Statute of Limitations in New Jersey Does Not Apply to a Responsible Person Notice

By: Jeff Glickman, SALT Partner

At a glance: 

• The main takeaway: New Jersey ruled thatthe statute of limitations does not apply to the receipt by an individual of a Responsible Person Notice for his company’s unpaid sales tax. 
• Assess the impact: Maintaining compliance with state tax obligations is important to avoid tax liability down the road or have your personal assets be used to satisfy that liability.
• Take the next step: Aprio’s State and Local Tax (SALT) team can perform a nexus and taxability study to help mitigate sales tax exposure, so you do not incur unexpected liabilities and penalties.

Schedule a free consultation today to learn more! 

The full story

Sales tax exposure can feel like a swarm of gnats on a hot and humid day that fly around your head no matter where you go – they just won’t go away. For example, if a taxpayer with unresolved sales tax exposure sells its business assets, the purchaser of that business can be assessed for that liability under state successor liability provisions. In addition, if an entity with sales tax liability does not pay its unresolved sales tax, individuals who are deemed “responsible persons” can receive a notice, and their personal assets may be taken to resolve the liability.

Moreover, once a sales tax assessment is finalized (i.e., is no longer appealable), the timeframe for enforcing that assessment against a responsible person can be years later, as illustrated by a recent New Jersey Superior Court decision.[1]

Breaking down the Statue of Limitations in this case

Mr. Gill was the vice president and sole shareholder of Floor Resources, Inc., a commercial flooring company engaged in demolition and installation services. Mr. Gill was responsible for filing the company’s sales tax returns; however, under his direction certain sales tax returns for the second quarter of 2012 as well as the second and third quarters of 2013 were filed late. In addition, a portion of the tax reported on those late tax returns were unpaid. In 2013, the company went into bankruptcy, which was finalized in 2016. Although the state was listed as a creditor, it did not receive any payments related to the delinquent sales tax.

In 2019, Mr. Gill received a Responsible Person Notice for payment of the company’s unpaid sales tax. Mr. Gill filed several appeals contending that the notice he received is barred by the statute of limitations, but he did not contest the amount of the liability nor his status as a responsible person.

New Jersey’s tax statute regarding notices and limitations of time states the following:

The provisions of law relative to limitations of time for the enforcement of a civil remedy shall not apply to any proceeding or action taken by the State or the director to levy, appraise, assess, determine or enforce the collection of any tax or penalty provided by this act. However, except in the case of a willfully false or fraudulent return with intent to evade the tax, 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, however, that where no return has been filed as provided by law the tax may be assessed at any time.[2]

The Responsible Person Notice ruling explained

After receiving the Responsible Person Notice in 2019, Mr. Gill argued that it should be treated as an assessment to him of sales tax owed by the company because it is the first time that the state determined that he is liable for the tax. Further, since the notice was made more than four years after the sales tax returns were filed, it is time-barred by the statute of limitations.

The judge disagreed, however, concluding that the Responsible Person Notice is “a collection tool for [the enforcement of] a previously determined, fixed, and final tax liability assessed against the corporation and not an additional assessment.” This finding comports with the intent of the Legislature “to impose liability on the responsible person at the same time as, and in the same manner as, the corporation. The filing of the SUT return constitutes the assessment of the tax both against the responsible person and corporation simultaneously.”

While maintaining compliance with state tax obligations is important, there are several reasons why it is especially crucial regarding sales tax:

1. Other than the administrative burdens and costs of maintaining compliance, the economic burden of sales tax should fall on your customer and not you as the vendor. However, if you fail to collect sales tax, your business may end up paying out of pocket for the tax liability that it could have collected from its customer at the time of sale. 
2. If you are planning to sell your business, a buyer will likely conduct due diligence to identify any sales tax exposure since the buyer could become responsible for those liabilities under successor liability rules. If an exposure is identified, addressing it can cause delays in closing or might result in the buyer walking away.
3. If your business does not pay its sales tax liabilities, you may be held personally liable as a “responsible person,” and your personal assets may be used to satisfy that liability.

The bottom line

Aprio’s SALT team has experience with and provides comprehensive services to address multistate sales tax issues. We can assess any prior period exposures through a nexus and taxability study and assist in mitigating those exposures by working with states on voluntary disclosure agreements or back filings. Our team provides sales tax compliance services to make sure that your returns are filed and that your business does not incur unexpected liabilities and penalties. We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

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[1] Christopher Gill v. Director, Division of Taxation, Docket No. A-3166-22 (N.J. Super. Ct., App. Div., Feb 5, 2025).  This decision upheld the prior ruling of the New Jersey Tax Court in 2023.

[2] N.J. S.A. § 54:32B-27(b).  See also N.J. S.A. § 54:49-6(b).