Rev. Rul. 70-261

Advice has been requested as to the taxable year of deduction, for Federal income tax purposes, of certain taxes imposed under the laws of the State of New Jersey with respect to an individual (sole proprietor) who operates a retail store in New Jersey and who computes his income from such business, and files his Federal income tax returns, on the basis of a calendar year and under an accrual method of accounting.

Situation 1.--The Retail Gross Receipts Tax Act (L 1966, c. 133; N.J.S. secs. 54:11C-1 through 54:11C-14) imposes an annual excise tax on persons engaged in the business of retail store sales in New Jersey. The tax is measured by the gross receipts of such business derived from such sales in excess of $150,000 and is applicable with respect to retail sales after December 31, 1966. Under the Act every person engaged in the business of retail sales, and otherwise liable for such tax, shall on or before March 15, 1968, and on or before March 15 of each year thereafter, prepare and file a return based on the gross receipts for the preceding calendar year. Every person required to file such a return under the Act shall, at the time of filing such return, pay the taxes imposed by the Act. Any taxpayer who is taxable upon gross receipts for any fractional part of the taxable year is entitled in computing this tax to a credit for such proportion of $150,000 as the period of time during which the taxpayer is subject to tax bears to the entire year.

The Act also provides that whenever a person shall make a sale of any part or the whole of his business assets, other than in the ordinary course of business, the purchaser shall at least 10 days before taking possession of the subject of the sale notify the director of the division of taxation of the proposed sale and of the price, terms, and conditions thereof, whether or not the seller has represented to, or informed the purchaser that he owes any tax under this Act, whether or not the purchaser has knowledge that such tax is owing, and whether any such tax is in fact owing. If the purchaser fails to give notice to the director or if the director informs the purchaser that a possible claim for such tax exists, any sums of money or property or choses in action, or other consideration, that the purchaser is required to transfer over to the seller shall be subject to a first priority right and lien for any such tax to the State. If the purchaser fails to comply with these provisions he is held personally liable for the payment to the State of the tax.

Situation 2.--The Unincorporated Business Tax Act (L 1966, c. 137; N.J.S. secs. 54:11B-1 through 54:11B-23), imposes an annual excise tax on individuals or other unincorporated entities engaged in an unincorporated business in New Jersey. The tax is measured by the gross receipts of such business during the period commencing January 1, 1967, and ending at the close of the taxpayer's first accounting year ending thereafter, and during each calendar or fiscal year thereafter. Under the Act each taxpayer is required to use the same accounting year upon the basis of which he reports for Federal income tax purposes.

The tax imposed by the Act, from the time it is due, is a personal debt of the taxpayer to the State recoverable in any court of competent jurisdiction in the name of the State. Such debt does not become a lien on property of the taxpayer except upon entry of judgment or filing of a certificate of debt as provided by law.

The Act provides that no taxpayer shall liquidate or distribute any assets in dissolution or liquidation, without having first duly filed his return under this Act and paid or secured the tax, interest, and penalties due thereon for the preceding taxable year and for the period subsequent thereto to the last day of doing business as well as all delinquent taxes, interest, and penalties then due.

Situation 3.--The Business Personal Property Tax Act (L 1966, c. 136, N.J.S. secs. 54:11A-1 through 54:11A-20), imposes an annual tax on personal property used in business in New Jersey. The tax is measured by the taxable value (defined as the original cost) of such property determined as of October 1, 1967, which shall be the assessment date with respect to the tax payable in the year 1968, and as of an assessment date of October 1 annually thereafter, which date shall be the date as of which the assessment is made. For purposes of this Act, the tax imposed shall be determined to be due on October 1 of each year, although payable in the manner and at the times provided in the Act. The Act specifies the rate of tax and provides that the person lawfully assessed shall be personally liable for the payment of the tax so computed and assessed.

Section 461(a) of the Internal Revenue Code of 1954 provides that the amount of any deduction shall be taken for the taxable year that is the proper taxable year under the method of accounting used in computing taxable income. Section 1.461-1(a)(2) of the Income Tax Regulations states, in pertinent part, that under an accrual method of accounting, an expense is deductible for the taxable year in which all the events have occurred which determined the fact of the liability and the amount thereof can be determined with reasonable accuracy. With respect to situation 1, the tax imposed under the Retail Gross Receipts Tax Act accrues, for Federal income tax purposes, on December 31 of the year preceding the year in which the tax is payable. For example, the tax imposed under this Act that is payable in 1970 and measured by gross receipts derived in 1969 is deductible on the instant taxpayer's Federal income tax return for the year 1969.

With respect to situation 2, the tax imposed under the Unincorporated Business Tax Act accrues, for Federal income tax purposes, on December 31 of the year preceding the year in which the tax is payable. For example, the tax imposed under this Act that is payable in 1970 and measured by gross receipts derived in 1969 is deductible by the instant taxpayer on his return for the year 1969.

With respect to situation 3, the tax imposed under the Business Personal Property Tax Act accrues, for Federal income tax purposes, on October 1 of the year preceding the year in which the tax is payable. For example, the tax imposed under this Act that is payable in 1970, and measured by the taxable value of the personal property used in business determined as of October 1, 1969, is deductible on the instant taxpayer's Federal income tax return for the year 1969.