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Praxair Technology, Inc. v. Director, Division of Taxation

A-6262-06T3 (N.J. Super. App. Div. 2010) (Unpublished)

TAXATION; PENALTIES — Where a taxpayer could avail itself of an amnesty program to avoid imposition of penalties, but the decides not to make payment and then unsuccessfully challenges its tax liability, the penalty need not be waived even though the taxpayer’s argument pointed to an unsettled state of law governing its tax liability in the first place.

Based upon a decision by the New Jersey Supreme Court that a business was subject to the Corporation Business Tax for three tax years, that court remanded the case before it. Its instructions to the Tax Court were to evaluate the business’s challenges to the administrative imposition of late filing and post-tax amnesty penalties for failing to pay the taxes for those three years. In response to that remand, the New Jersey Tax Court held the business had no reasonable cause for its failure to file tax returns for the years in question. It found it unreasonable for a sophisticated and complex taxpayer, such as this business, to fail to recognize nuances in the tax law under which it may have been liable. Additionally, the Tax Court found the business had notice of, but chose not to avail itself of, an amnesty option which would have forgiven the payment of past due taxes, and so assumed the risk of post-amnesty penalties. With respect to the late filing and post-amnesty penalties, the Tax Court upheld the Division of Taxation’s assessments, concluding the penalties imposed fell within the fair contemplation of the enabling statutes, and also that the Director did not act in an arbitrary, capricious or unreasonable manner when setting the business’s tax liability and penalties.

On further appeal, the Appellate Division affirmed the Tax Court’s decision, finding that the business, though subject to an arguably unsettled state of law governing its tax liability, could have avoided penalties and interest by filing a return, paying the taxes under protest, and otherwise dealing more constructively with the Division than it did. By challenging its tax liability, the business assumed the risk of not succeeding in its challenge. The Court said the consequence of that business decision reasonably could be viewed as subjecting the business to the penalties prescribed by statute. In conclusion, the Court held the Director’s decision to enforce the terms of the penalty statute could not be regarded as arbitrary, capricious or unreasonable. It also affirmed that the business had received proper due process under the amnesty program by direct notification from the Division. According to the Court, the business had a full opportunity to take advantage of the program and declined, resulting in the associated post-amnesty penalty assessment.

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