United States

New Jersey announces two voluntary disclosure programs starting in March

TAX ALERT  | 

The New Jersey Division of Taxation has announced details of two voluntary disclosure agreement (VDA) programs. The programs relate to "embedded" intangible asset and partnership tax nexus. Both VDA programs run from March 15, 2014, through May 15, 2014. Benefits of participation include a limited look-back period and a waiver of penalties.

Per the Division of Taxation's announcement dated Feb. 24, 2014, the Intangible Assets Nexus Initiative will allow companies deriving income from "embedded" intangible assets in New Jersey to file outstanding corporate business tax returns, subject to the following terms:

  • Participating companies must file all required returns and remit payment of the full tax liability within 45 days of the execution of the VDA.
  • Payment of interest must be remitted within 30 days of assessment.
  • All returns will be subject to routine audit with respect to issues not specifically covered in the VDA.

The announcement does not contain any definition of "embedded" intangible assets. However, it appears that the definition would include trademarks and trade names used within the state, and, therefore, it is possible that any taxpayer deriving income from the sale of branded items purchased and used in New Jersey could be treated as having income from the use of an embedded intangible asset, whether or not the intangible portion is broken out in the invoice.

Participating companies will have all penalties stemming from outstanding corporate business tax liabilities waived, and the look-back period will be limited to the periods beginning after July 1, 2010, or the date business in New Jersey began, whichever is later. Additionally, taxpayers that have paid royalties to a participating company and then added the royalties back to their New Jersey net income may file amended returns for any period for which the statute of limitations remains open in order to claim an exception to the add-back.

Per the Division of Taxation's announcement dated Feb. 28, 2014, the Partnership Tax & Partner Fees Initiative will allow partnerships with New Jersey-sourced income that failed to file required returns and remit the partnership tax due under section 54:10A-15.11 of the Corporation Business Tax Act and the per partner fee due under section 54A:8-6.(b) of the Gross Income Tax Act to file the required forms and remit any taxes or fees owed. Individual partners that have not satisfied their New Jersey filing and tax remittance requirements can also come forward and come into compliance under the terms of the initiative. This VDA program is subject to the following terms:

  • Taxpayers must file all required returns and remit payment of the full tax liability within 45 days of the execution of the VDA.
  • Payment of interest must be remitted within 30 days of assessment.
  • All returns will be subject to routine audit with respect to issues not specifically covered in the VDA.

Participating taxpayers will have all penalties stemming from outstanding partnership tax and per partner fee liabilities waived, and the look-back period will be limited to periods beginning on or after Jan. 1, 2010.

Taxpayers with franchise operations, intangible leasing activity, or other intangible activity should consider exploring whether they have intangible asset nexus risk and determine whether it would be beneficial to participate in the Intangible Assets Nexus Initiative. Further, partnerships with New Jersey activity, and partners therein, should consider exploring whether they have any outstanding partnership tax and per partner fee liabilities and determine whether it would be beneficial to participate in the Partnership Tax & Partner Fees Initiative.

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