SENATE RESOLUTION No. 95 STATE OF NEW JERSEY INTRODUCED MAY 22, By Senators PALAIA, MATHEUSSEN, Cafiero, Bubba and Scott

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1 SENATE RESOLUTION No. STATE OF NEW JERSEY INTRODUCED MAY, By Senators PALAIA, MATHEUSSEN, Cafiero, Bubba and Scott A SENATE RESOLUTION requesting that the Senate Legislative Oversight Committee review State procedures and forms concerning the application of the sales and use tax to casual sales of motor vehicles. WHEREAS, The Legislature passed the Taxpayers' Bill of Rights P.L., c., to ensure that all taxpayers are accorded the basic rights of fair and equitable treatment and all taxpayers receive the information and assistance they need to understand and meet their State tax responsibilities; and WHEREAS, The Director of the Division of Taxation in the Department of Treasury has the responsibility to administer and collect the taxes of the State of New Jersey, including reviewing whether the sales and use taxes due and paid at the time of the registration of a motor vehicle purchased from a person who is not a regular motor vehicle dealer reflects the true amount of the sales price, and WHEREAS, The Director of the Division of Taxation has adopted a regulation that seems to refer not to the true amount of the sales price of a motor vehicle, as authorized by statute, but to the "true value" of the vehicle; and WHEREAS, The Division of Taxation regularly assesses deficiencies and penalties against those who have reported a purchase price that is below the fair market value for the motor vehicle as published in the N.A.D.A. Official Used Car Guide; and WHEREAS, The New Jersey Taxpayers Bill of Rights, in furtherance of the principle that all taxpayers have the right to information on their rights under the law, requires that all notices of deficiency "shall include a statement of the reason for the assessment sufficient to inform a reasonable lay person of the statutory requirements which in the opinion of the director require the assessment... [and] the nature of the insufficient documentary evidence, if any, which has prompted the assessment;" but WHEREAS, The deficiency notices, by stating that the reason for the assessment is that a taxpayer may have "paid New Jersey sales tax on a purchase price that was below fair market value for the vehicle as published in the N.A.D.A. Official Used Car Guide," strongly imply that payment based on such value is a legal requirement, and contain insufficient information to inform reasonable lay persons on the nature of the documentary evidence that would be sufficient to resolve the assessment;

2 SR and WHEREAS, The New Jersey Taxpayers' Bill of Rights, in furtherance of the principle that all taxpayers have a right to be protected from unreasonable deadlines, increased the time allowed for filing a protest of an assessment from 0 days to 0 days, to allow a taxpayer who wishes to protest sufficient time to make a considered response; but WHEREAS, The deficiency notices state that failure to pay the sales tax or show the correct amount was paid within 0 days will result in further collection actions, strongly implying that a taxpayer has substantially less than 0 days in which to respond; and WHEREAS, The New Jersey Taxpayers' Bill of Rights, in furtherance of the principle that all taxpayers have the right to information on their rights under the law, requires that all notices of deficiency be accompanied by a statement that sets forth in simple and nontechnical terms the procedures and time limits to protest an assessment or decision of the director; but; WHEREAS, The deficiency notices sent by the Division of Taxation do not include a clear statement that they are notices of an assessed deficiency, subject to taxpayer response, but instead begin with the calculation of a "TOTAL AMOUNT DUE" by a specified date, including interest and penalty, strongly implying that the correspondence is a bill for an amount that is with certainty due rather than clearly stating that the notice is an assessment of deficiency, subject to protest or explanation; now, therefore, BE IT RESOLVED by the Senate of the State of New Jersey:. The Senate Legislative Oversight Committee is urged to undertake a thorough examination of Division of Taxation regulations, procedures and forms concerning the application of the sales and use tax to casual sales of motor vehicles and the consistency of the regulations, procedures and forms with the sales tax laws and the letter and spirit of the Taxpayers' Bill of Rights.. A duly authenticated copy of this resolution, signed by the President of the Senate and attested by the Secretary thereof, shall be transmitted to the chairman and members of the Senate Legislative Oversight Committee.

3 SR STATEMENT This resolution urges the Senate Legislative Oversight Committee to undertake a thorough review of the State regulations, procedures and forms concerning the application of the New Jersey sales and use tax to casual sales of automobiles. Sales of automobiles that are purchased directly from their non-auto dealer owners are referred to as "casual sales" under the New Jersey sales and use tax. Because the sellers are not professional retailers licensed to collect sales tax, the motor vehicle code contains a provision that allows the purchaser to pay the appropriate sales or use tax when the automobile is registered. Taxpayers may attempt to understate the actual price paid for a car at registration to evade sales and use tax, so the Director of the Division of Taxation is authorized by N.J.S.A.:B- to use "external indices" to determine if sales tax has been properly paid on the sale. The Division of Taxation uses the N.A.D.A. Official Used Car Guide to verify whether the price claimed matches standard value, and sends what are legally "notices of deficiency" to taxpayers who claim to have paid less than standard fair value. However, these notices appear to be deceptive. The Division of Taxation has previously been noted for the cryptic form of its deficiency notices (see, for example, the Tax Court's comments in the Gordon case, N.J.Tax 0, at page ). The most recent New Jersey enactment concerning the interactions between the Division of Taxation and taxpayers was the Taxpayers' Bill of Rights, P.L., c.. Among other provisions, the Taxpayers' Bill of Rights requires pursuant to N.J.S.A.:0- that deficiency assessments include a statement of the reason for the assessment sufficient to inform a reasonable lay person of the statutory requirements which in the opinion of the director require the assessment and the nature of the insufficient documentary evidence, if any, which has prompted the assessment. A trained professional, such as a tax attorney or certified public accountant, might be able to read one of the automobile casual sale assessments currently being sent and be able to figure out that it was a notice of deficiency, that appropriate documentary evidence could be supplied or averred to satisfy the division that the taxes already paid were correct, and that procedures for protest to the director and appeals to the courts were available. A reasonable lay person, however, might be more likely to look at the current form letter used by the Division of Taxation to give notice of an assessment and see a dunning notice for a past due bill. Because honest persons rush to pay their past due bills, taxpayers could reasonably pay an unjustified sales tax deficiency assessment and fail to make protest of the assessment within the time available under the State tax procedure law. The current deficiency notice does explain that the notice was sent because "you paid sales tax on a purchase price that was below fair market value." A

4 SR trained professional, such as a tax attorney or certified public accountant, might know that sales tax is actually due pursuant to N.J.S.A.:B- only on the actual purchase price of the vehicle and that a taxpayer who has made a good bargain gets the benefit of that bargain, but a reasonable lay person might interpret the language of the current notice as a requirement that sales tax is due on some other standard of value for the vehicle. This confusion would be exacerbated for any taxpayer who consulted the New Jersey Administrative Code for clarification and was confronted with N.J.A.C.:-., which also appears to misstate the tax law as requiring payment on the value of the vehicle rather than the actual price paid. Further, the current deficiency notice form states that "failure to show the correct amount was paid within the 0 days will result in further collections actions." The Taxpayers' Bill of Rights, pursuant to N.J.S.A.:B- and N.J.S.A.:-, allows a taxpayer 0 days to protest a deficiency assessment. The Taxpayers' Bill of Rights, pursuant to N.J.S.A.:-, requires that the director prepare statements that set forth in simple and nontechnical terms the procedures and time limits to protest an assessment or decision of the director, and the director has prepared a statement that, in small type on its second page, notes that time for appeal of a "determination made by the division" is 0 days. A trained professional, such as a tax attorney or certified public accountant, might know that the sales tax deficiency notice was a deficiency assessment and not a bill, that the notice was in fact one of the "determinations of the director" referred to in the director's statement that allows 0 days for an appeal to a court, that the time for a protest to the director (not mentioned in the statement) was the same 0 day period allowed for an appeal to the tax court, and that in any case the sales tax deficiency notice's statement that "failure to show the correct amount was paid within the 0 days will result in further collections actions" is legally meaningless. However, a reasonable lay person might take it seriously. For these reasons, this resolution urges the Senate Legislative Oversight Committee to review the regulations, procedures and forms used to process deficiency assessments for casual sales of automobiles, and examine their consistency with the letter and the spirit of the New Jersey tax statutes.

5 SR Requests Senate Legislative Oversight Committee review of regulations, procedures and forms used to process deficiency assessments for casual sales of automobiles.