Rev. Rul. 71-46

The purpose of this Revenue Ruling is to update and restate, under the current statute and regulations, the position set forth in G.C.M. 15305, C.B. XIV-2, 80 (1935).

The question presented is whether ownership of personal property on January 1 of each year and the ownership of real property on October 1 of each year permits the owner to accrue on those dates, for Federal income tax purposes, the real and personal property taxes imposed under the laws of the State of New Jersey.

The taxpayer, a domestic corporation, computes its income under an accrual method of accounting and files its Federal income tax return on a calendar year basis. The taxpayer owns both real and personal property in the State of New Jersey.

Section 54:4-1 of the New Jersey Statutes Annotated, as amended, provides that all property, real and personal, within the jurisdiction of the State, not exempt from taxation, shall be subject to taxation annually.

Section 54:4-2.46 of the Statutes, as amended, provides that "* * * tangible personal property used in business subject to taxation shall be determined as of January 1, 1967, which shall be the assessment date with respect to taxes payable in the year 1968, and as of January 1 annually thereafter, which date shall be the date as of which the assessment is made with respect to the taxes payable in the succeeding calendar year."

The liability for personal property taxes is set forth in section 54:4-2.47(b) of the Statutes, as amended, as follows:

* * * The person assessed for personal property shall be personally liable for the taxes thereon.

Section 54:4-23 of the Statutes, as amended, provides that all real property, shall be assessed to the person owning the same as of October 1 in each year. However the law of the State of New Jersey does not make the owners personally liable for real estate taxes. (Borough of Wrightstown v. Salvation Army, 123 Atl. 607 (1922).)

Section 1.461-1(a)(2) of the Income Tax Regulations provides that under an accrual method of accounting, an expense is deductible for the taxable year in which all the events have occurred which determine the fact of the liability and the amount thereof can be determined with reasonable accuracy.

In the normal course of events the owner of real property in New Jersey on October 1 of any given year will pay the taxes levied as of that date. See Jersey City v. Montville Township, 85 A. 838 (1913), affirmed without opinion, 91 A. 1069 (1913), Shelton College v. Borough of Ringwood, 136 A. 2d, 660 (1957), and East Orange v. Palmer, 197 A. 2d 410 (1964).

Accordingly, in the instant case, personal property taxes imposed by the State of New Jersey accrue for Federal income tax purposes on January 1 and real property taxes imposed by such State accrue on October 1 for Federal income tax purposes.

G.C.M. 15305 is hereby superseded, since the position stated therein is restated under the current law in this Revenue Ruling.

¹ Prepared pursuant to Rev. Proc. 67-6, C.B. 1967-1, 576.