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New Jersey Tax Amnesty Program

The New Jersey Tax Amnesty Program will begin on November 15, 2018 and end on January 15, 2019. Tax amnesty is only available for State tax liabilities for tax returns due on or after February 1, 2009, and before September 1, 2017.

No Penalty and Reduced Interest
The program offers a waiver of most penalties, Referral Cost Recovery Fees, or cost of collection fees and one-half of the balance of the interest that remains due as of November 1, 2018. Civil fraud penalties and criminal penalties will not be waived.

In order to receive tax amnesty, a taxpayer must pay the outstanding tax due and remaining one-half of the related interest by the end of the amnesty period. In addition, the taxpayer must file all delinquent returns. Payments made through amnesty are not eligible for refund or credit. Taxpayers participating in amnesty will no longer have the right to appeal the amount paid.

Eligibility
Most taxpayers with an outstanding New Jersey tax liability for any tax return due on or after February 1, 2009, and before September 1, 2017, are eligible for tax amnesty.
•A taxpayer who has filed an administrative or judicial appeal related to a tax assessment may request tax amnesty, but it will only be granted with the Director’s approval.
•A taxpayer who has been notified by the Office of Criminal Investigation in the Division of Taxation that he or she is under criminal investigation for a State tax matter, or a taxpayer who has been charged with a State tax matter (as certified by a county prosecutor or the Attorney General) is not eligible for tax amnesty unless the Office of Criminal Investigation certifies to the Director that the State tax matter involving that person was resolved.
•A taxpayer is not eligible for tax amnesty for a tax that is not administered and collected by the Division.

Post Amnesty Penalty
If a taxpayer is eligible for, but chooses not to take advantage of tax amnesty, an additional 5% penalty, which the Division cannot waive or abate, will be imposed on any eligible amount not resolved during the amnesty period.

Filing for Tax Amnesty
Visit the New Jersey Tax Amnesty website https://taxamnesty.nj.gov/ and click “File for Amnesty”
to view your outstanding liability In order to obtain tax amnesty, you must:

•File all required tax returns electronically, if available;
•Make full payment for amnesty eligible taxes, plus one-half of the balance of interest due electronically; and
•Acknowledge the payment/waiver statement before January 15, 2019, the end of the Tax Amnesty period.

If your tax returns cannot be filed electronically, you can still make full payment and acknowledge the payment/waiver statement online. Mail paper tax returns to:

New Jersey Division of Taxation
Tax Amnesty
50 Barrack Street
PO Box 286
Trenton, NJ 08695-0286

All filings delivered by mail must be postmarked by midnight on January 15, 2019, or delivered to the Division of Taxation by the close of business on January 15, 2019.

For additional information about the Tax Amnesty Program, including regulations related to implementation of the program, please contact us or you may visit the New Jersey Tax Amnesty website or call the Tax Amnesty Hotline 1-800-781-8407.

Meals Continue to be Deductible Under New Guidance

The IRS on Wednesday issued guidance clarifying that taxpayers may generally continue to deduct 50% of the food and beverage expenses associated with operating their trade or business, despite changes to the meal and entertainment expense deduction under Sec. 274 made by the tax law known as the Tax Cuts and Jobs Act (TCJA), P.L. 115-97 (Notice 2018-76). According to the IRS, the amendments specifically deny deductions for expenses for entertainment, amusement, or recreation, but do not address the deductibility of expenses for business meals. This omission has created a lot of confusion in the business community, which the IRS is addressing in this interim guidance. Taxpayers can rely on the guidance in the notice until the IRS issues proposed regulations.

Under the interim guidance, taxpayers may deduct 50% of an otherwise allowable business meal expense if:

  • The expense is an ordinary and necessary business expense under Sec. 162(a) paid or incurred during the tax year when carrying on any trade or business;
  • The expense is not lavish or extravagant under the circumstances;
  • The taxpayer, or an employee of the taxpayer, is present when the food or beverages are furnished;
  • The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
  • For food and beverages provided during or at an entertainment activity, they are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts.

The IRS will not allow the entertainment disallowance rule to be circumvented through inflating the amount charged for food and beverages.

The notice contains three examples illustrating how the IRS intends to interpret these rules. All three examples involve attending a sporting event with a business client and having food and drink while attending the game. The examples follow the AICPA’s recommendation that meal expenses be deductible when their costs are separately stated from the cost of the entertainment.

The IRS plans to issue proposed regulations and is requesting comments by Dec. 2 on the notice. It is also asking for comments on:

  • Whether further guidance is needed to clarify the interaction of Sec. 274(a)(1)(A) entertainment expenses and business meal expenses.
  • Whether the definition of entertainment in Regs. Sec. 1.274-2(b)(1)(i) should be retained and, if so, whether it should be revised.
  • Whether the objective test in Regs. Sec. 1.274-2(b)(1)(ii) should be retained and, if so, whether it should be revised.
  • Whether the IRS should provide more examples in the regulations.

New Jersey Sales Tax on Rental of Transient Accommodations beginning October 1st, 2018

New Jersey Governor Phil Murphy has signed a bill into law that imposes the same lodging taxes on short-term rentals that hotels and motels pay. As of October 1, 2018, a new law imposes Sales Tax, the State Occupancy Fee, and the Meadowlands Regional Hotel Use Assessment on charges associated with the rental of transient accommodations. The change means operators of short-term rentals that are booked through companies such as Airbnb, VRBO, HomeAway, or others are now required to add these taxes to guests’ bills and remit them to the state. Rentals that are for a period of 90 consecutive days (permanent resident exemption) are excluded from the tax.

“Transient accommodation” means a room, group of rooms, or other living or sleeping space for the lodging of occupants, including but not limited to residences or buildings used as residences. This definition includes rentals made through “transient space marketplaces” as well as rentals that are made directly by the homeowner through classified listing sites, local newspaper ads, referrals from friends/family, or placing a sign on the home, etc.

However, it does not include:

1) a hotel or hotel room;
2) a room, group of rooms, or other living or sleeping space used as a place of assembly;
3) a dormitory or other similar residential facility of an elementary or secondary school or a college or university;
4) a hospital, nursing home, or other similar residential facility of a provider of services for the care, support and treatment of individuals that is licensed by the state;
5) a campsite, cabin, lean-to, or other similar residential facility of a campground or an adult or youth camp;
6) a furnished or unfurnished private residential property (i.e., condominiums, bungalows, single-family homes and similar living units) where no common hotel services are made available (i.e., maid, room, or linen changing services) and where the keys to the property, whether a physical key, access to a keyless lockingmechanism, or other means of physical ingress, are provided at the location of an offsite licensed real estate broker; or
7) leases of real property with a term of at least 90 consecutive days.

“Residence” means a house, condominium, or other residential dwelling unit in a building or structure that is designed, constructed, leased, rented, let or hired out, or otherwise made available for use as a residence.

Beginning October 1, short-term rentals will be subject to the state’s 6.625 percent sales tax and 5 percent hotel occupancy fee, although the occupancy fee is lower in cities that have their own municipal tax on accommodations. That includes Atlantic City, Jersey City, and Newark, where the state fee is 1 percent, and the Wildwoods, where it’s 3.15 percent.

Many municipalities in New Jersey also levy their own municipal occupancy taxes on hotels. The new law allows municipalities the option to impose new taxes and fees on short-term rentals, including: hotel occupancy fee, Atlantic City luxury tax, Atlantic City promotion fee, Cape May County tourism sales tax, Cape May County tourism assessment, sports and entertainment facility tax, and Meadowlands regional hotel use assessment.

Short-term rental operators must register with the state for tax purposes before they can start collecting lodging taxes from guests. All other New Jersey short-term rental hosts will be responsible for registering for a tax ID number, collecting all lodging taxes from guests, filing lodging tax returns, and remitting collected taxes.

Philadelphia Wage Tax Reduced Beginning July 1

The City of Philadelphia will reduce its Wage Tax rate starting July 1, 2018. The rate change has an immediate impact on all businesses that operate in the city, or that hire Philadelphia residents. The new rates are:

  • 3.8809% (.038809) for residents of Philadelphia
  • 3.4567% (.034567) for non-residents

All paychecks issued by businesses with a pay date after June 30, 2018 must have Philadelphia City Wage Tax withheld at the new rates.

Likewise, the City has lowered its Earnings Tax rate starting to July 1, 2018. The new Earnings Tax rates are 3.8809% (.038809) for residents and 3.4567% (.034567) for non-residents.

The Earnings Tax is essentially the same as the Wage Tax. The main difference is how the tax is collected and paid to the City of Philadelphia. The Wage Tax is collected from an employee’s paycheck and paid to the City by an employer. When your employer does not collect the Wage Tax on your behalf, you pay Earnings Tax directly to the City.

Philadelphia’s Net Profits Tax (NPT) and School Income Tax (SIT), which mirror the Wage Tax, will also decrease.  For Tax Year 2018, the new NPT rates are 3.8809% (.038809) for residents and 3.4567% (.034567) for non-residents. For Tax Year 2018, the new SIT rate for residents is 3.8809% (.038809). Only residents of Philadelphia are liable for SIT.

Supreme Court Decides Further Taxing on Internet Sales

Last week in Wayfair vs. South Dakota, the Supreme Court decided that states may charge sales tax to online retailers, even if they do not have a physical presence in that state. This 5-4 decision reverses the decision made in 1992 in the Quill Corp vs. North Dakota case.

This new tax system will affect online retailers, consumers, and local businesses. Online retailers have changed the way American people shop, as e-commerce has become a huge part of the nation’s economy. By previously avoiding tax, consumers were drawn to purchasing goods online. The Supreme Court decision may now persuade consumers to make purchases in a physical store since the sales tax rate will be the same for online and other purchases.

Larger retailers like Amazon and Wayfair will be impacted more so than smaller, online retailers like Etsy. The ruling gives local businesses a chance to make a comeback against online moguls. Consumers just need to be mindful that they will have to start paying slightly more for their convenient online purchases.

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