New Jersey-2014-A615-Introduced

An Act increasing the interest rate applied to certain overdue refunds of tax overpayments, amending P.L.1992, c.175 and N.J.S.54A:9-7.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. Section 7 of P.L.1992, c.175 (C.54:49-15.1) is amended to read as follows:

7. For tax paid with respect to reports or returns due on and after the first day of the sixth month following the July 1 next following enactment of this section, but before July 1, 2013, interest shall be allowed and paid on every overpayment of tax at a rate determined by the director to be equal to the prime rate, determined for each month or fraction thereof, compounded annually at the end of each year, from the date that such interest commences to accrue to the date of refund.

For tax paid with respect to reports or returns due on and after July 1, 2013, interest shall be allowed and paid on every overpayment of tax at a rate determined by the director to be equal to the rate of three percentage points above the prime rate determined for each month or fraction thereof, compounded annually at the end of each year, from the date that such interest commences to accrue to the date of refund.

Interest allowed or paid pursuant to this section shall commence to accrue on the later of the date of the filing by the taxpayer of a claim for refund or requested adjustment, the date of the payment of the tax, or the due date of the report or the return thereof; but no interest shall be allowed or paid on an overpayment of less than $1.00, nor upon any overpayment refunded within six months after the last date prescribed, or permitted by extension of time, for filing the return or within six months after the return is filed, whichever is later.

(cf: P.L.1993, c.331, s.4)

2. N.J.S.54A:9-7 is amended to read as follows:

54A:9-7. Overpayment. (a) General. The director, within the applicable period of limitations may credit an overpayment of income tax against any liability in respect of any tax imposed by the tax law on the person who made the overpayment, and the balance shall be refunded by the comptroller out of the proceeds of the tax retained by him for such general purpose. Any refund under this section shall be made only upon the filing of a return and upon a certificate of the director approved by the comptroller. The State Treasurer, as a condition precedent to the approval of such a certificate, may examine into the facts as disclosed by the return of the person who made the overpayment and other information and data available in the files of the director.

(b) Excessive withholding. If the amount allowable as a credit for tax withheld from the taxpayer exceeds his tax to which the credit relates, the excess shall be considered an overpayment.

(c) Overpayment by employer. If there has been an overpayment of tax required to be deducted and withheld under N.J.S.54A:7-4, refund shall be made to the employer only to the extent that the amount of the overpayment was not deducted and withheld by the employer.

(d) Credits against estimated tax. The director may prescribe regulations providing for the crediting against the estimated income tax for any taxable year of the amount determined to be an overpayment of the income tax for a preceding taxable year. If any overpayment of income tax is so claimed as a credit against estimated tax for the succeeding taxable year, such amount shall be considered as a payment of the income tax for the succeeding taxable year (whether or not claimed as a credit in the declaration of estimated tax for such succeeding taxable year), and no claim for credit or refund of such overpayment shall be allowed for the taxable year for which the overpayment arises.

(e) Rule where no tax liability. If there is no tax liability for a period in respect of which an amount is paid as income tax, such amount shall be considered an overpayment.

(f) Under regulations prescribed by the director with approval of the State Treasurer interest shall be allowed and paid at the rate determined by the director according to the following schedule:

For overpayments allowed or paid on or after July 1, 1993, but before July 1, 2013, the rate shall be equal to the prime rate pursuant to R.S.54:48-2;

For overpayments allowed or paid on or after July 1, 2013, the rate shall be equal to three percentage points above the prime rate pursuant to R.S.54:48-2.

Interest allowed and paid upon any overpayment in respect of the tax imposed by this act[,] according to the schedule of this subsection shall be determined for each month or fraction thereof, compounded annually at the end of each year, from the date that such interest commences to accrue to the date of refund; but no interest shall be allowed or paid on an overpayment of less than $1.00, nor upon any overpayment refunded within six months after the last date prescribed, or permitted by extension of time, for filing the return or within six months after the return is filed, whichever is later.

(cf: P.L.1993, c.331, s.5)

3. (New section) Notwithstanding any provision of the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.) to the contrary, the director may adopt immediately upon filing with the Office of Administrative Law such regulations as the director deems necessary to implement the provisions of P.L. , c. (C. ) (pending before the Legislature as this bill), which regulations shall be effective for a period not to exceed 180 days following the date of enactment of P.L. , c. (C. ) (pending before the Legislature as this bill) and may thereafter be amended, adopted, or readopted by the director in accordance with the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.).

4. This act shall take effect immediately and apply to overpayments with respect to reports or returns due on and after July 1, 2014.

STATEMENT

This bill increases the interest paid on overdue tax refunds subject to the State Uniform Tax Procedure Law and New Jersey Gross Income Tax Act. The purpose of this bill is to make the interest rate paid on tax refunds the same as the interest rate paid on tax deficiencies.

While the interest rate imposed on back taxes accrues at three percentage points above the Federal Reserve's Bank Prime Loan Rate, the interest rate allowed on overdue refunds is paid without the benefit of a three point adjustment. In recent practice, this has meant that tax deficiency interest has been imposed at 6.25% and tax refund interest has been allowed at just 3.25%.

This bill imposes a measure of equity and symmetry to the State's tax system by making the interest rate owed by tax collectors on refunds identical to the interest rate owed by taxpayers on deficiencies.

The bill also includes emergency regulatory authority for the Director of the Division of Taxation to implement the bill.