nj notification of sale transfer or assignment in bulk

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Division of Taxation

The newark and somerville regional information centers will be permanently closed as of may 9, 2024. these regional information centers will be merging and relocating to our new cranford location in mid-may. for in-person assistance during this timeframe, you may visit one of our other regional information centers ., bulk sales unit.

A bulk sale is the sale, transfer, or assignment of an individual or company's business asset(s). This can be in whole or in part. To collect the proper taxes, the purchaser must notify the Division anytime there is a bulk sale. Assets subject to bulk sale may include:

• Tangible property such as inventory or materials;
• Real property (land, buildings etc.); and
• Intangible assets, such as goodwill.

Assets not subject to bulk sale include:

• Retail sales to customers;
• Any sales made in the ordinary course of business; and
• Any single or two family residential unit owned by an individual, estate, or trust including any combination of or multiples of individuals, estates and trusts. Regardless if the described single/two family residential unit(s) were used for rental or home office purposes (this does not include commercial property if it is attached to the residential unit(s)).

Contact Us By Email: [email protected] By Mail:    New Jersey Division of Taxation Bulk Sales Unit PO Box 245 Trenton, NJ 08695-0245

Mailing address for overnight mail, Fed-Ex, or UPS New Jersey Division of Taxation Bulk Sales Unit 3 John Fitch Way Trenton, NJ 08611

For more information: Bulk Sales FAQ

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The New Bulk Sales Notification Requirements and Their Application to New Jersey Real Estate Transactions – Part I

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Introduction

Recent changes to the bulk sales notification requirements under New Jersey law have resulted in the application of these requirements to a wider array of real estate transactions and this means that New Jersey real estate attorneys must now, in the greater majority of cases, comply with New Jersey’s bulk sales notification requirements prior to, and as a condition of, closing. Failure to do so will mean that the purchaser is deemed by statute to have assumed liability for payment of all of the seller’s outstanding tax obligations to the State of New Jersey.

New Bulk Sale Notification Requirements

The New Jersey Sales and Use Tax Act, adopted in 1966, set forth bulk sale notification requirements designed to provide the New Jersey Division of Taxation with notice of asset sales for the purpose of collecting any outstanding tax liabilities owed by a seller. However, such bulk sales notification requirements were not applicable to commercial real estate transactions unless the transaction was part of the sale of business assets which included real estate, e.g., the sale of an existing hotel business.

On June 28, 2007, the landscape of bulk sales notification requirements changed dramatically when Governor Corzine signed into law N.J.S.A. 54:50-38, effective June 28, 2007 and operative August 1, 2007. This significantly expanded the scope of the notification requirements to include all transactions in which a bulk sale is made. The new section provides, in pertinent part:

Whenever a person required to collect tax shall make a sale, transfer, or assignment in bulk of any part or the whole of his business assets, otherwise than in the ordinary course of business, the purchaser, transferee or assignee shall at least 10 days before taking possession of the subject of said sale, transfer or assignment, or paying therefor, notify the director by registered mail of the proposed sale and of the price, terms and conditions thereof whether or not the seller, transferrer or assignor, has represented to, or informed the purchaser, transferee or assignee that he owes any tax pursuant to this act, and whether or not the purchaser, transferee, or assignee has knowledge that such taxes are owing, and whether any such taxes are in fact owing.

Whenever the purchaser, transferee or assignee shall fail to give notice . . . or whenever the director shall inform the purchaser, transferee or assignee that a possible claim for such tax or taxes exists, any sums of money, property or choses in action, or other consideration, which the purchaser, transferee or assignee is required to transfer over to the seller, transferrer or assignor shall be subject to a first priority right and lien for any such taxes theretofore or thereafter determined to be due from the seller, transferrer or assignor to the State, and the purchaser, transferee or assignee is forbidden to transfer to the seller, transferrer or assignor any such sums of money, property or choses in action to the extent of the amount of the State’s claim. For failure to comply with the provisions of this section the purchaser, transferee or assignee, . . . shall be personally liable for the payment to the State of any such taxes theretofore or thereafter determined to be due to the State from the seller, transferrer or assignor, and such liability may be assessed and enforced in the same manner as the liability for tax under this act.

For purposes of the new law: (i) “‘Business’ means any endeavor from which revenue or consideration is realized for the purpose of generating a profit or loss.” and (ii) “‘Business assets,’ tangible or intangible, include . . . realty if the primaryuse of the realty is to support a business on its premises.”  See N.J. Div. of Tax. Tech. Bull. 60 (July 3, 2008).

The obvious consequence of this statutory expansion and the Division’s Technical Bulletin is the applicably of the notification requirements to a far larger class of real estate transactions. On its face, the new law must be presumed to encompass any real estate transaction where the purpose of the real property is to support a business of any type from which revenue (profit or loss) may be realized, and for which the sale is not in the “regular course of business.” This would likely include sales by “single purpose entities”, such as limited liability companies and limited partnerships, which are prevalent in recent real estate transactions, where the sole asset is the subject real property and the sole business is the leasing, operation and management of that property. It therefore seems, with the exception of large building contractors who make sales of single units as inventory in the regular course of their business, single family residencies used solely for that purpose, and other unique transactional situations, that all real estate transactions require statutory notification of sale.

In order to comply with the new law and thereby avoid personal tax liability, all New Jersey real estate sale transactions, other than the sale of the seller’s personal residence, should be administered in the following manner:

1.         Contract of Sale . The contract of sale between the parties should include a provision that both seller and purchaser are required to fully comply with the statute. This provision should enumerate the various responsibilities of the parties including, but not limited to: (1) the seller providing the purchaser with all required documentation, (2) the purchaser filing all of the requisite notices with the Director of the Division of Taxation at least ten days prior to closing, (3) withholding from seller’s proceeds at closing of the amount set forth in the Director’s initial reply notification to the purchaser of the State’s claim to seller’s State tax debts owed, which amount will then be held in escrow by the purchaser’s attorney until the State makes a final determination as to the amount owed by the seller (alternatively, this provision may provide that the seller pay the claim directly to the State from the seller’s proceeds at closing rather than utilizing an escrow mechanism), (4) a requirement that the seller post any additional amounts as required to fund the escrow (if applicable), (5) a provision authorizing payment from the escrow account (or direct payment to the State) to satisfy the final determination of the Director, and (6) a provision indemnifying the purchaser from any outstanding liability that may exist following fiscal exhaustion of the escrow account (if applicable).

2.         Division of Taxation Filings (Seller) . The seller must prepare and deliver to the purchaser the Asset Transfer Tax Declaration ( Form TTD ). This form requires the seller disclose information that will assist the Director in estimating the gain on the transfer of asset(s) and the estimated tax on the gain.  Form TTD can be found at http://www.state.nj.us/treasury/taxation/pdf/ttdv1.pdf.

3.         Division of Taxation Filings (Purchaser) . The purchaser must prepare a Notification of Sale, Transfer or Assignment in Bulk ( Form C-9600 ). This form provides for basic information regarding the sale, transfer, or assignment of property, including the names of the parties, the scheduled date of sale, and the sale prices of the assets being sold, transferred, or assigned.  Form C-9600 can be found at http://www.state.nj.us/treasury/taxation/pdf/other_forms/misc/c9600.pdf.

4.         Submission to the Division of Taxation . The purchaser must then submit Form TTD , Form C-9600 , and the fully executed Purchaser Agreement including price, terms and conditions thereof by registered mail to the Director at least ten days prior to the date of closing.

5.         Director Notification . Within ten days following receipt of the documents, the Director will notify the purchaser/attorney/designee of any possible claim for State taxes and specify the amount to be escrowed (or paid directly to the State) by the purchaser at closing. This amount may include deficiencies (i.e. underpayments), delinquencies (i.e. unfiled returns), any audit assessment(s) (fixed or pending), and the tax gain from the transfer of the asset(s). The purchaser’s attorney may act as escrow. If no taxes are owed, the Director will issue a letter of clearance.

6.         Closing and Final Payments . After closing, any and all amounts owed to the State will be paid out of the escrow account (or paid directly to the State). When all final returns have been filed and all State taxes have been paid, the Director will issue a letter of clearance authorizing the release of any funds remaining in the escrow account (if an escrow mechanism has been used). Upon receipt of this letter, the purchaser is relieved of any further liability.

Real estate attorneys must be aware of the new statutory notification requirements and advise their clients accordingly.   Although it is relatively simple to adhere to the requirements set forth in the new statute, failure to do so could have drastic financial repercussions for clients engaged in applicable transactions. While the steps set forth above are a good starting point for compliance, it would be prudent for any individual engaged in real estate transactions that are not standard single-family residencies occupied by the seller to seek legal advice regarding compliance with these new notification requirements.Recent changes to the bulk sales notification requirements under New Jersey law have resulted in the application of these requirements to a wider array of real estate transactions and this means that New Jersey real estate attorneys must now, in the greater majority of cases, comply with New Jersey’s bulk sales notification requirements prior to, and as a condition of, closing. Failure to do so will mean that the purchaser is deemed by statute to have assumed liability for payment of all of the seller’s outstanding tax obligations to the State of New Jersey. 

As the law continues to evolve on these matters, please note that this article is current as of date and time of publication and may not reflect subsequent developments. The content and interpretation of the issues addressed herein is subject to change. Cole Schotz P.C. disclaims any and all liability with respect to actions taken or not taken based on any or all of the contents of this publication to the fullest extent permitted by law. This is for general informational purposes and does not constitute legal advice or create an attorney-client relationship. Do not act or refrain from acting upon the information contained in this publication without obtaining legal, financial and tax advice. For further information, please do not hesitate to reach out to your firm contact or to any of the attorneys listed in this publication.

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New Jersey Bulk Sales Law: Arguably the Most Important Law You’ve Never Heard of

by Gary Nissenbaum | May 10, 2024 | Construction & Commercial Real Estate Law Blog | 1 comment

“at least 10 days before taking possession of the subject of the sale, transfer or assignment, or paying therefor, notify the director by registered mail, or other such method as the director may prescribe, of the proposed sale and of the price, terms and conditions thereof whether or not the seller, transferor or assignor (hereinafter referred to as seller) has represented to, or informed the purchaser, transferee or assignee that the seller, transferor or assignor owes any State tax and whether or not the purchaser, transferee, or assignee has knowledge that such taxes are owing, and whether any such taxes are in fact owing.” Id.

“the purchaser, transferee or assignee may transfer over to the seller, transferrer or assignor any sums of money, property or chooses in action, or other consideration to the extent of the amount of the State’s claim. The purchaser, transferee or assignee shall not be subject to the liabilities and remedies imposed under the provisions of the uniform commercial code, Title 12A of the Revised Statutes of New Jersey, and shall not be personally liable for the payment to the State of any such taxes theretofore or thereafter determined to be due to the State from the seller, transferrer or assignor.” Id.

Comments/Questions: [email protected] 2024 Nissenbaum Law Group, LLC

Case law also established that bulk sale notification requirements applied to deeds in lieu of foreclosure.

This article was originally published in the April 2017 issue of New Jersey Lawyer, a publication of the New Jersey State Bar Association, and is reprinted here with permission.

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New jersey bulk sales act: what you should know.

• Lawrence Centanni
• September 13, 2017

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Are you familiar with the New Jersey Bulk Sales Act ?  It’s an important part of state tax laws that can apply to different types of business owners and real estate investors.  Above all, it’s important to understand the consequences of failing to comply with this portion of the law.

According to the New Jersey State Department of the Treasury, Tax Division,  the bulk sales laws are designed to protect the purchasers of business assets from unfair tax liabilities.  With that in mind, the first trick is to understand what is considered a bulk sale.  In short, it is anything a business sells that is outside their ordinary course of business.

By and large, this could apply to a number of situations.  For example, you could own a small boutique in a retail setting.  Your ordinary course of business includes the sale of ladies clothing and accessories.  After a few years, you decide to sell the shop.  You, therefore, offer the fixtures, display cases, and store racks as part of the transfer of the business.

Once you sell assets that are not a part of selling your regular inventory to retail customers, you have moved away from your ordinary course of business.  Therefore, the Bulk Sales Act would apply to any transactions essentially involving the tools used to display items.  So, what does that mean exactly?

Bulk Sales and Real Estate Investors

First, you may want to take a look at the actual statute regarding bulk sales, found at NJSA 54:50-38 .  Additionally, you should be aware that real estate investors should know about this particular section of the law.  In some circumstances, the Bulk Sales Act applies to the “sale, transfer or assignment of a simple dwelling house if the seller, transferrer or assignor is a business entity, including but not limited to a corporation or a partnership.”

Meanwhile, there are exceptions to this law as it pertains to real estate investors.  For example, the sale of some seasonal rental units may not be subject to bulk sales actions. An attorney with experience in transactional law can help you determine if you are facing tax consequences under this portion of New Jersey’s tax code.

New Jersey Bulk Sales Act Notice Process

Once a determination has been made regarding your obligations under the New Jersey Bulk Sales Act, you need to know how to proceed.  Again, this is something your lawyer can assist you with to avoid confusion.

Before the actual sale or transfer, the State of New Jersey requires notification in writing.  This must be done at least ten days prior to the pending contract of sale or transfer.  Additionally, the contract for sale or transfer must be submitted with the form filed with the state.

What happens if a buyer takes ownership before the ten-day notice requirement period?  At this point, the purchaser could find themselves liable for taxes that would have been assessed to the seller.

After the necessary forms have been reviewed, the state will then contact the buyer regarding state tax liability.  As a consequence, the purchaser may need to hold funds in escrow until a determination is made concerning payment of the tax.  If no tax is due, the buyer will be supplied a letter of clearance.

As you can see, notice obligations are an important part of the process.  In order to comply with them, it is important to speak with an attorney who has experience dealing with the New Jersey Bulk Sales Act.

Whether you or buying or selling business assets, the Law Offices of Lawrence M. Centanni can assist you.  Contact us to schedule an appointment.

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New jersey's tax bulk sales provision: companies doing business in the state be aware.

November 1, 2011

This includes any type of sale or transfer of business assets from any company or person doing business in New Jersey—even non-New Jersey corporations—such as the sale of used equipment, intellectual property, real estate, etc., that is not normally sold by the business.

Under New Jersey law, "transactions involving the sale, transfer or assignment in bulk of business assets of any part or the whole of the person's business assets, other than in the ordinary course of business," are subject to the New Jersey Bulk Sale Law. N.J.S.A. 54:50-38. This includes any type of sale or transfer of business assets from any company or person doing business in New Jersey—even non-New Jersey corporations—such as the sale of used equipment, intellectual property, real estate, etc., that is not normally sold by the business. The seller does not need to be transferring all or even a majority of its assets, and the seller does not need to be involved in the sale of tangible property, since the law applies to all businesses.

If this transfer occurs, unless the buyer filed the required bulk sale notice with New Jersey at least 10 days before the transfer, the buyer will be "jointly" liable for any unpaid taxes of the seller, even if such taxes exceed the amount paid for or the value of the property. If a timely notice is filed, the buyer will be told how much to withhold from the purchase price. It is important to note that this is not a Uniform Commercial Code bulk sale notice provision; it is a special tax bulk sales provision.

It is also important to note that generally unless a transfer occurs by a court order in which the assets are transferred free and clear of all tax claims, other types of transfers such as by a deed in lieu of foreclosure are still subject to this tax bulk sales law.

For Further Information

If you would like more information on how this may affect your company, please contact Stanley R. Kaminski , any other member of the State and Local Tax Practice Group or the lawyer in the firm with whom you are regularly in contact.

As required by United States Treasury Regulations, you should be aware that this communication is not intended by the sender to be used, and it cannot be used, for the purpose of avoiding penalties under United States federal tax laws.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer .

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Bulk Sales Exemptions for Real Estate Become More Clear Under New Law

DiFrancesco, Bateman, Kunzman, Davis, Lehrer & Flaum PC (http://www.dbnjlawblog.com) is a full service law firm in New Jersey which provides a broad range of legal services.

The information contained in this blog is intended solely for informational purposes; it is a advertising publication of DiFrancesco, Bateman, Kunzman, Davis, Lehrer & Flaum P.C.This publication is intended to alert recipients of developments in the law and is not intended to provide legal counsel, advice or opinion on any specific facts or circumstances. The contents are intended as general information only. You are urged to consult a member of this firm or your own attorney concerning your particular situation and any specific legal questions you might have.

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2009 New Jersey Code TITLE 54 - TAXATION Section 54:50 54:50-38 - Notification to director of proposed sale, transfer, assignment of business assets; claim for State taxes

Disclaimer: These codes may not be the most recent version. New Jersey may have more current or accurate information. We make no warranties or guarantees about the accuracy, completeness, or adequacy of the information contained on this site or the information linked to on the state site. Please check official sources.

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New Jersey §1031 Exchange Issues: The Bulk Sales Law and GIT-REP Requirements

Home » New Jersey §1031 Exchange Issues: The Bulk Sales Law and GIT-REP Requirements

By: James T. Walther, Esq., LL.M., General Counsel, Legal 1031 Exchange Services, LLC

If you plan on conducting business transactions in the State of New Jersey, it is imperative to find out if a sale, transfer, or assignment of “business assets” is subject to the NJ Bulk Sales Act, which requires that the buyer withhold funds from the transaction for the seller’s estimated tax liability.

The Bulk Sales Act 1 applies to many NJ real estate transactions. In addition, other withholding requirements may apply or overlap the NJ Bulk Sale laws. 2 These withholding requirements are designed to prevent tax revenue from leaving New Jersey when an individual, trust, estate, or disregarded entity disposes of a major asset located in the state. This article will provide an overview of how the Bulk Sales withholding requirements and the Gross Income Tax Receipts “GIT-REP” withholding requirements affect an IRC §1031 Exchange (“1031 Exchange”).

The NJ Bulk Sales Law

The Bulk Sales Law, N.J.S.A. 54:50-38, applies to the disposition in bulk of any part or all of a taxpayer’s “business assets” other than in the taxpayer’s ordinary course of business For example, the bulk sales law would not apply to a sale where a developer of housing communities sold of one of its many homes or a car dealer selling cars. These sales would be considered inventory sales. 3 This law applies to many real estate transactions regardless of whether the real estate is titled in the name of a business entity or in an individual’s name. However, because a 1031 exchange defers NJ state tax on the gain from a real estate sale, it is crucial for the seller/exchanger and their tax/legal advisors to understand this process.

Step 1 – Buyer files Form C-9600: If the bulk sales law applies, the party taking title to the real estate is required to notify the New Jersey Division of Taxation (“DOT”). The purchaser, assignee, or transferee of real estate can satisfy this requirement by submitting a completed NJ Form C-9600 4 and a copy of the executed contract of sale, by certified, registered, overnight mail, UPS or FedEx, at least ten (10) business days prior to the proposed date for closing the transaction. 5 There is no fee for filing the form. If the party taking title to the real estate fails to comply with the bulk sales notice requirement, the purchaser will be subject to liability for any NJ state tax obligations due by the seller at the time of closing including interest and penalties. Therefore, closings should not commence without a response from the Division of Taxation as this may put the purchaser at risk. However, “If the Division fails to respond to a bulk sale notification within ten (10) business days, the purchaser will not be liable for any State tax obligation of the seller.” 6

Step 2 – Withholding Escrow: If Bulk Sales withholding is required, the New Jersey Division of Taxation will send a notice specifying the amount to be withheld from the sale proceeds for potential unpaid tax liabilities of the Seller. 7 Once the amount required by the state is placed into escrow with the buyer’s attorney or closing agent at or prior to closing, the purchaser may proceed with the closing without liability for deficiencies in the seller’s tax payments beyond the escrow.

Subsequent steps – Reducing the Escrow amount

TTD Form: To assist the Division of Taxation in assessing the estimated withholding, the transferor should promptly file an Asset Transfer Tax Declaration (Form TTD), after the C-9600 is filed. This step is crucial in properly structuring a full tax deferral in a 1031 exchange. The TTD provides the Division of Taxation with an estimated tax calculation for the gain from the sale. The TTD Form is often filed after closing but could be provided to the buyer and filed simultaneously with the C-9600, usually after an estimated settlement statement has been prepared. Taxpayers should direct the form to their assigned caseworker, the contact information for which is on the bottom of the withholding notice/letter. Per the instructions to the TTD form: “Upon completion of this declaration, submission to and review by the Division, the estimated tax on the gain portion of the escrow may be reduced appropriately.” The taxpayer could also file delinquent returns or pay any deficiencies or assessments that may have played a role in the determination of the amount escrowed.

1031 Exchange Considerations: If the seller is completing a 1031 exchange, which can defer NJ gain on the sale of real estate, the seller can put the DOT on notice of the exchange and obtain an exemption from the bulk sale withholding by properly completing and filing the TTD Form. The benefit of obtaining the exemption is that all or a substantial portion of the amount withheld will be released to be utilized by the intermediary. The taxpayer ideally wants the money sent directly to the qualified intermediary in order to avoid any constructive receipt issues. Because of the strict exchange timelines for identification, the sooner the state determines if the escrow can be released or reduced, the better because it factors into determining how much purchasing power the Exchanger will have.

Three additional considerations:

1. Discuss filing the TTD form with your tax advisors: To avoid delay or confusion, prior to the sale of relinquished property, the exchanger should check with their attorney and accountant regarding who will assist them in filing the TTD Form. Per the NJ DOT, the TTD Form can be filed at the time the Buyer files the C-9600, but not beforehand. Therefore, if the buyer agrees to cooperate, they can submit both forms in anticipation of the closing.

The below excerpt from the NJ DOT website discusses the timing of filing for the TTD Form:

31. When should an Asset Transfer Tax Declaration form be submitted?

If completion of the document (designated Form TTD) is required, it should be submitted to the Bulk Sale Section after the Division has assigned a caseworker to the case. Forms submitted before the receipt of the Bulk Sale Notification will be discarded. The seller may elect to give the form to the purchaser to submit with the C-9600. [NJ DOT Q&A updated 1/14/21]

2. Document the Escrow: The best practice is for the exchanger and closing agent to document the Bulk Sales withholding with a separate escrow agreement (can be a simple agreement) that states how much was withheld, that the withholding is pursuant to the DOT’s Notice, and instructs the closing agent to remit any amounts eligible to the qualified intermediary’s escrow upon receipt of a clearance letter or adjustment letter from the DOT.

3. Take Care to Avoid Potential Tax Liability: If estimated taxes are remitted to the state of NJ and not placed in the 1031 exchange escrow, or are returned to the taxpayer, this creates a constructive receipt issue. These funds would likely be taxable boot (non-like-kind property) and would probably be recognized as gain at the federal level and state level. 8

The New Jersey GIT-REP Requirements And §1031

Some professionals refer to the NJ “Gross Income Tax Receipts Estimated Payment” (GIT-REP) as the New Jersey “Exit Tax.” This term is a misnomer. The GIT-REP is not an extra tax, but a withholding mandated by the state because the taxpayer may have a tax liability from the sale. The GIT-REP is applicable to non-resident taxpayers who are selling or transferring real estate in NJ and do not meet an exception. Like the Bulk Sales Law, the purpose of the GIT-REP is to keep money from leaving the state in situations where the taxpayer may not have any further connection to the state and could fail to file a state tax return. If there is no tax due upon filing a return, the taxpayer can receive a refund of the GIT-REP. This requirement is similar to the Non-Resident Real Property Estimated Income Tax Payment Form IT-2663 for New York State.

How does GIT-REP work in connection with an IRC 1031 exchange?

Short answer: Unless a non-resident taxpayer conducts a partial exchange the GIT-REP is largely irrelevant because all NJ gain would be deferred in a fully tax deferred exchange. In a partial exchange, where the taxpayer receives non-like kind property (boot), there would be a recognition of tax and GIT-REP would be applicable.

NJ P.L. 2004, C. 55, requires that on or after August 1, 2004, nonresident individuals, estates, or trusts that sell or transfer real property in New Jersey, make an estimated gross income tax payment on the gain from a transfer/sale of real property as a condition of the recording of the deed.

The estimated tax due shall equal the gain, if any, multiplied by the applicable rate. The amount of gain used in the computation shall equal the amount of gain reportable for federal income tax purposes for the taxable year in which the gain is recognized. However, the estimated tax payment shall not be less than 2% of the consideration for the sale or transfer stated in the deed affecting the conveyance.

New Jersey Tax Bulletin 57(R) (September 30, 2015) states that the GIT-REP rules apply to “a non-resident individual, estate, or trust selling real estate in NJ.” Logically, these rules should also apply to disregarded entities (single member LLCs that are non-tax partnerships) where the GIT-REP rules would apply to the sole member. However, the instructions for GIT-REP 3 Form (9-15) provide that “Individuals, estates, trusts, or any other entity selling or transferring property in New Jersey must complete this form if they are not subject to the gross income tax estimated payment requirements under N.J.S.A. 54A:8-9.”  There appears to be a disparity between the Form’s requirements and those in the text of TB 57(R).

A nonresident seller is required to make an estimated income tax payment if none of the Seller’s Assurances listed on the Form apply to the transaction. If one of the Seller’s Assurances does apply, the taxpayer can use it to claim an exemption from withholding requirements.

Exemptions for a 1031 Exchange: A non-resident taxpayer commencing a 1031 exchange can file a GIT-REP 3 Form and claim Seller’s Assurance #7 which provides an exemption for gain deferred under IRC Sections 721, 1031, and 1033. In addition, the Seller could claim any other applicable Assurances/Exemptions. Assurance #7 further provides that “If the indicated section does not ultimately apply to this transaction, the seller acknowledges the obligation to file a New Jersey income tax return for the year of the sale and report the recognized gain. This would apply if the taxpayer fails the exchange or completes a partial exchange.

At the completion of the exchange, the non-resident exchanger is required to complete the GIT-REP 1 form which shows the value of the like kind property relinquished and the value of like kind property received in the exchange. The Qualified intermediary is required to withhold estimated payments of 2% for a New Jersey 1031 exchange where a non-resident taxpayer purchases replacement property but receives non-like kind property in the exchange (cash or boot). It appears that based on the broad language in the available guidance, the withholding would apply even in transactions where a non-resident relinquishes New Jersey real estate in exchange for replacement New Jersey real estate.

1 N.J. S. A. 54:50-38 2 For more information, see https://www.state.nj.us/treasury/taxation/realtytransfees.shtml 3 FAQs available at: https://www.state.nj.us/treasury/taxation/faqbulksale.shtml 4 Available at: https://www.state.nj.us/treasury/taxation/pdf/other_forms/misc/c9600.pdf 5 See NJ Div. Taxation Technical Bulletin 60 available at: https://www.state.nj.us/treasury/taxation/pdf/pubs/tb/tb60.pdf 6 See FAQs, note 2, supra , FAQ #19 7 Per NJ Tech. Bul. 60, note 4, supra , “The escrow amount will include deficiencies (i.e. underpayments), delinquencies (i.e. unfiled tax returns), audit assessment(s) (fixed or pending) and the tax on the gain from the transfer of the asset(s).” 8 For federal tax purposes, the amounts withheld by/remitted to the state are still sale proceeds – taxable gain unable to be offset with basis from the real estate exchanged because the taxpayer’s adjusted basis carries over into the replacement property. 9 See NJ Div. Taxation Technical Bulletin 57 (“TB-57(R)”) – Issued September 30, 2015, “Estimated Gross Income Tax Payment Requirements on Sales of New Jersey Real Property by Nonresidents” available at: https://www.state.nj.us/treasury/taxation/pdf/pubs/tb/tb57r.pdf

For questions regarding this material, or to set up an exchange, please contact Legal 1031, an experienced New Jersey Qualified Intermediary and nationwide provider of qualified intermediary services.

Legal 1031 does not provide tax or legal advice, nor can we make any representations or warranties regarding the tax consequences of any transaction. Taxpayers must consult their tax and/or legal advisors for this information. Unless otherwise expressly indicated, any perceived federal tax advice contained in this article/communication, including attachments and enclosures, is not intended or written to be used, and may not be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein. Copyright © 2021 Legal1031. All rights reserved. No Rights Claimed with Respect to public domain and “fair use” materials used or referenced in this article.

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