Weekly Round-Up: The Hidden Impact of Amnesty Penalties


Numerous important developments in state tax law occurred over the past year, including apportionment, particularly with respect to the Multistate Tax Compact and nexus, Craig B. Fields and Ted W. Friedman, of Morrison & Foerster LLP write in this week's issue of the Weekly State Tax Report. However, some interesting cases also came out dealing with an often overlooked topic: amnesty.

In Metropolitan Life Insurance Company v. Hamer, the Illinois Supreme Court held that a life insurance company was subject to a double interest penalty for additional income taxes that were assessed following federal adjustments made after an amnesty period had ended, Fields and Friedman write. The court found that the reference to payment of "all taxes due" in the amnesty provision meant "taxes that were properly reportable at the time the initial tax return was required to be filed, rather than taxes known to be due during the amnesty period." Therefore, the court held that because the company "failed to pay those taxes during the amnesty period, it became liable for the 200 percent interest" penalty. The court also held that the imposition of the 200 percent interest penalty did not violate the company's substantive due process rights, Fields and Friedman explain.

However, in United Parcel Service General Services Co. v. Director, Division of Taxation case, the Superior Court of New Jersey, Appellate Division, held that the Tax Court of New Jersey correctly decided that late payment penalties should have been abated because the companies acted in good faith in their tax reporting positions on an issue of first impression, Fields and Friedman write. The court also held that amnesty penalties were not "automatic" for all assessments related to tax years for which amnesty was available and that the Tax Court was correct in finding that amnesty penalties did not apply because liabilities asserted as due on audit and assessed after the close of the amnesty were not liabilities "eligible to be satisfied" during the amnesty period. The Division of Taxation has requested that the Supreme Court of New Jersey hear its appeal, according to Fields and Friedman.

Check out the article by Fields and Friedman, which also looks at developments in the areas of combined/consolidated returns, nexus and apportionment, here.

In other developments…

Gillette files Answer Brief on Merits - Submits previously uncovered documents, by PwC.

Sales Tax Holidays: Politically Expedient but Poor Tax Policy, according to the Tax Foundation.

States' Proposed & Enacted Budgets , by The National Association of State Budget Officers.

Compiled by Priya D. Nair

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