Trenton – New Jersey Offers Tax Amnesty Program

Trenton – Attention tax cheats: New Jersey is willing to forgive and forget.

Again.

With the recession chewing a gaping hole in tax revenues, New Jersey is one of several states turning to a tax amnesty program to raise extra cash.

The proposal, one of several budget-balancing steps announced by Gov. Jon Corzine last week, would allow deadbeat taxpayers to settle up with the state without paying the usual penalties. Interest charges of 5 percent would still apply for individuals and businesses, officials said.

It’s the third time New Jersey is going to the tax amnesty well since 1996.

Corzine is hoping the tried-and-true method — New Jersey’s last two tax amnesties raised a cool half-billion combined — produces $100 million this spring. He is trying to plug a budget deficit of $3.6 billion for the current fiscal year, which ends June 30.

“It’s a logical place to go, given that we have very little wiggle room,” said Sen. Barbara Buono (D-Middlesex), chairwoman of the Senate Budget and Appropriations Committee. “We’re being driven by these times to the edge of a fiscal abyss, and I think we need to use every tool that we have to avert falling off that cliff.”

But skeptics say the amnesty is a gimmick that will not do much to mend New Jersey’s finances. Critics also charge that offering frequent amnesties — the last was in 2002 — leads residents to expect them and avoid paying taxes promptly.

“The one-shot revenue helps — but the fact that it’s encouraging non-compliance hurts later on,” said Sen. Steve Oroho (R-Sussex), another budget committee member. “I think it does encourage bad behavior. That’s why you don’t do it all the time.”

Administration officials defended the proposal, saying amnesty would not have been offered if the economic situation were brighter.

“We are in the midst of a fiscal emergency, and the options for rebalancing our current year budget at this stage of the fiscal year are very limited,” said Tom Vincz, a spokesman for the Treasury Department.

Analysts say it is difficult to measure how many people take amnesty offers as a license to disobey in the future. But states frequently opt for the cash, because it is preferable to other alternatives such as borrowing, said Verenda Smith, a spokeswoman for the Federation of Tax Administrators.

“A little bit of lost future compliance in an emergency has traditionally been an acceptable level of loss,” she said.

With the economic meltdown straining state coffers across the country, other states have gone down the amnesty path. Connecticut and Massachusetts are in the midst of amnesty programs, while Louisiana has one planned, Smith said. Oklahoma and Nevada offered amnesty last year, and both collected more revenue than expected.

“Usually amnesties are a leading indicator of cash flow problems in a state,” Smith said. “It is tried, it is true, and it does bring taxes in the door.”

While most recent amnesties nationwide have matched or exceeded expectations, it’s unclear how a “wild card” like the severe economic downturn will affect the response now, said Bert Waisanen, a fiscal analyst at the National Conference of State Legislatures.

“You don’t know what people are going to do,” Smith said. “People aren’t behaving in ways they’ve behaved in the past.”

In the past, they paid up — often at the last minute. New Jersey netted $277 million in 2002, higher than its $150 million goal, although that plan waived both penalties and interest. Another amnesty yielded $244 million in 1996.

This time, the taxpayer would still be responsible for interest charges of 5 percent, and a 5 percent penalty per month for late filing, up to 25 percent, Vincz said. All other penalties — which vary depending on the tax — would be forgiven, he said.

The $10 million program, to be introduced in the Legislature in the coming weeks, would run for 45 days, starting in April and ending by June 15. Those who owe back sales, income, corporate or any other state tax would be eligible. The amnesty would cover unpaid taxes that were due between Jan. 1, 2002 and Jan. 31 of this year.

Notices will be sent to individuals and businesses that the state already knows owe back taxes, and an advertising campaign will help encourage those still hidden, Vincz said. He said the state has yet to decide on the exact promotions or how much of the $10 million will be spent on them.

In 2002, the ads blared: “Nowhere to run, nowhere to hide.”