At this past week-end’s NJ-NATP “Famous State Tax Seminar” I was reminiscing with long-time NJ-NATP members and Board members about the early days of the seminar – when the event was held upstairs at the then Woodbridge Hilton (now APA Hotel), which is in Iselin and not Woodbridge, in a much smaller room.

One year, over 20 years ago, then Director of the NJ Division of Taxation Robert Thompson – who left office after being charged with “making discretionary decisions while under undisclosed conflicts of interest caused by their receipt of meals, entertainment, golf outings and other gifts” from OSI, the outside collection agency hired by the NJDOT to collect outstanding NJ taxes – told the assembled NJ tax preparers about NJ’s special sales and use tax audit initiative.  This was when the annual “keynote speech” by the NJDOT Director actually provided value.

I still remember two stories Thompson told us back then.

One arm of the audit program would target NJ businesses where pretty much 100% of gross receipts are subject to Sales Tax – like pizza parlors, liquor stores and taverns.  It was not the goal of the program to put the pizza parlors, liquor stores or taverns being audited out of business. The sole purpose was to collect more tax. No criminal or other action was brought against the business by the State and the bill was not overloaded with penalties.

Thompson told of the audit of one pizza parlor, which happened to be located around the corner from the NJDOT headquarters in Trenton. The Division asked the parlor to submit a menu, which was reviewed by the auditors. One auditor then visited the parlor and asked the owner, “How come the menu you sent us says you charge $2.00 for a slice of pizza, but when I come in here for lunch you charge me $2.75?” Apparently, the owner was not too bright!

My favorite of the two stories concerned the program's attempt to collect “use tax” on out of state purchases.

If a New Jersey resident purchases a taxable item in New York and will walk out of the store with that item in hand he/she will pay New York state sales tax on the item, even though the item will ultimately be used in New Jersey, and will not owe any tax to NJ.  But if a NJ resident purchases an item from a New York vendor and has the item shipped to a New Jersey address he/she does not pay New York state sales tax at the point of purchase. That person is required to pay a use tax on the purchase to the State of New Jersey.  For example, if you order a bracelet from a New York jeweler and have it shipped to your New Jersey address you would not pay sales tax to New York, but you would be liable for New Jersey use tax on the purchase.

The NJ Division of Taxation got a hold of the records of a jewelry store located in New York, just over the NJ border, and made a list of all purchases where the items were shipped to a New Jersey address and no NY state sales tax was paid. The Division then sent a bill for the appropriate amount of use tax due, with the specific purchases itemized, to the registered NJ residences of all those on the list.

One of these bills arrived at the home of a married doctor and was opened by the doctor’s wife.  After she reviewed the bill, she immediately called the NJ Division of Taxation.

“I have just received a bill for use tax from the Division of Taxation and I think you have made an error,” she said.

“What is the error,” the DOT employee asked.

“My husband only gave me one diamond bracelet!”

So, the moral of the story – if you are going to give your wife and your mistress the same expensive gift, don’t buy both at the same place at the same time, and be sure to pay state sales tax on the gift for your mistress!

TTFN