountingperiod ending before January 1, 1994,and the denominator of which is thetotal number of complete calendarmonths in the accounting period.

.00375 x

= Adjusted Surtax Rate

This calculation ensures that the sur-tax rate is reduced proportionally forthose taxpayers with a tax year end-ing after January 1, 1994. The sur-tax is then eliminated for fiscal year1995 and thereafter.

The adjusted surtax rates for taxpay-ers with accounting periods covering

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��!��Taxpayer Hotline ....... 609-588-2200Recorded Topics .......... 800-323-4400Speaker Programs ...... 609-588-3179

Alcoholic Bev. Tax ...... 609-984-4121Corporate Mergers, Withdrawals &

Dissolutions .... 609-292-5323Corporate Tax Liens .. 609-292-5323Director’s Office ........ 609-292-5185Inheritance Tax .......... 609-292-5033

.......................... 609-292-5035

.......................... 609-292-7147Local Property Tax ..... 609-292-7221Motor Fuels Tax Refunds

.......................... 609-292-7018Public Utility Tax ....... 609-633-2576Tax. Registration ........ 609-292-1730

continued on page 2

Months ending before 1/1/94Total months in tax year

Spring 1994

12 months are listed below. Tax-payers with accounting periods cov-ering less than 12 months must com-pute the appropriate rate using theformula indicated above (on page 1).

Fiscal Year Adjusted SurtaxEnded Rate

1/31/94 ................ 0.003442/28/94 ................ 0.003133/31/94 ................ 0.002814/30/94 ................ 0.00255/31/94 ................ 0.002196/30/94 ................ 0.00188

Use the adjusted surtax rate atLine 7 (b) of Form CBT-100 (1993)and Line 13 of Form CBT-100S(1993). Any surtax due is in additionto tax on corporate net income, andis subject to all the penalty and inter-est provisions related to estimatedtax payments, late payments and latefilings.

Interest 9% forFirst QuarterThe interest rate assessed onamounts due for the first quarter of1994 remains at 9%. This rate iscalculated as follows:

6% (prime) + 3% = 9%, compounded annually

Listed below is the prime rate andassessed interest rate history.

Prime InterestDate Rate Rate1/1/93 6% 11%3/1/93 6% 11%6/1/93 6% 11%7/1/93 6% 9%10/1/93 6% 9%1/1/94 6% 9%

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Index for ’92–’93In the center of this issue you will findtwo separate documents for your use.The indexes for both Volume 21(1992) and Volume 22 (1993), as wellas a listing of tax legislation for 1993,appear in two separate removable(pull-out) sheets. Once removed, theindexes can be stored whereverconvenient and helpful for retrieval.

NJ TaxFaxBurning the midnight oil doing taxesonly to find you need another form?If you have access to a fax machine,a new service offered by the NewJersey Division of Taxation can pro-vide instant relief. NJ TaxFax makesState tax forms available 24 hours aday, 7 days a week to fax machineusers.

“This new service is aimed primarilyat professional tax preparers,” saidActing State Taxation Division Direc-tor Bob Thompson, “but anyone whohas facsimile capability can now get aState tax form whenever they needit.”

At present, 20 of the more frequentlyrequested individual and corporationincome tax forms are available throughNJ TaxFax. In the future, notices ofchanges in New Jersey’s tax laws andnew technical information and proce-dures also may be available throughNJ TaxFax.

The new feature is part of an on-goingeffort to improve services to tax prac-titioners and taxpayers of New Jersey,

and speed re-ceipt of taxreturns, saidS t a t eTreasurerB r i a nClymer.

The NJ TaxFax number is (609)588-4500. Once connected, simplyenter the form number of the de-sired form. It will be faxed to youwithin seconds. Persons unsure ofthe number of the form they needcan request a list of all forms avail-able by phoning NJ TaxFax.

TaxFax users are cautioned that theDivision of Taxation will not acceptreturns filed on fax paper. Forms

continued on page 3

sanfax 100

FAX

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��is published by the:

New Jersey Division of TaxationTaxpayer Services BranchOffice of CommunicationCN 281Trenton, NJ 08646-0281

Division of Taxation Acting Director: Robert K. Thompson

Area News Coordinators:Audit Frank HigginsCompliance Jim PronchickCriminal Investigations Ronald RehlLegislative Ronald DeMarcoPolicy & Planning John BodnarProcessing/Admin. Glenn HollandProperty Admin. Gary AmerineTax Services Arthur GuentherTaxpayer Services Denis Gallagher

Contributors: Gary Amerine, JoanBench, John Bodnar, Nicholas K. Catalano,Kathy Dougherty, Ronald DeMarco,Harold Fox, Denis Gallagher, Arthur J.Guenther, Frank Higgins, Denise M. Lam-bert, Robert A. Marchione, JoanMcLaughlin, Ruth McLaughlin, JohnMetzger, Sara Murphey, Jack Murray,Ronald Rehl, Michael Roach, RichardSchrader, S. Curtis Siefert, Mitchell C.Smith, Selma Stein, Robert K. Thompson,Mark Wintermute, Karen Wood, andAllette F. Wooley.

Editor: Linda B. Hickey

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Spring 1994

received by fax must be photocop-ied before they are filed with theDivision.

Persons without fax machines canreceive tax forms by mail by callingthe Division’s 24-hour toll-freeHotline at 1-800-323-4400.

GROSS INCOME TAX

Income fromS CorpsEffective with taxable years begin-ning after July 7, 1993, New Jerseywill allow limited pass-through taxa-tion of S corporation (corp) income.For shareholders who report on acalendar year, this change will beeffective beginning with tax year1994.

S corp shareholders must report theirpro-rata share of S corp incomewhether or not distributed. A newcategory of income, Net Pro-rataShare of S Corporation Income, hasbeen created at N.J.S.A.54A:5-1p.A separate line will be added to the1994 NJ-1040, NJ-1040NR and NJ-1041 for reporting this income.

The reporting and taxing of S corpincome for New Jersey Gross In-come Tax purposes is to be done ona limited flow-through basis. Unlikethe Federal S corp or Federal andNew Jersey partnership reporting,the income or loss earned by the Scorp does not maintain its characterwhen flowed through to the indi-vidual shareholders. Items such asinterest, dividends and capital gainsare to be included in the Net Pro-rataShare of S corp income (N.J.S.A.54A:5-1p.) The income or loss to bereported by the shareholder in thiscategory is the net income or loss

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continued on page 4

reported on the shareholder’s Fed-eral 1120S K-1 modified as requiredby New Jersey Tax statutes.

Nonresident taxpayers will reportonly their pro rata share of S corpincome allocated to this State of aNew Jersey S corp pursuant toN.J.S.A. 54A:5-8. (6).

No resident will be allowed a creditagainst the tax otherwise due underthis Act for S corp income allocatedto this State and taxed by anotherjurisdiction. See amendments toN.J.S.A. 54A:4-1.

Estimated payments as required byN.J.S.A. 54A:8-4 have not changed.S corp shareholders will need tomake estimated payments to covertheir pro rata share of S corp incometo avoid interest for the underpay-ment of estimated taxes.

Future publications will have addi-tional information about the tax ef-fect of this legislation.

CORPORATION TAX

Reporting S CorpIncomeEffective with taxable years begin-ning after July 7, 1993, New Jerseywill allow limited pass-through taxa-tion of S corporation income.

The basic concept remains similar tothat under the Internal Revenue Code;that is, S corporation shareholdersmust pay personal income tax ontheir pro rata share of S corporationincome whether or not actually dis-tributed to the shareholder during theshareholder’s tax year.

For New Jersey CBT purposes, Fed-eral S corporations failing to electNew Jersey S corporation status are

taxed at the same rate as aC corporation (9%). Those Fed-eral S corporations electing New Jer-sey S corporation status will receivea 7% reduction in the current tax ratefrom 9% to 2%. This reduction isequal to the maximum rate chargedunder New Jersey Gross IncomeTax. In addition, entire net incomethat is taxable at the Federal corpo-ration level as C income will be taxedfor New Jersey S corporations at therate of 9%.

In determining the “entire net in-come” for New Jersey S corpora-tions, the Federal 1120S, line 21, isto be modified to reflect all distribu-tive items of income and expenseplus or minus the adjustments enu-merated in CBT 54:10A-4(k). Thenew legislation now disallows thededuction of taxes paid or accrued toU.S. possessions, District of Colum-bia, and all other states. The alloca-tion provisions under Section 6 ofthe Statute remain unchanged andapplicable to New Jersey Scorporations.

In addition, the legislation defines“operational income” as income fromtangible and intangible property ifthe acquisition, management, anddisposition of the property constituteintegral parts of the taxpayer’s regu-lar trade or business operations andincludes investment income servingan operational function. With regardto non-operational income, the tax-payer must clearly demonstrate thatit is not operational in order to ex-clude it from entire net income. Suchnon-operational income, other thanincome attributable to taxpayers whohave a New Jersey location as theirprincipal place from which their busi-ness is managed, is not subject toallocation. Corporate expenses re-

3

Spring 1994

the Branch point of view, it providesfor the dissemination of accurateTransfer Inheritance and Estate Taxinformation to those who are con-fronted with related compliance re-quirements. Benefits to the Branchare unmistakably attested to in theform of improved quality in certainareas of reporting and compliance.

It is the belief of the Branch thatmutual benefits may be realized withother interested groups through simi-lar communication.

For additional information about theinheritance tax speaker program,call the Transfer Inheritance TaxBranch in Trenton.

Audit ActivityAudit Activity uses many techniquesto determine if taxpayers are meet-ing their obligations under NewJersey’s tax statutes. One methodthat Audit Activity expects to makegreater use of is third partyinformation.

The Field Audit Branch is about toconclude a project where most ofthe pizza restaurants in New Jerseywere subjected to an audit and wherethird party information was a majortool in the audit program. In additionto the normal verification and auditprocedures, businesses that supplyraw materials such as flour, cheese,and tomato sauce were contactedby Audit personnel. They were askedto submit the total amount of thesepurchases for the audit period forthe pizza restaurants that they sup-plied. In most cases the suppliersprovided this information in a coop-erative manner. When they did not,the Division acquired the neededinformation through the use of a

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lating to non-operational incomeare not deductible from entire netincome.

A New Jersey S corporation is acorporation that is an S corporationas defined by IRC 1361 and hasmade a valid New Jersey election.For the election to be valid, thecorporation and all present share-holders, referred to as initial share-holders, must consent to the electionand the requirements of the Statute.The corporation will be required topay the tax on the pro rata share ofS corporation income allocated toNew Jersey at the rate of 7% for thesubsequent shareholders that fail toconsent and/or object to the NewJersey jurisdictional requirements.

The following increase in the mini-mum tax for domestic and foreigncorporations will also apply to NewJersey S corporations:

Period Domestic ForeignBeginning Corporation Corporation

In Calendar Minimum MinimumYear Tax Tax

1994 $ 50 $ 1001995 100 2001996 100 2001997 200 200

Subsequent increases at intervals offive years after 1997 will be deter-mined based on the annual averagetotal producer price index for fin-ished goods as published by the U.S.Department of Labor.

The Division is now in the process ofpreparing the 1994 CBT-100S Re-turn and the related schedules withpertinent instructions.

CORPORATION TAX

RecouplingAs a result of legislative changesadopted July 7, 1993, taxpayers sub-ject to the Corporation Business Taxwhose accounting periods begin on orafter July 7, 1993, may recouple toFederal depreciation for recovery as-sets placed in service on or after thisdate. Taxpayers whose accountingperiods begin prior to July 7, 1993,who place recovery assets in serviceeither before or after July 7, 1993,may not recouple to Federal depre-ciation. The distinguishing feature isthe date the accounting period begins.

This method allows for an orderlyphase-out of New Jersey’s require-ment to recompute depreciation onrecovery property placed in serviceafter 1980 but prior to a taxpayer’sfiscal or calendar year accountingperiod beginning on or after July 7,1993. This change is anticipated toaffect all 1994 returns, as well asselected 1993 returns.

INHERITANCE/ESTATE TAX

Speaker ProgramThe Transfer Inheritance and EstateTax Branch has had positive resultswith a revamped speaker programlaunched in July 1991 in conjunctionwith New Jersey Banking institu-tions. The program provides for adelegate of the Branch to visit variousrepresentative groups of financial in-stitutions to address specific areas ofNew Jersey Transfer Inheritance andEstate Tax laws as they apply to thebanking community.

This program has served to providethe Branch and this particular groupwith a better understanding of theirmutual concerns and problems. From

continued on page 5

4

Spring 1994

� �� " from page 4

subpoena. Once the purchase infor-mation was available, the mark-uppercentage for each restaurant wasdetermined and applied to the cost ofthe raw materials.

The resulting estimated gross re-ceipts were adjusted for various fac-tors unique to each operation andthen compared to the figures re-ported to the Division. Significantdifferences resulted in assessmentsfor unreported taxes. When it ap-peared that there were gross under-statements of receipts, the case wasturned over the Division’s Office ofCriminal Investigations for possiblecriminal actions.

As resources permit, the Divisionintends to develop other projects andtechniques that will make use ofavailable third party information.These projects will help the Divi-sion of Taxation meet their goal ofinsuring that taxpayers are meetingtheir tax obligations.

Revaluation FirmsRegulations issued under N.J.S.A.54:1-35.35 pertain to standards andqualifications of appraisal firms thatvalue property for assessment pur-poses under municipal contract.Firms and individuals contracting forthis business are required to annuallyprovide certain information to theDirector of the Division of Taxation.The following firms have submittedthe necessary information for the1994 tax year.

AMS Appraisals, Inc.Appraisal & Revaluations ServicesAppraisal Surveys, Inc.Appraisal Systems, Inc.Certified Valuations, Inc.Cole-Layer-Trumble CompanyHerskowitz, Rosen & Walton

Market Value Appraisal ServiceMGM AssociatesMMC, Inc.Municipal Data Services, Inc.Property Evaluations Co., Inc.Realty Appraisal CompanyHarry F. Renwick Jr., & Assoc.Security Appraisal Company, Inc.Vital Appraisal Systems

Complete mailing addresses for thefirms listed can be obtained by writ-ing to Property Administration, Policyand Planning Section, CN 251,Trenton, NJ 08646.

CriminalEnforcementCriminal enforcement actions overthe past several months included:

November 16, 1993 - James V.Ferlisi, former president of VitosRistorante, Inc, of North Bergen,will enter a Pre-Trial Interventionprogram as the result of failing toremit Sales Tax. Mr. Ferlisi will makefull restitution of the tax, includingpenalties and interest. This case isthe result of a joint investigation withthe Division Of Alcoholic BeverageControl and the Division of CriminalJustice.

November 29, 1993 - David Peselli,President of 2N, Inc., T/A Sluggo’sSaloon, of North Arlington, was ad-mitted to a Pre-Trial Interventionprogram as the result of failing to fileand remit Sales Tax. Mr. Peselli willmake full restitution of the tax, in-cluding penalties and interest. Thiscase is the result of a joint investiga-tion with the Division Of AlcoholicBeverage Control and the Divisionof Criminal Justice.

January 12, 1994 - Lalji Patel, man-ager of Uni Mart, Inc. in Mt. Holly,

entered a guilty plea tocharges of possessing cigarettesnot bearing New Jersey revenuestamps and failure to obtain a li-cense. Mr. Patel was fined $1,750.

January 19, 1994 - Mathew J.Werneth, president of JR Associatesof NJ, Inc., entered a guilty plea tocharges of failing to remit Sales Tax.As part of the plea agreement, resti-tution will be ordered and a consentjudgment will be filed to secure thetax debt.

EnforcementSummaryCivil Collection Actions Quar-ter Ending - December 31, 1993Compliance Activity personnel col-lected a total of $38.0 million for thequarter ending September 30, 1993.Following is a summary of enforce-ment actions.

Certificates of DebtAfter demands for payment wereunsuccessful, the Division entered1,271 Certificates of Debt in Supe-rior Court totaling $24.1 million.

Contact and DemandPrior to the filing of Certificates ofDebt, the Division collected $34.7million through normal collectionprocedures.

LeviesThe Division collected $1.5 millionby levying against 323 bank accounts.

SettlementsAnother $1.4 million was collectedby closing 140 cases just beforeseizure in which the taxpayer paidtaxes due rather than have his or herbusiness closed.

continued on page 6

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Spring 1994

a price equal to cost of materials,labor and overhead, plus 6%. Alicense agreement is executed be-tween F corporation and its NewJersey customer. The license agree-ment consists of an “initial pay-ment” for use of certain patents,know - how, and inventions. Title tothe equipment passes to the pur-chaser upon receipt of the initialpayment. An additional license feeis paid by the purchaser of the equip-ment to F corporation based uponproduction. The production pay-ment continues until the patentsexpire or the license agreement isterminated. F corporation warrantsthat the equipment meets publishedspecifications and services the equip-ment within the one (1) year periodfrom the date of delivery. After theinitial warranty period will have ex-pired, F corporation will continue toservice the machines provided thecustomer pays for labor and re-placement parts.

In Mark Andy, Inc. v. TaxationDiv., Director, 8 N.J. Tax 593(1986) a Missouri corporation was“doing business” in New Jersey forpurposes of corporation businesstax. The corporation actively solic-ited customers in New Jerseythrough a sales representative andthrough its preventive maintenanceprogram, and established continu-ous relationship with customers inorder to promote sale of replace-ment parts.

Based upon the facts, including theinstallation and training of customerstaff at customer’s location, the ser-vicing of the equipment for one yearfrom date of delivery, and the ar-rangement by which F corporation

��" from pg. 5P.L. 1993, c173, Sec. 2 (N.J.S.A.54:10A-5(c)(2), New Jersey S corpo-rations currently would pay tax at arate of 2.375%. A net operating lossdeduction would be taken into ac-count in computing entire net income(the tax base) subject to allocationand tax in New Jersey for a NewJersey S corporation for corporationbusiness tax purposes. There is, how-ever, no provision to permit an indi-vidual taxpayer to carry forward an Scorporation operating loss on his orher individual return. Under the newlaw net pro rata share of S corpora-tion income is a taxable category ofincome N.J.S.A. 54A:5-1p., and lossesfrom one category of income cannotbe offset by income in another cat-egory pursuant to N.J.S.A. 54A:5-2.See also N.J.S.A. 54A:5-12.b.

Subjectivity – A question was raisedconcerning whether a foreign corpo-ration would be subject to tax in NewJersey based upon the following factsand circumstances.

F corporation is organized in a stateother than New Jersey and has its soleoffice in the state of incorporation.Accordingly, F corporation does notmaintain an office in New Jersey, nordoes it have employees in New Jer-sey. F is engaged in business activi-ties, as follows:

F corporation manufacturers a pat-ented machine which it sells to acustomer in New Jersey. The salesorders are executed in the state ofincorporation and not in New Jersey.Shipments of machines are made bycommon carrier. Installation and train-ing of customer staff are done by Fcorporation’s employees at thecustomer’s location. F corporationsells the equipment to its customer at

Tax SeizuresAfter the Division has exhausted allother means to collect the State taxesdue from vendors who cannot or willnot pay, the business can be “seized”(closed) until some arrangement ismade for payment. When a seizureoccurs, the Division closes the busi-ness and seizes any tangible assets,such as inventory, machinery,furniture, etc.

If the liability of the closed businessis not resolved, the Division can sellthe business assets at public auctionafter 30 days. If the amounts realizedfrom the auction are not enough tosatisfy the entire debt, the Divisioncan seize the personal assets of theresponsible officers where trust fundtaxes (Sales Tax and Income TaxWithholding) are involved.

A total of 28 businesses were sched-uled for seizure for the quarter end-ing December 31, 1993. Of these, 13businesses were actually closed and15 were left open, resulting incollections of $400,000. A listingof seized businesses appears onpages 7 and 8.

Tax BriefsCorporation Business TaxS Corporations; Loss Carry For-ward – A taxpayer inquired as towhether New Jersey S corporationlosses can be carried over at eitherthe S corporation or individual level.

The Division advised that the provi-sions for net operating loss carryforwards for the corporation busi-ness tax are found at N.J.S.A. 54:10A-4(k)(6). Under the statute establish-ing S corporation recognition, for taxyears starting after July 7, 1993, continued on page 8

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Spring 1994

Division of Taxation Seizures(Oct. - Dec. 1993)

Note: Businesses listed may have satisfied their tax liability or otherwise come to agreement with the Division following the date ofseizure and may now be reopened:

continued on page 8

County Name/Address Seizure Date Business Type Status

Atlantic Moo Kyoung Yang 11-04-93 Sushi Bar & Restaurant ReopenedT/A Han Kuk Kwan 11-05-9315 S. Tennessee AvenueAtlantic City

GGS Women’s Minority 12-02-93 Bar w/Kitchen Facilities ClosedGroup, T/A Bungalow Inn200 Philadelphia AvenueEgg Harbor

Bergen M & S Video Amusements 11-23-93 Concession Counter Closed25 Saddle River AvenueS. Hackensack

Budget Trade Show 12-02-93 Small Warehouse w/Office ClosedDisplays, Inc.21 Third StreetRidgefield Park

Burlington Thomas E. Lucas 12-09-93 Auto Welder & ReopenedT/A Tom’s Auto & Junk Yard 12-17-93Wrecker ServiceRD 1, Chambers CornerMount Holly

Camden NACE, Inc. 10-13-93 Go Go Bar ReopenedT/A French Quarter Inn 10-15-932350 Admiral Wilson Blvd.Camden

Gaston Jones 12-07-93 Bowling Alley/Pro Shop ReopenedT/A Crest Lanes Pro Shop 12-10-93100 Woodcrest PlazaCherry Hill

Cumberland Dorene Hand 11-30-93 Miniatures & Collectibles Closed203 Kates Blvd.Millville

Essex William J. Ferdon 12-07-93 Auto Repair Shop ReopenedT/A Eurotech 12-22-93151 Forest StreetMontclair

Hudson Mike’s Garden Auto 10-20-93 Auto Body ClosedBody Inc.800 Jackson StreetHoboken

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Spring 1994

�� " continued from pg. 7

County Name/Address Seizure Date Business Type Status

Ocean Berky Incorporated 12-14-93 Pizzeria & Restaurant ReopenedT/A Speakeasy Pizzeria 12-15-9314th & Blvd.Ship Bottom

Passaic Serrano Builders, Inc. 11-18-93 Bar ClosedT/A Duke’s Tavern7 Church StreetPaterson

Salem Foster’s Tire Sales, Inc. 10-26-93 Tires & Service for Cars, ClosedT/A Foster’s Tire Trucks and Farm EquipmentRD 3, Box 10, Route 45Woodstown

will continue to service the machinesafter that time provided that thecustomer pays for labor and replace-ment parts, it is the opinion of theDivision that F corporation is doingbusiness in New Jersey and as suchwould be subject to the corporationbusiness tax. See N.J.A.C. 18:7-1.6and N.J.A.C 18:7-1.9.

Gross Income TaxDividends Paid-Up Life Insurance– A taxpayer inquired as to whetherthe dividends received on a paid-uplife insurance policy are subject tothe New Jersey Gross Income Tax.The Division responded that, forNew Jersey gross income tax pur-poses, dividends on paid-up life in-surance policy are considered a re-turn of premiums and are not taxableuntil they exceed the total premiumsor other payments made for the in-surance. However, any interest paidon these dividends is subject to tax.

Sales TaxCrossword Puzzle Magazines –The Division received an inquiryconcerning the sales taxation of cross-

useful in the absence of illness orinjury, the Division takes the posi-tion that they do not qualify forexemption, even if the customerprovides a prescription from a phy-sician. Under the law, the existenceof a prescription does not determineexempt status.

Sale and Installation of GasolineService Station Equipment – TheDivision recently responded to aninquiry concerning the sale and in-stallation of gasoline service stationequipment in New Jersey. The capi-tal improvement rules as found atN.J.S.A. 18:24-5 are used to deter-mine whether the installation of ser-vice station equipment results in acapital improvement to real prop-erty. The capital improvement ex-emption is statutory, and applies inthese situations.

The permanent installation of un-derground storage tanks and theassociated piping constitutes a capi-tal improvement under N.J.S.A54:32B-3(b)(2) of the Sales and UseTax Act. The permanent installationof other property such as pumps,islands, signs, etc. may also result in

�� " continued from pg.6word puzzle publication magazines.Crossword puzzle publications meetthe “information” requirements ofN.J.A.C. 18:24-1.2 which define ex-empt periodicals; thus, if all of theother criteria are satisfied (publishedat least four times a year, generallyavailable for circulation, less than90% advertising, etc.), retail sales ofcrossword puzzle magazines qualifyfor exemption from sales tax.

Sales of Treadmills and ExerciseBicycles – The sales of treadmills andexercise bicycles are subject to salestax. Pursuant to N.J.S.A. 54:32B-8.1of the New Jersey Sales and Use TaxAct (See P.L. 1987, c.383), sales ofdurable medical equipment are ex-empt from sales and use tax in thisState. Durable medical equipment isdefined in the law to mean equipmentthat can withstand repeated use, isprimarily and customarily used toserve a medical purpose, is generallynot useful to a person in the absenceof illness or injury, and is appropriatefor use in the home.

Since treadmills and exercise bicyclesare not customarily used to serve amedical purpose and generally are

8

continued on page 9

New Jersey State Tax News1993 (Volume 22)

INDEXNo. Page

ALCOHOLIC BEVERAGERestricted Brewery License (Legislature) 2 12Seizure of Liquor License (Legislature) 2 12

ATLANTIC CITY CASINO PARKING FEECasino Parking Fee in Atlantic City 2 2

BUSINESS PERSONAL PROPERTY TAXRepeal (Legislature) 2 12

CAPE MAY COUNTY TOURISM TAXExempt Organizations 2 10

CORPORATION BUSINESS TAXAllocation 1 104Business Incentive Package (Legislature) 2 12Division’s Section 8 Computation was Fair (Court) 1 106Foreign Shopping Companies & Corporation Tax 2 13In-State Activities Protected by Interstate Income Act (Court) 3 10Interest on Indebtedness Not Deductible (Court) 3 10N.J.A.C. 18:7-5.13(b) Upheld—NOL in Corporate Merger (Court) 1 106New Audit Group Formed 2 3Notice of Business Activities Report 3 3S Corporation Election Form 3 1Surtax of 0.375% Imposed 1 99UEZ Tax Employee Tax Credit 3 6Voided Corporate Charters 3 3

GENERALExpanded Services Provided 3 2Our New Look 2 1

GROSS INCOME TAXCalculating Credit for Taxes Paid to New York on S-Corp Income (Court) 1 107Credit for Taxes Paid 3 6Federal Tax Match Program 2 3Joint Project with IRS 3 6Limited Liability Companies (Legislature) 2 12NJ Partnership Return 3 2Nonresidents and Gambling Winnings 2 2Nonresident Tax Computation (Legislature) 2 12Pension Income, Taxability of 3 9Ride-Sharing Program Incentives (Legislature) 1 105Tug Boat Workers 1 104

HOMESTEAD REBATE1992 Homestead Rebates 3 2

1993 New Jersy State Tax News INDEX

1

No. PageHOMESTEAD REBATE (Continued)1993 Homestead Rebates 3 2

INHERITANCE TAXEstate Tax Update 3 4Inheritance Tax Form Revised 3 4New Policies for Estate Tax 2 3

LITTER TAXPrepackaged Food Sold to Restaurants 2 6Processors of Egg Products 3 6

LOCAL PROPERTY TAXChapter 251 Amended—Single-Use Agricultural Facilities 3 5Extensions for Certain Revaluations (Legislature) 1 106Farmland Assessments (Legislature) 2 12Farmland Evaluation Advisory Committee Meets 2 5Property Tax Exemption for Some Health Care Properties 2 5Tax Talk Additions 3 5

MISCELLANEOUSCivil Collection Actions—Jan.–March 1993 1 100Code of Ethics/Outside Employment (Court) 3 10Criminal Actions—Jan.–March 1993 1 99Criminal Enforcement—June–August 1993 2 5Criminal Enforcement—Sept.–Oct. 1993 3 5Enforcement Summary—Jan.–March 1993 1 99Enforcement Summary—April–June 1993 2 6Enforcement Summary—July–Sept. 1993 3 6Interest Assessed at 11%—2nd Quarter 1993 1 98Interest Assessed at 9%—3rd Quarter 1993 2 1Interest Assessed at 9%—4th Quarter 1993 3 1Magnetic Media & Unclaimed Property 3 51993 Package NJX 3 3Seizures—Jan.–March 1993 1 101Seizures—April–June 1993 2 7Seizures—July–Sept. 1993 3 7Tax Assessor Certificates—March 27, 1993 2 4Tax Assessor Certificates—Sept. 18, 1993 3 41992 Tax Laws 1 103Taxpayers’ Bill of Rights Ensures Fair Treatment 1 93Voluntary Disclosure Policy 1 96

PETROLEUM PRODUCTS GROSS RECEIPTS TAXCompressed Natural Gas 2 9

SALES AND USE TAXCellular Telephones Sold Below Cost 3 9Computer Services 1 105Dentist Self Audit Program 2 4Dentist Self Audit 3 3Hazardous Material Spill Cleanup 1 105


2

No. PageSALES AND USE TAX (Continued)Hazardous Material Spill Cleanup, Clarification of 2 11Interstate Sales Tax Agreement 2 4Life Jackets 3 9Manufacturing Exemption Contains No “For Sale” Requirement (Court) 2 11Microforms 3 9Reliance on Exemption Certificate/Vendor Liability (Court) 2 11Sale of Race Horses Through Claiming Races (Legislature) 2 13Septic Systems Installation 3 9Underground Storage Tanks 2 9Underground Storage Tanks 3 10Urban Enterprise Zone 2 9Wildwoods to Collect 2% Tourism Sales Tax 1 96

SPILL COMPENSATION & CONTROL TAXRail Cars as Storage Capacity 2 10

Legend for 1993 Tax Laws TableABT = Alcoholic Beverage TaxACC = Atlantic City Casino Control CommissionALL = All Taxes Administered by the DivisionBPPT = Business Personal Property TaxCBT = Corporation Business TaxFBT = Financial Business TaxGIT = Gross Income TaxLPT = Local Property TaxS&U = Sales and Use Tax

1993 New Jersy State Tax News INDEX3

1993 TAX LAWSCH. DATE TAX* BILL SYNOPSIS

10 Jan. 15 S&U A-1133(1R) Exempts from sales and use tax coin-paid charges subject to the local callingrate for coin-operated telecommunications devices; provides special tax table.

62 March 4 LPT S-1264 Extends effect of ordinance adopted under obsolete tax exempt abatementlaws.

101 April 3 LPT A-1637/ Permits municipalities a three year spread for impact of increases in taxS-1411 assessments resulting from revaluation.

108 April 16 GIT A-1996(2R) Provides employee tax incentives for ride-sharing programs.

129 June 1 LPT S-1266(1R) Increases membership of boards of taxation in certain counties.143 June 18 GIT A-1979 Gambling winnings of nonresidents subject to gross income tax.

144 June 21 S&U A-1625(1R) Clarifies provision of “New Jersey Urban Enterprise Zones Act.”

150 June 24 CBT S-1320(3R) Provides employer tax incentives for ride-sharing programs.

159 June 29 ACC S-1744 Revises Casino Reinvestment Development Authority law, establishes minimumcasino parking charges and imposes casino parking fees, and provides fordevelopment of hotel rooms.

165 July 1 LPT A-6/2623 Requires FY 1993 municipal distribution of unanticipated and retained StateAcs public utilities gross receipts and franchise taxes for local property tax relief.

166 July 1 LPT A-2048 Excludes certain nonprofit health care properties for the elderly from localproperty taxation.

170 July 7 CBT S-1784 Sca Allows corporation business tax credit or property tax offset for certaininvestments that create new jobs in this State.

171 July 7 CBT S-1820 Sca Manufacturing Equipment and Employment Investment Tax Credit Act.

172 July 7 CBT S-1821 Permits corporations to use Federal modified accelerated depreciation.

173 July 7 CBT A-273/ Provides reduced corporation business tax for electing S corporation.1870 Acs

174 July 7 BPPT A-1015(2R) Repeals the "Business Personal Property Tax.”Aca

175 July 7 CBT A-1033 Acs Provides corporation business tax credit for qualified research expenses inNew Jersey.

178 July 9 GIT A-1071, Requires nonresident payers of gross income tax to compute liability as2060, though residents, then prorate liability by proportion of New Jersey source866 Acs(4R) income to total income.

210 July 30 GIT S-890 Scs Provides for the creation of limited liability companies.

216 July 30 ABT A-2354(3R) Authorizes operation of brew pubs; dedicates alcoholic beverage tax proceedsto prevention of alcohol and drug abuse.

226 Aug. 6 S&U S-744(1R) Limits sales tax on sale of race horses through claiming races.

232 Aug. 6 ABT S-1979 Concerns administration and enforcement of State taxes paid and collected byalcoholic beverage licensees.

251 Aug. 12 LPT S-15(2R) Removes single-use agricultural or horticultural facility from definition ofstructure in Farmland Assessment Act.

274 Nov. 24 S&U S-1165(1R) New registration regulations for businesses.

295 Dec. 22 FBT A-2989 Repeals “Financial Business Tax.”

331 Dec. 23 ALL A-2176(1R) Reduces late payment interest rate to prime rate plus 3%.

338 Dec. 27 CBT S-2047 Exempts corporations licensed as insurance companies under the laws ofanother state from the corporation business tax.

*See Legend on prior page.

New Jersey State Tax News1992 (Volume 21)

INDEX

No. PageALCOHOLIC BEVERAGEAlcoholic Beverage Rates Are Changed 2 29

ATLANTIC CITY TOURISM PROMOTION FEEAtlantic City Proposes Tourism Promotion Fee 1 3Correction of Public Law Chapter Cite in Previous Article 2 40AC Tourism Promotion Fee Imposed on Hotel Room Occupancy (Legislature) 1 17

CORPORATION BUSINESS TAXAmended Return Request by IRS on Audit 3 61Appeal Ruled Untimely-Wheaton (Court) 1 18Corporate Officers’ Responsibility 2 41Fiscal Year Change 2 41NJ Supreme Court Decides Safe-Harbor Lease Case 2 36NY Corporation Franchise Tax: Repurchase Agreements 1 23Proposed Rule Clarifies Recycling Tax Credit Cost 2 40Subsidiary Capital Gain and Interest (Court) 1 20Unitary Tax Base and Capital Gain from Stock Sales-Bendix (Court) 1 19US Supreme Court Overturns Bendix 2 35US Supreme Court: Wisconsin Corporation Business Tax 4 90

FAIR AUTOMOBILE INSURANCE REFORM TAXFAIR Tax on Attorneys Is Constitutional (Court) 1 20

GENERALDivision Hires Payco as Private Collector 4 66Governor Florio Appoints Samuel Crane Treasurer 1 2Governor Florio Proposes $16 Billion Budget for 1993 1 1NJ Division of Taxation Anaheim Office Address Change 2 40NJ Division of Taxation Waives Interest for Storm Victims 4 76NJ Offers Break for World Trade Center 4 73Tax Deadbeats Warned: “You’ll Hear from Us” 3 49

GROSS INCOME TAXCredit for Taxes Paid to Other Jurisdictions (NJ Resident Working in NY) 4 67Disability Payments, Reporting of 3 60Domestic Help Taxes—Follow Federal Rules 4 82Estimated Payments 1 13Information Returns (1099, W-2 and W-2P), Filing of 4 83Insurance Premium Paid by S-Corp, Taxability of 2 42Nonresident Alien Income 2 42Philadelphia Net Profits Tax 4 82Qualified Investment Fund (Legislature) 4 84Retirement Plan Distributions to Surviving Beneficiary, Taxability of 3 60Sick Leave Payments 1 12Student Loan Marketing Association Securities (“Sallie Maes”) 1 12Vietnam Veterans’ Memorial Fund (Legislature) 4 84


1

No. PageHOMESTEAD REBATEExempt-Property Tenants are Ineligible for Rebate 4 72Gross Income Limitation for Minimum Rebate Upheld (Court) 2 45Homestead Rebate Revised for 1992 2 27On-Campus Apartments Ineligible for Rebate 1 6Profiles of Homestead Rebate Recipients 1 3Separate Kitchen & Bath Criteria Upheld (Court) 2 45

INHERITANCE TAXEstate Tax Due Date (Legislature) 2 44New Law Changes Estate Tax Due Date 2 27INSURANCE PREMIUMS TAXCourt: Phase-out Distributions 1 21

LITTER TAXLegislature: Extension 4 85Litter Control Tax Reimposed through 1995 4 71

LOCAL PROPERTY TAXAssessor Complaints on Omitted Property, Permission of (Legislature) 1 17Business Retention Act (Legislature) 2 44Business Retention Act, Correction 3 54Business Retention Act Reverses Texas Eastern 2 30Compliance with Statutory Period for Filing an Appeal (Court) 4 89Comprehensive Tax Abatement and Exemption Law (Legislature) 1 18Condominium Assessments Not Spot Assessments (Court) 4 86County Authority’s Exemption from Property Tax (Court) 4 87Court Can Increase Assessment Based on True Value (Court) 2 46Definition of Veteran for Property Tax Deduction (Legislature) 1 17Failure to Provide Formal Notice of Foreclosure 3 63Failure to Respond to Assessor’s Request for Income Data (Court) 4 87Five-year Abatements (Legislature) 1 18Realty Transfer Fee—Shore Protection Fund (Legislature) 4 85Statutory Time Constraint for Municipality’s Tax Appeal Counterclaim 3 63Unclaimed Property (Legislature) 4 86Unilateral Withdrawal of Complaint/Freeze Act Protection (Court) 1 22US-HUD Subsidy Is Not Part of “Annual Gross Rents” 3 62Using Land Assessment as Evidence of Land Value Is Unacceptable 2 46Vacated Foreclosure Judgment (Court) 4 88

MISCELLANEOUSCivil Collection Actions—Jan.–March 1992 1 7Civil Collection Actions—April–June 1992 2 33Civil Collection Actions—July–Sept. 1992 3 52Civil Collection Actions—Oct.–Dec. 1992 4 80Conferences, Appeals Project Established 2 41Connecticut Sales & Use Tax Assessment Upheld 4 90Criminal Actions—Jan.–March 1992 1 6Criminal Actions—April–June 1992 2 31Criminal Actions—July–Sept. 1992 3 51Criminal Actions—Oct.–Dec. 1992 4 79


2


3

No. PageMISCELLANEOUS (Continued)Electronic Funds Transfer Required (Legislature) 4 84Electronic Funds Transfer Required for Businesses 4 70Enforcement Awareness Campaign 2 31Index to 1991 State Tax News (Vol. 20) 3 58Interest Assessed at 11.5%—3rd Quarter 1992 1 11Interest Assessed at 11.5%—4th Quarter 1992 2 39Interest Assessed at 11%—1st Quarter 1993 3 55Interest Assessed at 11%—2nd Quarter 1993 4 76Minnesota Sales & Use: Exemptions Unavailable for Helicopter Leasing 1 23NY Corporation Franchise Tax: Repurchase Agreements 1 23Private Collection Agents (Legislature) 4 84Seizures—Jan.–March 1992 1 8Seizures—April–June 1992 2 34Seizures—July–Sept. 1992 3 52Seizures—Oct.–Dec. 1992 4 81State Revenue Forecasting Advisory Commission (Legislature) 2 441991 Tax Laws 3 561992 Tax Laws 3 57Taxpayers’ Bill of Rights Effective Jan. 1, 1993 4 65US Supreme Court: Use Tax on Out-of-State Mail Order Businesses 2 46US Supreme Court: Wisconsin Corporation Business Tax 4 90

MOTOR FUELS TAXState Targets Tax Cheats Under New Motor Fuels Law 2 37NJ Is Member of Federal Motor Fuel Tax Project 1 5

PETROLEUM PRODUCTS GROSS RECEIPTS TAXPetroleum Products Receipts Rate Is Same 4 69Petroleum Products Receipts Rate Set 2 28

SALES AND USE TAXAdmissions 2 28Campground Facility 4 83Coin Operated Machines 1 14Collectibles 1 14Connecticut Sales & Use Tax Assessment Upheld 4 90Dentists Don’t Understand NJ Use Tax Obligation 4 70Dishwasher Installation 2 43Facsimile Services 2 43Honor Snack Operation 4 83Labor Charges, Exemption for (Legislature) 1 18Litter Pickup 4 83Minnesota Sales & Use: Exemptions Unavailable for Helicopter Leasing 1 23New Lessor Obligations 2 44Newsletter About Drug-Testing 1 14Printing Plate 1 14Restaurant Wrapping Supplies 1 16Returnable Gasoline Containers 1 15Safety Clothing Exemption 2 43Sales & Use Tax Reduced from 7% to 6% 2 25Sales Tax Reduction (Legislature) 2 44Solar Energy Film on Windows, Installation of 1 15

No. PageSALES AND USE TAX (Continued)Telecommunications (Legislature) 4 85Teleconferencing 4 74Tourism Improvement Act Authorizes 2% Sales Tax 4 77Tourism Improvement & Development Act (Legislature) 4 85Urban Enterprise Zone-Reduced Rates for Qualified Businesses 3 60US Supreme Court: Use Tax on Out-of-State Mail Order Businesses 2 46Use Tax: Pennsylvania 1 17

SANITARY LANDFILL TAXSanitary Landfill Rates Announced for 1993 4 78Tax Due for Certain Volume of Waste Accepted at Landfill (Court) 4 89

1992 New Jersy State Tax News INDEX4

Spring 1994

�� " continued from pg. 8cause plaintiff elected to take a creditfor payments made to the ESOP, itsFederal taxable income did not re-flect a deduction for the amounts ofany ESOP contributions, and that itwould be inequitable to permit adeduction for ESOP credits forwhich AT&T is fully reimbursed byFederal tax credits.

The Court rejected AT&T’s argu-ment that its ESOP contributionswere deductible for purposes of com-puting its Federal income tax, anddetermined that court precedents inother states were not applicable.Noting that absent specific statutoryprovisions taxpayers cannot varyfrom their Federal elections, the Courtheld that the Division was authorizedto infer that in calculating entire netincome under N.J.S.A. 54:10A-4(k)(2)(A), the taxpayer starts withfederal taxable income without de-ductions for contributions to anESOP. The Court further ruled thatwhether the ESOP credit was iden-tical to the jobs credit and foreign taxcredit was not relevant, and that thedisallowance of the deduction didnot constitute invalid rule-makingrequiring the adoption of a regulation.

In-State Activities Protected byInterstate Income Act – PomcoGraphics, Inc. v. Director, Divi-sion of Taxation, Tax Court of NewJersey, Docket No. 04-16-1526-89CB, decided September 1, 1993.

Pomco Graphics, plaintiff, challengeda Division determination declaring itto be subject to the CorporationBusiness Tax (CBT) for tax years1979 through to the present. Pomcois a Pennsylvania printing companywhich did not obtain a Certificate ofAuthority, but did have a CasinoService Industry (CSI) license.

a capital improvement. Thus, thelabor charges relating to such instal-lations are not subject to tax.

Under N.J.S.A.54:32B-2(e)(2), con-tractors that install service stationequipment are considered the retailpurchasers of all materials and sup-plies that are purchased for incorpo-ration into real property. A suppliershould not accept a Resale Certifi-cate (ST-3) for such materials andsupplies.

In Our CourtsCorporation Business TaxContributions to ESOP Not De-ductible – American Telephone &Telegraph Company v. Director,Division of Taxation, Tax Court ofNew Jersey, Docket No. 18-02-0034-88-CB, decided December 23, 1993.

AT&T, plaintiff, appealed a Divi-sion disallowance of a deductiontaken by AT&T on its 1983 returnfor amounts contributed to its TaxCredit Employee Stock Plan (ESOP).

Plaintiff argued that its contributionsto an ESOP were deductible underthe I.R.C., that New Jersey’s CBTAct permits the deduction of em-ployer contributions to a qualifiedstock bonus plan, that judicial prece-dents in a majority of other statespermitted the deduction on a statetax return of ESOP contributionselectively taken as a tax credit on thetaxpayer’s Federal return, and thatthe Director’s disallowance consti-tuted an illegally adopted regulation.

The Division responded that AT&Thad no authority to take a deductionwhen calculating its Federal taxableincome on its CBT return, that be-

Pomco sent salespeople intoNew Jersey to market a varietyof printed materials to existing andprospective customers.

The Tax Court held that Pomco’sbusiness activities in New Jerseyconstituted “solicitation of orders”within the meaning of the FederalInterstate Income Act, Pub.L. No.86-272, 15 U.S.C.A. section 381,and that Pomco was therefore im-mune from the Corporation Busi-ness Tax. The Court rejected theDivision’s argument that Pomco wasselling services not covered by sec-tion 381 and held that Pomco wasselling tangible personal property asrequired for protection undersection 381.

Local Property TaxAppeal of Property Tax Assess-ment Requires Payment of PriorYear Taxes – Rt. 88 Office Assoc.LTD. v. Township of Brick, 13 NJTax 14 (1992).

Mortgagee bank appealed city’s taxassessment of mortgaged property.City moved for summary judgment.The Tax Court held that mortgageespossessed sufficient ownership ofassessed property to be character-ized as “taxpayer” and property couldbe considered its property so as toallow it to pursue appeal ofassessment.

The Court stated that a “Mortgage”is essentially security for payment ofdebt. Mortgages must be in writingas conveyance of interest in land.N.J.S.A. 25:1-5, sub d. Under com-mon law, a mortgage creates imme-diate estate in fee simple in mort-gagee subject to defeasance by pay-ment of mortgage debt according to

continued on page 10

9

Spring 1994

��" continued from pg.9ary School Admission Test Boardappealed from the denial of a localproperty tax exemption for the taxyear 1992 for property it owns in thedefendant municipality, PrincetonBorough. The issues were whetherplaintiff’s property met the criteria ofeither of these two provisions in theexemption statute, N.J.S.A. 54:4-3.6:(1) “actually used for colleges,schools, academies or seminaries”and (2) is “actually used in the work

of...a cor-

p o r a t i o norganized exclu-sively for the moral and men-tal improvement of men, women,and children.”

Plaintiff failed to show that it is autho-rized to carry out the purposes of a“college, school, academy or semi-nary.” Although owned and controlledby educators and educational con-sultants, it was not owned or con-trolled by the member schools. Fur-thering the educational purposes ofits member schools simply did notmeet the statutory requirement.

Plaintiff did not meet the second pro-vision in that its aim to provide “ef-fective and practical uniform admis-sions test programs for secondaryschools” and “to carry on research insuch matters” was decided to be sec-ondary to the purpose and useintended in the provision.

In a strong argument to the contrary,plaintiff relied on Bloomfield vs. TheAcademy of Medicine, 47 N.J. 358(1966). Here the exemption wasgranted to an organization of physi-

terms of mortgage; however,right to possession is postponed untildefault. In law, mortgage conveyslegal title to property encumbered. Inequity, lien on land is created bymortgage.

While mortgagor has right of posses-sion of mortgage property until de-fault in mortgage obligation, uponsuch default mortgagee is entitled topossession of mortgaged pre-mises, which he may acquireeither by taking possession ofpremises peaceably and pub-licly or by instituting action forpossession of land. Mortgagee hasright to take such steps as are neces-sary to protect its security.

The Court held that mortgagee bank,whose mortgage was in default, whohad paid real estate taxes, and whosought to protect its security, pos-sessed sufficient ownership of as-sessed property to be characterizedas “taxpayer” and property could beconsidered its property so as to allowit to pursue appeal of local propertytax assessment of mortgaged pre-mises under statute allowing tax-payer feeling aggrieved by assessedvaluation of his property to pursuesuch appeal; mortgagee had substan-tial interest in property under termsof mortgage.

Exemption Denied – SecondarySchool Admission Test Board, Inc.vs. Princeton Borough , No.009456-92 (Tax Court, December20, 1993).

Secondary School Admission TestBoard, Inc. is a nonprofit testingservice designed to create and ad-minister a standardized admissionstest for secondary schools. Second-

cians and dentists which operated amedical library and sponsored sym-posia on medical issues, both opento and attended by the general pub-lic. Although plaintiff also conductsseminars and training institutes foreducators in secondary school ad-missions, these functions were in-sufficient to meet the “organizedexclusively for the moral andmental improvement of men,

women and children”specification in thestatute.

Therefore, the court up-held the decision of theMercer County Board ofTaxation’s denial of ex-emption for the 1992 taxyear since plaintiff didnot qualify under either

provision.

Anchor Stores in Shopping Malls– Mays Center Associates Corp. v.Rockaway Township, No. 14-35-7875-91D and 14-35-0-5016-92D,November 15, 1993.

Because of the uncertain nature ofthe comparative sales informationand the fact that the sales are ofvacant department store buildingswhich after sale had to be renovatedand refitted to the needs of thepurchaser, the sales comparison ap-proach used by the taxpayer depart-ment store is unreliable; also, be-cause the subject location and physi-cal condition and quality of thetaxpayer’s building is substantiallysuperior to that of the five rentalproperties used by the taxpayer, theincome approach is also unreliable;since the value of the land, buildingand improvements are stipulated,the cost approach is a more reliable


10

Spring 1994

��" continued from pg.10ciety of New Jersey, Inc., IFMS, anonprofit medical mission, appealedto the Tax Court.

IFMS was organized for general andmedical missionary purposes, an edu-cational purpose, and to performbenevolent and charitable activities.However, its Certificate of Incorpo-ration states in part: “the purpose forwhich this corporation is formed is toestablish and maintain homes orresidences...for the free use of mis-sionaries on temporary leave of ab-sence from their work.” The Chair-man of the Admissions Committeeof IFMS testified that IFMS wasinvolved in no charitable or religiousactivities but only owned the subjectproperties which were used by othercharitable and religious organizations.

The subject properties have a uniquetax history with Ventnor City. From1922 to 1990, the property ownersenjoyed tax exemption. In 1966,Ventnor City contested the exemp-tion. IFMS was granted a stipulationwhich was later followed by an “ar-rangement” where annual contribu-tions for services rendered were madeby the property owner to the city.IFMS contended that the city wasbound to continue granting tax ex-empt status as IFMS had prior ex-empt status. The court held that eachannual assessment of property fortax purposes is separate and distinctfrom the assessment for any otheryear.

Defendant then tried to prove howIFMS satisfied the moral and mentalimprovement and the charitable pur-poses provisions of N.J.S.A. 54:4-3.6. The court found that a corpora-tion organized for the purpose ofproviding residences for people ontemporary leave from their workcannot be said to be organized exclu-

sively for exempt purposes.It stated further: “People on leavefrom their work are not performingtheir work, and hence are not engag-ing in any religious or charitableactivities or in any activities for themoral and mental improvement ofmen, women and children.”

The court determined that for IFMSto promote the welfare of its mem-bers was benevolent not charitable.Also, IFMS did not meet the “rea-sonably necessary” test used indetermining whether property is“actually and exclusively used” fora tax exempt purpose as in thestatute.

In Our LegislatureAlcoholic Beverage TaxPromotion of More Effective Pro-duction and Sales for Small Pro-ducers of Home-Grown Products –P.L. 1993, c.372 (signed into law onJanuary 10, 1994) changes the lawsgoverning New Jersey farm winer-ies. Under the current law, farmwineries in New Jersey may hold aspecial license to sell their wines forconsumption off the premises at twolocations in addition to the farm win-ery. This bill increases the number ofnon-farm outlets to five and permitsthe sale of wines for consumption onthe premises.

The bill also permits two or morefarm or plenary winery licensees toown a one-per-county salesroomwhich may offer wines from anyfarm winery in the State for con-sumption on or off the licensed pre-mises. The bill also clarifies that“product” means any wine that isproduced, blended, fortified or

valuation and the taxing district’s10% depreciation is found to be rea-sonable (there is no justification for57.5% depreciation for a newly reno-vated building and a resulting valuefor the property that is less than theland value plus the renovation cost).

Since anchor stores are essential tothe development of a shopping cen-ter and they often obtain conces-sions from developers, there may bean allocation of cost or transfer ofvalue from the anchor stores to themall stores which might justify as-sessing anchor stores, not at theircost approach value, but at a lowerfigure that reflects the transfer orallocation of value.

Freeze Act Reassessments – TaxCourt, Ennis v. Alexandria Town-ship, No. 10-01-11781-91S, Novem-ber 12, 1993. DDS No. 35-5-2170.

The Tax Court held that the term“revaluation” in the Freeze Act,N.J.S.A. 54:51A-8, encompasses theterm “reassessment” and, therefore,the Freeze Act does not apply wherethe taxing district has completed andadopted either a revaluation or areassessment program approved bythe county board of taxation of whichthe taxpayer has notice.

Vacation Residences for Use byMissionaries Not Entitled to Ex-emption – City of Ventnor City v.Interdenominational Foreign Mis-sionary Society of New Jersey, Inc.,No. 01-22-00004-4-92, Tax Court,December 1, 1993.

In this case, Ventnor City, dissatis-fied with Atlantic County Board ofTaxation’s judgment granting tax ex-emption to four properties owned byInternational Foreign Missionary So-


11

Spring 1994

��" continued from pg.11day of the third month followingenactment (February 1, 1994).

50% Sales and Use Tax Exemp-tion for Certain Counties – P.L.1993, c.373 (signed into law onJanuary 10, 1994) provides a 50%sales and use tax exemption, exceptfor motor vehicles, alcoholic bever-ages and cigarettes, in certain coun-ties in the State which contain anentrance to an interstate bridge ortunnel connecting New Jersey witha state that does not impose a salesand use tax or imposes a sales anduse tax at a rate at least five percent-age points lower that the rate in thisState. This exemption applies onlyto vendors operating places of busi-ness at which items are regularly

exhibited and offered for retailsale and which are not utilizedprimarily for the purpose ofcatalogue or mail order sales.The State Treasurer shall an-nually designate the county orcounties in which this exemp-tion applies.

This bill will become effectiveon July 1, 1994.

State Tax Uniform Proce-dureTechnical Revision – P.L.1993, c.331 (signed into lawon December 23, 1993) re-duces the interest rate on late

payments of tax from the primerate plus five percentage points to

the prime rate plus three percentagepoints and specifies the method forthe calculation of the interest ratesof the tax laws.

This bill is a technical revision, cor-recting an interest rate that wasomitted from P.L. 1992, c.175, the


treated by the plenary winerylicensee on its licensed premises situ-ated in this State; and to “grandfa-ther” those plenary winery licenseeswho would not meet this change inthe definition.

This bill is effective immediately.

Corporation Business TaxCorporations Licensed as Insur-ance Companies – P.L. 1993, c.338(signed into law on December 27,1993) clarifies that corporationswhich are licensed as insurance com-panies under the laws of anotherstate, including eligible surplus linesinsurers, are exempt from taxationunder the Corporation Business TaxAct (1945). It is retroactive to tax-able calendar or fiscal accountingyears commencing after December31, 1960. The current exemption forinsurance companies under the Cor-poration Business Tax Act (1945)was intended to apply to all insur-ance companies doing any kind ofbusiness in this State.

This bill is effective immediately.

Financial Busi-ness TaxRepeal – P.L.1993, c.295(signed into lawon December 22,1993) repeals theFinancial Business Tax Law(1946), effective January 1, 1994.

Sales TaxNew Registration Regulations forBusinesses – P.L. 1993, c.274 (signedinto law on November 24, 1993)requires that a person file a certifi-cate of registration with the Divisionof Taxation at least 15 business daysbefore commencing business or

opening a new place of business inthis State. This requirement appliesboth to persons who have a regularplace of business in this State, as wellas to those who do not.

The bill also provides for improvedenforcement of Sales Tax collectionby vendors, especially those who donot have a regular place of business inthe State.

In addition, this bill requires munici-palities that li-cense ven-dors havingno fixedplace ofbusiness inthe mu-

nicipality to require submission of acopy of a valid New Jersey Certificateof Authority to collect Sales Tax as acondition of the issuance of alicense.

This bill is effective immediately.However, the new registration re-quirement is effective on the first

12

Spring 1994

Taxpayers’ Bill of Rights. That lawmade various tax administration pro-visions uniform for the taxes col-lected by the Division of Taxation,including the rates of interest chargedfor deficiencies and paid on refundedoverpayments of tax. This bill bringsthe treatment of late payments of taxinto conformity with the treatmentof assessed deficiencies under theState Tax Uniform Procedure Law.This bill clarifies the calculation ofthe assessment and compounding ofpenalty interest and the interest to bepaid on refunds of overpaymentsand makes technical changes to legalreferences recently included in theState Tax Uniform Procedure Lawby the Taxpayers’ Bill of Rights.

This bill is effective immediately,with most provisions retroactive toJuly 1, 1993.

Urban Enterprise ZonesAdditional Zones Named – P.L.1993, c. 367 (signed into law onJanuary 5, 1994) amends the NewJersey Urban Enterprise Zone Act toallow for the designation of 10 addi-tional enterprise zones from amongthose areas of qualifying municipali-ties determined to be eligible. Thisincreases from 10 to 20 the numberof zones that can exist at any onetime. At least 6 of the 10 additionalenterprise zones authorized are to belocated in counties in which enter-prise zones have not previously beendesignated. The seven municipali-ties within these six designated en-terprise zones may be entitled to anexemption to the extent of 50% ofthe tax imposed under the “Sales andUse Tax Act.”

��" continued from pg.12

Under the bill, new enterprise zoneswill be established in Perth Amboy,Passaic, Paterson, Phillipsburg,Lakewood and Asbury Park-LongBranch.

This bill becomes effective on April1, 1994.

Business TaxWorkshopsThe New Jersey Division of Taxa-tion and the Internal Revenue Ser-vice continue to present Small Busi-ness Tax Workshops at locationsthroughout the State. These semi-nars are designed to acquaint newentrepreneurs with information onregistration, employer responsibili-ties, sales tax, filing procedures andother tax topics.

To attend a workshop, complete thepostcard found in the New JerseyTax Registration Booklet (Publica-tion REG-P) and send it to the NewJersey Division of Taxation, Tax-payer Services Branch, 50 BarrackStreet, CN 269, Trenton, NJ 08646-0269. You will receive a reservationform from the IRS listing the datesand locations on the current work-shop schedule. You may also re-quest a reservation form by callingthe New Jersey Tax Hotline at (609)588-2200, or the IRS at 1-800-829-1040.

The Spring Schedule for the jointworkshops is:

Date Location AreaApril 28 Monmouth CountyMay 6 Camden CountyMay 12 Middlesex CountyJune 2 Monmouth County

New JerseyTax AssistanceThe New Jersey Division of Taxa-tion offers the public a variety ofassistance that may be accessed bycalling New Jersey Tax Talk at 1-800-323-4400 (Touch-tone phonesfrom within New Jersey only).

New Jersey Tax Talk:• Recorded tax information on

many topics including:Gross Income TaxSales TaxNotices of Delinquency and

AdjustmentBusiness RegistrationHomestead RebateBenefits for SeniorsProperty and Inheritance TaxesForm RequestsAddresses of State Tax OfficesTaxpayers’ Bill of Rights

• Order forms and publications,including the following Tax TopicBulletins:GIT-1 Pensions and AnnuitiesGIT-2 IRA WithdrawalsGIT-3 Credit for Taxes Paid

to Other JurisdictionsGIT-4 Filing StatusGIT-5 Exempt ObligationsGIT-6 Part-year ResidentsGIT-7 Military PersonnelGIT-8 Estimating Your New

Jersey Tax

• Information on 1993 New JerseyIncome Tax Refunds from ARIS(Automated Refund Inquiry Sys-tem). You may call ARIS Mondaythrough Friday from 8:00 a.m. to7:00 p.m. and 9:00 a.m. to 3:00p.m. on Saturdays. You will needto have the social security number(yours or your spouse’s, which-ever appears first on the return)and the exact amount of yourrefund (no cents).

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Spring 1994

State TaxRegional OfficesThe New Jersey Division of Taxa-tion has eight regional offices locatedthroughout the State. These officesare staffed by Taxpayer Servicespersonnel who are there to assisttaxpayers with billing notices andunresolved problems.

The offices are well stocked withinformational materials such as bro-chures and Tax Topic Bulletins. Thepublic may also obtain New Jerseytax forms at the offices. A new entre-preneur may register a business. TheTrenton office, located in the lobbyof the Taxation Building, is the only

regional office which will acceptpayments for New Jersey taxes.

Certain offices are being relocated.We will announce the new locationswhen they occur. Remember, for alist of our current Regional Officelocations, call Tax Talk at 1-800-323-4400 (Touch-tone phones from withinNew Jersey only).

New ColumnWe are happy to announce a newfeature, From the Director’s Desk,will appear in the New Jersey StateTax News beginning with this issue.This column will include items thatthe Director would like to call to your

attention, like new information andevents, and technical clarificationson New Jersey taxes.

We will also be pleased to provideanswers to interesting and unusualState tax questions. Of course, thiscolumn will not be a forum toresolve specific tax problems, butrather a place to exchange ideas andinformation.

We will not be able to return yourletters, and we reserve the right toprint answers to questions which webelieve our readers will find mostuseful. We welcome your participa-tion. Mail your letters to the addressthat appears in the column.

Send your questions to:

From the Director’s DeskNew Jersey State Tax NewsNJ Division of TaxationCN 281Trenton, NJ 08646-0281

Late Breaking NewsMinimum Income ThresholdOn March 16, 1994, Governor Whitman signed into law P.L. 1994, c.8, which increases the minimumtaxable income for Gross Income Tax. For single individuals, estates and trusts, and married couplesfiling jointly, the income threshold is increased from $3,000 to $7,500. For married persons filingseparately, the threshold is increased from $1,500 to $3,750. This law is effective for 1994 andsubsequent tax years.

"�� #��$��%

Reduced Sales Tax inSalem CountyEffective July 1, 1994, businesseslocated in Salem County may col-lect sales and use tax at a 50%reduction on most retail sales.Under P.L. 1993, c.373, SalemCounty is the only county in NewJersey currently designated for thissales tax reduction. Detailed in-formation is being sent to countyvendors.

14

Spring 1994

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May 2NJ-500 Gross Income Tax—

Employer’s semi-monthly return

May 10CWIP-1 Cigarette Tax—Informational

report by wholesalersCWIP-2 Cigarette Tax—Informational

report by wholesalers

May 16CBT-100 Corporation Business Tax—

Annual return for accountingperiod ending January 31

CBT-150 Corporation Business Tax—Installment payment of esti-

continued continued

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May 16 - continued

mated tax for 4th, 6th, 9th or12th month of current tax year

NJ-500 Gross Income Tax—Employer’s semi-monthlyand monthly returns

May 20CR-1 & Cigarette Tax—Monthly report

of cigarettes sold or used bydistributors, 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-21 New Jersey/New YorkCombined State Sales andUse Tax—Monthly return

ST-51 Sales and Use Tax—Monthlyreturn

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

ST-350 Cape May County TourismSales Tax—Monthly return

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

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

May 25PPT-41 Petroleum Products Gross

Receipts Tax—Monthly return

May 31NJ-500 Gross Income Tax—


CNR-1

May 20 - continued

NJ-500 Gross Income Tax—Employer’ssemi-monthly return

NJ-1040 Gross Income Tax—Residentreturn for calendar filers

NJ- Gross Income Tax—Nonresidentreturn for calendar filers

NJ-1041 Gross Income Tax—Fiduciaryreturn for calendar filers

April 20CR-1 & Cigarette Tax—Monthly report of

cigarettes sold or used bydistributors, manufacturers,

continued

April 15 - continuedApril 11CWIP-1 Cigarette Tax—Informational



April 15CBT-100 Corporation Business Tax—

Annual return for accountingperiod ending December 31

CBT-150 Corporation Business Tax—Installment payment of estimatedtax for 4th, 6th, 9th or 12th monthof current tax year

1040NR

CNR-1

continued

representatives andconsumers

GA-1D Motor Fuels Tax—Distributor’s monthly report ofgallons of fuel sold or used




ST-20 New Jersey/New YorkCombined State Sales and UseTax—Quarterly return

ST-50 Sales and Use Tax—Quarterlyreturn

ST-250 Combined Atlantic City LuxuryTax/State Sales Tax—Monthlyreturn


TP-20 Tobacco Products WholesaleSales and Use Tax—Monthlyreturn

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

April 25PPT-40 Petroleum Products Gross

Receipts Tax—Quarterly rtn.

April 20 - continued

SUNDAY MONDAY TUESDAY WEDNESDAY THURSDAY FRIDAY SATURDAY

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


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

15

Spring 1994

State of New JerseyDepartment of the Treasury

Division of TaxationTaxpayer Services Branch

CN 281Trenton, NJ 08646-0281

FOURTH-CLASSU.S. POSTAGE PAIDTrenton, NJ 08646

Permit #21

SPECIAL FOURTH-CLASS RATE

continued


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

continued

June 10CWIP-1 Cigarette Tax—Informational



June 15CBT-100 Corporation Business Tax—

Annual return for accountingperiod ending February 28

CBT-150 Corporation Business Tax—Installment payment of estimatedtax for 4th, 6th, 9th or 12thmonth of current tax year

NJ-500 Gross Income Tax—Employer’s semi-monthly andmonthly returns

June 20CR-1 & Cigarette Tax—Monthly report

of cigarettes sold or used bydistributors, manufacturers,representatives and consumers

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




CNR-1

June 20 - continued

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

ST-51 Sales and Use Tax—Monthlyreturn

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


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

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

June 27PPT-41 Petroleum Products Gross

Receipts Tax—Monthly return

June 30NJ-500 Gross Income Tax—


(��&&'

16

Documents

Spring 1994 ˘ˇˆ˙˝ - New Jersey · 1, 1994, and take into account the ... rate for accounting periods ending between January 1 and June 30, ... Spring 1994 ˚˜" ˜" " "1. 2