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State Is Counting on Tax Amnesty to Raise at Least $200 Million

We’ll soon find out if lawmakers were right that tax delinquents could be cajoled into paying up. If they’re wrong, the budget probably will need to be adjusted

NJ tax amnesty carousel

Lawmakers assured a skeptical Gov. Phil Murphy earlier this year that, with a little coaxing, millions of dollars could be collected for the state budget from people who are behind on their taxes, and New Jersey will soon find out if the lawmakers were right.

For the next two months, the state will try to raise a significant amount of cash from tax delinquents by waiving some of the penalties and interest payments that individual taxpayers and businesses are typically required to pay when settling their outstanding tax debts.

Launched last week, the state’s tax-amnesty program will run through January 15. Those who owe tax filings and payments going back to 2009 are eligible to participate. Raising the stakes for the delinquents, the state is promising to levy an additional 5 percent penalty on those who do not take advantage of the two-month amnesty window.

But the stakes are also high for everyone else as the state is counting on at least $200 million in revenue from the program. Coming up short of that goal would require the Murphy administration to make midyear cuts or enact other budget adjustments to keep spending in balance, as required by the state constitution.

Democratic lawmakers wanted the amnesty

The state has administered numerous tax-amnesty initiatives over the last three decades to raise one-time revenues for the annual budget, generating nearly $1.5 billion. The results of each program have been mixed, with Democratic Gov. Jon Corzine scoring the biggest haul in 2009 when $725 million was raised for the state budget to help offset revenue losses caused by the Great Recession. But several years later, a limited tax-collection initiative administered by then-Republican Gov. Chris Christie raised just $75 million.

Murphy, Coughlin, Sweeney
Gov. Phil Murphy, flanked by Assembly Speaker Craig Coughlin, left, and Senate President Steve Sweeney at the end of their budget talks

While tax-amnesty programs are usually offered as a way to raise revenue during economic slowdowns, this year’s collection was proposed by Democratic legislative leaders after Murphy called for a series of tax hikes as part of his fiscal year 2019 budget to support increased spending on public education, mass transit and the state’s faltering public-employee pension system. Murphy, a first-term Democrat, initially questioned the tax-amnesty proposal, but in a last-minute budget compromise with lawmakers, the governor decided to scale back part of his tax-hike agenda — he dropped a plan to increase the sales tax entirely — and authorize the two-month amnesty program.

Officially launched last week, the reduced penalties and interest payments are being offered to anyone with outstanding tax filings or payments that were due on or after February 1, 2009 and prior to September 1, 2017. To help drum up interest, the Division of Taxation has mailed letters to thousands of taxpayers who they believe have delinquent accounts with the state. The state has also launched an aggressive marketing campaign that includes commercials on television, radio and online.

There’s also the additional 5 percent penalty that tax delinquents will face if they don’t settle up within the next two months.

“Since Tax Amnesty is offered for a limited time, we’re encouraging taxpayers to take advantage of the program before the January 15 deadline or risk incurring greater penalties,” said John Ficara, acting director of the Division of Taxation.

Counting on a big haul

While lawmakers were confident that the tax-amnesty program would come through as a major source of revenue for the $37.4 billion fiscal 2019 budget, a formal estimate that was prepared over the summer by the nonpartisan Office of Legislative Services did not include a precise projection for the amount of revenue that could be collected. That’s because the OLS analysts said they did not have a good source of independent data to estimate the outstanding pool of individual and corporate tax delinquents.

Instead, it cited information “provided during the FY2019 budget process” that assumed the state could raise $75 million from businesses who owe the state corporate taxes; $50 million from individuals who owe the state personal income taxes; and another $75 million from those who are behind on sales taxes.

“As with any tax amnesty program, the net revenue impact will be determined by the balance between new tax revenues that are attracted through the amnesty offer and the revenue losses resulting from the forgiveness of interest and penalties owed by taxpayers who would otherwise have made full payment through the State's current tax compliance efforts, either during the amnesty payment period or at a later date,” the OLS note said.

Meanwhile, this year’s tax amnesty could also be impacted by another tax-collection initiative that was launched during Christie’s last year in office, one that sought to use new technologies to improve “strategic collections and enforcement” of tax payments. Coincidentally, that initiative was also expected to raise $200 million in new revenue.

So far, general tax collections have been running slightly behind the Murphy administration’s year-end growth target through October. But even if this year’s tax amnesty is a resounding success and goes beyond its revenue goal, lawmakers may be right back in the same position next year when they try to hammer out another deal on the annual budget with Murphy. That’s because tax-amnesty programs generally are successful when only done periodically, and lawmakers would have to come up with a new one-time revenue source or make new budget cuts to sustain any spending that is being supported this year by the dollars being raised from tax delinquents.

Those interested in participating in New Jersey’s tax-amnesty program can contact the Division of Taxation at (800) 781-8407 or visit www.TaxAmnesty.nj.gov.

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