N.J. Admin. Code § 18:7-14.1

Current through Register Vol. 56, No. 19, October 7, 2024

Section 18:7-14.1 - Tax Clearance Certificate

(a) This section describes certain actions and certain transactions by corporations that require the prior issuance of a Tax Clearance Certificate by the Director of the Division of Taxation as evidence that all State taxes, penalties, interest, and fees have been paid or provided for in order to avoid a transferee liability to certain officers and directors.

(b) The following words and terms, when used in this section, have the following meanings unless the context clearly indicates otherwise:

"Authorized foreign corporation" means a corporation holding a general Certificate of Authority to do business in New Jersey issued by the Division of Revenue and Enterprise Services to the exclusion of any other authority, license, or right derived from any other source.

"Business entity" means a corporation, partnership, or limited liability company, whether organized under the laws of this State or under the laws of any other state or foreign jurisdiction, which is subject to taxation under any state tax law.

"Certification" means a writing on behalf of a corporation making an undertaking executed under oath of its president, vice president, or treasurer which represents that the corporation making the undertaking has a net worth not less than 10 times the amount of all taxes paid by a corporation applying for a Tax Clearance Certificate during the last complete year in which it filed tax returns with the State of New Jersey. Net worth, for this purpose, is net worth defined in the conventional accounting sense determined consistent with generally accepted accounting principles and not as defined at N.J.S.A. 54:10A-4(d) of the Corporation Business Tax Act.

"Director" means the Director of the Division of Taxation.

"Domestic corporation" means a corporation that received its charter under any law of the State of New Jersey.

"Foreign corporation" means any corporation other than a domestic corporation that is subject to taxes. The term includes entities that are taxable as such, as well as any entity obligated to withhold personal income taxes or to collect sales and use tax.

"Liquidation" means any distribution by a corporation to its shareholders with respect to its capital stock except dividend distributions out of retained earnings.

"Taxes" means all taxes, fees, penalties, and interest owing under any tax law of the State of New Jersey that are payable to or collectible by the Director.

"Undertaking" means a writing by a domestic corporation or by an authorized foreign corporation executed on its behalf by its president, vice president, or treasurer which undertakes, as surety and not as guarantor, to pay all taxes of a corporation applying for a Tax Clearance Certificate on or before the date such taxes are payable. Where more than one corporation undertakes to pay such taxes, the undertaking must be jointly and severally undertaken.

(c) A corporation may merge under the laws of New Jersey or any other jurisdiction without applying for a Tax Clearance Certificate only where the surviving corporation is a domestic corporation or an authorized foreign corporation.

(d) No corporation may either distribute any of its assets in dissolution or in partial or complete liquidation, or merge or consolidate, under the laws of any jurisdiction, into a foreign corporation that is not an authorized foreign corporation; and no domestic corporation may dissolve, and no authorized foreign corporation may withdraw as an authorized corporation (except only where that withdrawal is affected by its merger or consolidation under the laws of another state into a domestic corporation or into another foreign corporation which, itself, is an authorized corporation), unless the corporation shall have applied for and received a Tax Clearance Certificate from the Director of the Division of Taxation that is dated not earlier than 45 days prior to the effective date of the corporate action or transaction described.

(e) No business entity may merge or consolidate into any other business entity other than a domestic business entity or a foreign business entity authorized to transact business in this State, unless the business entity files or causes to be filed by the Division of Taxation with the Division of Revenue and Enterprise Services a certificate issued by the Director of the Division of Taxation dated not earlier than 45 days prior to the effective date of the business entity action evidencing that the business entity's taxes have been paid or provided for.

(f) The Tax Clearance Certificate is issued by the Director of the Division of Taxation upon application on the appropriate form to the Division of Revenue and Enterprise Services, which is accompanied by a statutory fee of $ 120.00 ($ 25.00 application fee and $ 95.00 dissolution withdrawal fee). All fees related to the application and final dissolution/withdrawal must be paid with the initial application for tax clearance in the form of a check or money order payable to "Treasurer, State of New Jersey." Failure to complete the tax clearance procedure will result in the forfeiture of the $ 120.00 fee. The Tax Clearance Certificate is dated and it voids and becomes a nullity 46 days after that date. The Tax Clearance Certificate is evidence that the requisite corporation business taxes have been paid or provided for only during the 45-day period succeeding the issuance of the Tax Clearance Certificate.

(g) The corporation's tax liability will be deemed ended as of the date the application is accepted by the Division of Revenue and Enterprise Services, as long as the tax clearance procedure is successfully concluded with the Division of Taxation. Although the business tax liability will end before the issuance of the Tax Clearance Certificate, any prior tax obligation will remain payable and must be satisfied before a Tax Clearance Certificate will be issued. If a Tax Clearance Certificate is not issued, the business tax liability will be reactivated as if there was no lapse in subjectivity.

(h) An LLC or other business entity that has elected to be taxed as a corporation that is withdrawing from the State is required to obtain a Tax Clearance Certificate.

(i) A Tax Clearance Certificate may be issued under any one of three conditions:

1. Where an amount is deposited or paid on account which, in the judgment of the Director, is adequate to cover estimated taxes up to the date of the relevant corporation action. The amount that is deemed to be adequate is described in the instruction sheet accompanying the estimated summary tax return to be filed with the application; or

2. Where the application is accompanied by a written undertaking and a certification; or

3. Solely in the case where:

i. A domestic corporation intends to dissolve or where any corporation proposes to distribute any of its assets in dissolution or in partial or complete liquidation, and

ii. The application is accompanied by a written undertaking by the corporation or corporations that either own 50 percent or more of all classes of the applicant corporation's capital stock, or are a party together with the applicant corporation in the type of reorganization described at I.R.C. § 368(a)(1)(C), and the application is accompanied by a legal opinion signed by an attorney at law of the State of New Jersey who states that he or she is familiar with the facts of the transaction to the effect that all of the above requirements are met.

(j) As a condition of issuing any Tax Clearance Certificate, the Director may require evidence by affidavit, or by any other means that seems to him or her appropriate, that any foreign corporation that is not an authorized foreign corporation and that is a party to the transaction causing any corporation to seek a Tax Clearance Certificate has, itself, paid all taxes that it owes.

Example: A foreign corporation that is not subject to the corporation business tax or any property tax in New Jersey may be obligated to withhold personal income taxes or to remit sales and use tax. Such taxes must be paid whether or not withheld from employees or charged to customers.

(k) Whenever necessary to properly reflect the entire net income of any taxpayer, the Director may determine the year or period in which any item of income or deduction shall be included, without being limited to the method of accounting employed by the taxpayer.

Example: A foreign corporation sold a piece of property located in this State at a substantial gain that it has elected to report on the installment method of accounting for Federal income tax purposes. Before it has recognized all of the gain on this sale, the foreign corporation withdraws from the State and cancels its Certificate of Authority to do business.

(l) In order properly to reflect the entire net income of the taxpayer, the Director may include all the unrecognized gain on the taxpayer's final return, notwithstanding any inconsistency in the timing of income for Federal and State tax purposes.

(m) See N.J.A.C. 18:7-14.5 for the streamlined dissolution or withdrawal procedure.

N.J. Admin. Code § 18:7-14.1

Adopted by 49 N.J.R. 1694(a), effective 6/19/2017