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So how much will New Jersey’s corporate minimum tax cost you? Technically, $500, but that’s just the ante.
Typically a $1,000 tax bill is handed to delinquents, says Tom McDonald, who heads the agency that enforces the tax. The higher amount “gives them an incentive to comply,” he says, because it increases the likelihood of an appeal, which involves a full tax filing.
When a company voluntarily registers, the state, in its benevolence, limits back collections to three years. When a company is forced to register, the agency goes back as far as it cares to. In that case, the company owes 25 percent (after five months) per year late fee for not filing on time, another 5 percent per year for not paying on time, then interest on the balance at 5 percent above the prime rate.
Since the late 1990s, New Jersey has enforced its corporate minimum tax on unregistered out-of-state businesses. That includes any trucking company – even incorporated one-truck owner-
operators – that picks up or delivers inside its borders.
If you’re an unincorporated leased owner-operator, you don’t have to pay, but your carrier does. Should you get questioned at a warehouse, terminal or retail dock and officials find that your carrier is unregistered in New Jersey, you’ll be cooling your tires until your carrier wires a little something to help fertilize the Garden State.
Keep in mind, especially if you’re an independent with discretion about where you run, that this is not the equivalent of a fat, one-time ticket. “Our goal is to get you to file the appropriate tax returns,” says Tom McDonald, who oversees the program, which has brought in over $60 million since 1977.
Say you get assessed $1,000. You’ve done business only once in the state, so you file the tax papers and appeal. You end up paying the $500 minimum corporate tax, related fees and penalties, and get a partial refund. If you don’t challenge the amount, brace yourself.
“If we assess you and you don’t appeal, we think you owe us more money,” McDonald says. His staff will then investigate, pushing until you give full compliance.
Among the complaints from surprised truckers over the years, the highest one-time assessment was for $8,000, says Gail Toth, executive director of the New Jersey Motor Truck Association.
“It’s very heavy-handed enforcement, and there’s nothing you can do,” she says. “Every couple of months somebody calls, says, ‘I’m stuck, what am I going to do, I don’t have any money.'”
The Owner-Operator Independent Drivers Association still gets an occasional call from a surprised member, says Vice President Todd Spencer. “What we tell people is there are pros and cons of being incorporated if you’re an owner-operator,” he says. “This is one that so clearly fits on the con side.”
Owner-operator accountant Kevin Rutherford of The Alliance advises owner-operators interested in incorporation to establish a limited liability company instead. “In New Jersey’s case, they don’t enforce the tax on an LLC,” he says. Under an LLC, the owner chooses which entity to be taxed as, such as a partnership or sole proprietor.
Those familiar with the N.J. situation say Pennsylvania and other states have such laws on the books, though – so far – they are not enforced as aggressively as New Jersey’s, at least toward motor carriers.
Do you have ideas for this column? Call Heine at (800) 633-5953, Ext. 1038.
