ASSEMBLY, No. 1204
STATE OF NEW JERSEY
Introduced Pending Technical Review by Legislative Counsel
PRE-FILED FOR INTRODUCTION IN THE 1996 SESSION
By Assemblymen DALTON and ROBERTS
An Act concerning the interest paid on gross income tax refunds, amending N.J.S.54A:9-7.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. 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 to be equal to three percentage points above the prime rate pursuant to R.S.54:48-2 upon any overpayment in respect of the tax imposed by this act, 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] 90 days after the last date prescribed, or permitted by extension of time, for filing the return or within [six months] 90 days after the return is filed, whichever is later.
(cf: P.L.1993, c.331, s.5)
2. This act shall take effect immediately and apply to overpayments with respect to returns due on or after January 1, 1996.
STATEMENT
This bill compensates taxpayers who do not receive their gross income tax refunds from the State Treasurer in a timely manner, by increasing the interest the State must pay to a taxpayer from the prime rate to three points more than the prime rate and by reducing the period in which refunds may be made without the payment of interest from six months to 90 days.
Under current law, a taxpayer owes penalty interest at the rate of at least three percentage points above the prime rate for each day that a gross income tax liability remains unpaid after its due date. However, the State is not required to pay interest on tax refunds that are mailed to taxpayers within six months after the taxpayer has applied for a refund. If the State exceeds the six month limit it pays interest at the prime rate, a rate at least three percentage points lower than is required of a taxpayer making a late payment.
The Director of the Division of Taxation recently stated that for the April 1995 gross income tax filings for tax year 1994 the Division of Taxation intentionally processed income tax payments quickly but "pushed aside the refunds. That's smart business." To ensure the fair treatment of taxpayers, and to assist tax administrators in distinguishing between sharp business practices and the duty of public employees to equitably administer the laws, this bill makes the interest rate paid by the State on delayed gross income tax refunds identical to the minimum interest rate taxpayers would be required to pay on late tax payments.
Increases interest rate paid on gross income tax refunds, shortens interest-free grace period for such refunds.