N.J. Admin. Code § 18:18-7.7

Current through Register Vol. 56, No. 24, December 18, 2024

Section 18:18-7.7 - Audit

(a) The records of all licensees and registered consumers must be made available for audit upon request in this State.

(b) The examination of returns and the assessment of additional taxes, penalties, and interest shall be as provided by the State Tax Uniform Procedure Law, N.J.S.A. 54:48-1 et seq.

(c) No assessment of additional tax shall be made after the expiration of more than four years from the date of the filing of a return; provided, that in the case of a false or fraudulent return with intent to evade tax, or failure to file a return, the tax may be assessed at any time. If, before the expiration of the period prescribed herein for the assessment of additional tax, a taxpayer consents in writing that such period may be extended, the amount of such additional tax due may be determined at any time within such extended period. The period so extended may be further extended by subsequent consents in writing made before the expiration of the extended period.

(d) For purposes of this subsection, a return filed before the last day prescribed by law or by rules promulgated pursuant to law for the filing thereof, shall be considered as filed on such last day.

(e) Motor fuel purchases made by any licensed or unlicensed purchasers are deemed to be tax free purchases when the purchaser is not able to prove that the tax was paid to a seller by means of valid supporting purchase invoices, or equivalent records deemed satisfactory by the Director. The Director may, at the Director's discretion, require any additional records deemed necessary in order to validate the purchases.

(f) Motor fuel sales made by any licensed or unlicensed sellers are deemed to be subject to tax when the seller is not able to prove that motor fuel sales were properly tax exempt. Sufficient proof can be based on valid sales invoices, equivalent records deemed satisfactory by the Director, or any such supporting documentation that the Director requires such as valid exemption or export certificates. The Director may, at the Director's discretion, also require any records necessary in order to validate the tax exempt status of the sales.

(g) If any supplier, distributor, retail dealer, or terminal operator, or anyone that should have been licensed as such, does not have valid inventory records then the Director may estimate or determine such inventories based on any available records or other means. Any formation or increase in inventory that is not established to have been purchased as tax paid is deemed to have been purchased tax free.

(h) For retail dealers that do not possess the required motor fuel tax records, such as monthly physical inventories and daily totalizer readings, the Director may use any records available or other means to estimate or determine such inventories and totalizer readings that represent sales. Any increase in inventory that is not adequately documented to have been purchased as tax paid is deemed to have been purchased tax free. Any increase in sales that is not adequately documented to be tax exempt is deemed to be subject to tax.

(i) Any additional purchases, sales, use, or inventory that the Director determines through available records or other means may have corresponding additional purchases, sales, use, or inventory that is also subject to tax.

1. Example: Distributor X is under audit. X reported 10,000 gallons in taxed purchases and 10,000 gallons in taxed sales on their tax return. The auditor analyzes the purchases and sales invoices for the return's period. The auditor logs 10,000 gallons in purchase invoices and 15,000 gallons in sales invoices. Through this analysis, 5,000 additional gallons in sales were established and deemed taxable, unless proven otherwise. However, in order to sell 5,000 gallons, X must have purchased 5,000 gallons. As such, the analysis also indirectly determined that 5,000 additional gallons were purchased, which are deemed tax free unless proven otherwise.

2. Example: Distributor X reports on their tax return 1,000 gallons in beginning inventory, 3,000 gallons in purchases, 1,500 gallons in sales, and 3,200 gallons in ending inventory. Assuming no valid adjustments or corrections are warranted, these figures entail 700 gallons of additional purchases which are deemed tax free unless proven otherwise:

1,000 + 3,000-1,500 = 2,500 gallons (calculated ending inventory)

3,200-2,500 = 700 gallons (difference between physical and calculated ending inventory)

The 700 gallons are added to purchases in order to present the calculated ending inventory in an amount that is equal to the physical ending inventory.

3. Example: Distributor X reports on their tax return 1,000 gallons in beginning inventory, 3,000 gallons in purchases, 500 gallons in sales, and 3,200 gallons in ending inventory. Assuming no valid adjustments or corrections are warranted, these figures entail 300 gallons of additional sales which are deemed taxable unless proven otherwise:

1,000 + 3,000-500 = 3,500 gallons (calculated ending inventory)

3,200-3,500 = -300 gallons (difference between physical and calculated ending inventory)

The 300 gallons are added to sales in order to present the calculated ending inventory in an amount that is equal to the physical ending inventory.

N.J. Admin. Code § 18:18-7.7

Amended by 49 N.J.R. 2805(c), effective 8/21/2017

Amended by 56 N.J.R. 2338(a), effective 12/16/2024