On April 14, 2020, New Jersey Gov. Phil Murphy signed legislation extending the state’s filing and payment deadlines from April 15, 2020, to July 15, 2020, for purposes of the Corporation Business Tax (CBT) and Gross Income Tax (GIT), conforming with the federal deadline extension provided in response to the COVID-19 pandemic.1 The enacted legislation also extends the duration of New Jersey’s 2020 fiscal year by three months to end on Sept. 30, 2020, and reduces the duration of the 2021 fiscal year by three months to begin on Oct. 1, 2020, and end on June 30, 2021.
Background
In an effort to provide relief to taxpayers amidst the COVID-19 outbreak, the Internal Revenue Service (IRS) announced last month that it would extend the filing and payment deadlines for corporate and individual income taxes from April 15, 2020 to July 15, 2020.2 Concurrently, the New Jersey legislature passed legislation that would have extended the state’s CBT and GIT filing and payment deadlines to June 30.3 Soon after the bill’s passage, however, the governor announced that he had come to an agreement with legislative leaders to push back the filing and payment deadlines to July 15. During this time, the legislature began drafting alternative legislation to align with the extended federal deadlines.
CBT and GIT filing and payment deadline extensions
Effective immediately, the enacted legislation provides that calendar year taxpayers filing CBT and GIT returns having an original due date of April 15, 2020, are granted an automatic extension to file such returns and pay the corresponding tax due until July 15, 2020.4 The bill specifies that taxpayers qualifying for the extension will not be subject to penalty or interest for returns filed and tax paid on or before the extended due date.5 Further, the legislation extends the provisions governing the payment of interest for tax refunds by the later of: (i) six months after the conclusion of the state of emergency declared by the governor in a recent executive order; or (ii) six months after the return is filed.6 Finally, in accordance with the filing and payment due date extensions, the law extends the statute of limitations for the New Jersey Division of Taxation to assess taxes by 90 days after the conclusion of the state of emergency.7 The 90-day extension applies to both the original assessment time period and the extended assessment time period, if consented to by the taxpayer.8
Following enactment, the Division released guidance clarifying that the extensions also apply to first quarter 2020 estimated tax payments.9 The Division clarified that all other returns and payments currently remain due on their original due date, including second quarter estimated tax payments for calendar year filers. In an effort to clarify deadlines for tax returns and payments impacted by the legislation, the Division published a listing of due dates for all applicable returns and taxpayers, including corporations, passthrough entities, and individuals, in addition to fiduciary and nonresident composite returns.10 The Division’s guidance specifies that corporate taxpayers with tax years ending between July 31, 2019, and Nov. 30, 2019, were granted an automatic extension to file their tax returns by April 15, 2020. For these taxpayers, tax must be paid by the original due date. Such taxpayers may obtain an additional six-month extension to file, with the extended deadline being six months from the original return filing due date.11 The filing and payment extensions do not apply to trust fund taxes such as sales and use tax or employer withholding tax.
Fiscal year changes
The enacted legislation makes significant changes to the state’s fiscal year in order to complement the filing and payment extensions for the CBT and GIT. Specifically, the bill modifies the duration of the state’s 2020 fiscal year to end on Sept. 30, 2020, and establishes Oct. 1, 2020, as the start date of the state’s 2021 fiscal year.12 In conjunction with these changes, the bill requires that any additional spending required to support state operations from July 1 through Sept. 30, 2020, be made through the enactment of a general law amending or providing for a supplemental appropriation to the annual appropriations law.13 The law specifies that this change does not apply to municipalities adopting the state’s fiscal year and does not prevent them from converting to a calendar fiscal year.14
The legislation also directs the state treasurer to prepare a report on the financial condition of the state budget for the 2020 and 2021 fiscal years.15 The report will include: (i) an update on state revenue collections through the first nine months of the 2020 fiscal year and a revised forecast of revenue projections for the remainder of the year; (ii) a spending plan for the continuation of essential governmental operations for the remainder of the fiscal year; and (iii) an updated assessment of current economic conditions and the potential economic impact on the proposed budget for the 2021 fiscal year.16 Finally, the governor will be required to present a revised budget address for the 2021 fiscal year by August 25, in light of the bill’s alterations to the 2020 fiscal year.17
Commentary
With the income tax due date extension legislation signed the day before the April 15 deadline, New Jersey governmental leaders kept both taxpayers and practitioners in relative suspense up until the last minute as to whether the state would follow the federal extended due dates in alignment with most other states. The government had advised via a press release that the change in the due date would occur, and was to be incorporated with the change in the state’s fiscal year. While one of the goals of the legislation was to eliminate confusion for New Jersey taxpayers in tracking both federal and state filing deadlines, in reality the bill does not contain automatic extensions for all filing and payment deadlines, which had been recommended by the New Jersey Society of Certified Public Accountants. For example, CBT taxpayers with fiscal years ending between July 31 and November 30, 2019 received automatic extensions to file and pay only through April 15, 2020. In addition, second quarter 2020 estimated tax payments remain due on June 15, a month earlier than the extended first quarter payment due date.
In order to account for the extended income tax filing and payment deadlines, New Jersey became the first state to react to the COVID-19 crisis by extending its fiscal year beyond a 12-month period. While modifying a state’s fiscal year is very unusual, several factors contributed to state leaders’ decision to do so. First, New Jersey was already facing significant fiscal challenges before the onset of the pandemic, with a budget reserve fund balance of approximately $401 million, amounting to only 1% of annual general fund expenditures.18 Second, the state’s restrictive budget rules caused state officials to seriously consider this option. With a state constitution requiring a balanced budget, New Jersey relies heavily on April income tax payments in order to meet budget projections by the end of the fiscal year. As such, moving the filing and payment deadlines to July 15 pose serious problems for states, most of which have a June 30 fiscal year-end. Finally, the fiscal year extension allows state officials additional time to assess the true extent of the economic damage caused by the pandemic, given that the state has felt the health effects of COVID-19 more heavily than most other states. It remains to be seen whether other states will follow in the footsteps of New Jersey and determine whether extending their fiscal year-ends is possible through legislation or other means, in order to reassess their fiscal position and allow themselves extra time to address budget shortfalls in the wave of the pandemic.
1 COVID-19 Fiscal Mitigation Act, P.L. 2020, c.19 (S. 2238), Laws 2020.
2 Notice 2020-18, Relief for Taxpayers Affected by Ongoing Coronavirus Disease 2019 Pandemic, Internal Revenue Service, March 20, 2020. The IRS later expanded the automatic extension relief to all taxpayers having a filing or payment deadline, falling on or after April 1 and before July 15, whether originally or pursuant to a valid extension. This relief includes second quarter estimated tax payments. Notice 2020-23, Additional Relief for Taxpayers Affected by Ongoing Coronavirus Disease 2019 Pandemic, Internal Revenue Service, April 9, 2020.
3 A.B. 3841.
4 S. 2338, § 1.a.
5 S. 2338, § 1.c.
6 S. 2338, § 1.b; Executive Order No. 103 of 2020, Governor Phil Murphy, March 9, 2020.
7 S. 2338, § 2.
8 Per Division guidance, if either the original assessment time period or the consent period ends on or after April 14, 2020, the Division may make an assessment on or before the expiration of the extended 90-day period under the new law. If the original assessment time period or the consent period ends before April 14, the Division would be out of time to make an assessment for the returns that are beyond the original limitations period.
9 COVID-19 Related Tax Information, N.J. Division of Taxation, published at https://www.state.nj.us/treasury/taxation/covid19.shtml.
10 2019 Return Due Dates, N.J. Division of Taxation, published at https://www.state.nj.us/treasury/taxation/duedates.shtml.
11 For example, a fiscal year taxpayer with a tax year ending on Nov. 30, 2019, and applying for an additional extension would have an extended filing due date of Sept. 15, 2020, or six months from the original return filing due date of March 15, 2020.
12 S. 2338, § 3.a.
13 S. 2338, § 3.b.
14 S. 2338, § 4. New Jersey municipalities do not impose a local CBT or GIT.
15 S. 2338, § 5.a.
16 S. 2338, § 5.b.
17 S. 2338, § 6.
18 State Strategies for Closing FY 2020 with a Balanced Budget, The Tax Foundation, Apr. 2, 2020.
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