If your business is facing a New Jersey sales and use tax audit, there may be a saving grace – the New Jersey Division of Taxation Mediation Pilot Program. The New Jersey Division of Taxation recently introduced a Mediation Pilot Program designed to resolve certain tax disputes earlier in the audit process.
While mediation is common in civil litigation, its introduction into New Jersey’s sales tax audit process represents a meaningful development. Historically, disputes with the Division typically moved through a longer path: audit, conference with the Conference and Appeals Branch, and, if unresolved, litigation in the New Jersey Tax Court. That process can take years and often involves significant legal and accounting costs.
The mediation pilot program provides an alternative route. Instead of allowing every dispute to progress through the full appeals process, taxpayers and the New Jersey Division of Taxation now have the option to attempt a facilitated settlement earlier in the dispute cycle.
Additional information about the program is available from the New Jersey Division of Taxation:
New Jersey Mediation Program Overview
https://www.nj.gov/treasury/taxation/mediation.shtml
Mediation Program FAQ
https://www.nj.gov/treasury/taxation/mediation-faq.shtml
How the Mediation Program Works
The mediation program is available during the audit stage, before a final determination has been issued. Typically, the process becomes available after the taxpayer and the division have participated in a post-audit conference but have not been able to resolve the disputed issues.
To qualify for mediation:
- The dispute must involve Sales and Use Tax or Corporation Business Tax;
- The amount in controversy must exceed $5,000 (excluding penalties and interest);
- The matter must still be within the audit stage, prior to a final determination; and
- Both the taxpayer and the Division must agree to participate
Once accepted into the program, the matter is assigned to a trained mediator within the Division of Taxation. Importantly, the mediator does not decide the outcome of the case. Rather, the mediator works with both sides to identify areas of agreement, clarify disputed issues, and facilitate settlement discussions.
From a timing perspective, the mediation process is intended to move quickly. In most cases, the program contemplates completion within approximately 180 days from the date mediation begins.
Key Characteristics of the New Jersey Mediation Program
Participation is Voluntary and Mediation Discussion are Confidential
Neither the taxpayer nor the Division is required to participate in mediation. If mediation does not resolve the dispute, the case returns to the normal administrative appeal paths. Further, mediation is generally confidential and cannot be used in litigation or appeals. This allows both sides to discuss settlement with candidness, along with a resolution mindset.
New Jersey Sales Tax Appeal Rights Are Preserved
More importantly, participation in mediation does not waive the taxpayer’s appeal rights. If the parties cannot reach an agreement, the taxpayer retains the ability to pursue the dispute through the Conference and Appeals Branch and ultimately through the New Jersey Tax Court.
Why the New Jersey Mediation Program Matters for Taxpayers
There are several benefits to the New Jersey Mediation Program. For example:
Faster Resolution
Traditional tax disputes can take several years to resolve once they enter formal appeals or litigation. Mediation provides an opportunity to resolve issues within months rather than years.
Reduced Professional Fees
Tax litigation often requires extensive legal briefing, expert analysis, and discovery. Mediation may allow the parties to resolve disputes before those costs accumulate.
Additional Forum for Resolution
Since appeal rights are preserved, the New Jersey Mediation Program offers another opportunity to resolve a disputed New Jersey sales tax matter.
Improved Communication
In many audits, disputes escalate simply because the parties are interpreting financial records from a different perspective. Mediation can provide a structured environment where both sides can address misunderstandings and focus on resolving the core issues.
Comparable Forum: New York Bureau of Conciliation and Mediation Services
A comparable forum is the New York Conciliation and Mediation Services (BCMS), providing New York taxpayers with an informal administrative venue to resolve New York sales tax disputes. It is similar in nature and has shown a successful path in resolving disputed New York sales tax matters. As a neighboring jurisdiction, the hope is for the New Jersey Mediation Program to be similar in nature.
Will Mediation Always be the Forum for Sales Tax Disputes?
Mediation will not be an appropriate sales tax forum for every case.
For example, disputes involving pure questions of law will likely still require litigation. Nonetheless, mediation may still be a suggested path, due to the cost of litigation and potential of resolving a given New Jersey sales tax issue.
Generally, mediation may be particularly effective where:
- The dispute involves audit methodology
- The issue is primarily factual rather than legal
- Litigation costs would be substantial and overburdensome
- Both the taxpayer and the department of taxation are amicable towards resolution
For businesses facing large sales tax assessments, mediation may provide a valuable opportunity to resolve disputes earlier and reduce overall risk.
Final Thoughts
The New Jersey mediation pilot program represents a constructive development in the state’s tax dispute process. By introducing an alternative and supplemental mediation program option during the audit phase, the New Jersey Division of Taxation has created a mechanism that may benefit both taxpayers and the state.
Determining your rights and the best path forward to resolving your New Jersey sales tax issue requires a thorough analysis. If you are facing a New Jersey sales tax assessment and wondering what to do, you do not have to figure this out alone. A short conversation can clarify your deadlines and help you decide whether an appeal is worth pursuing for your business.
Don’t face a New Jersey sales tax issue alone. Reach out to Sales Tax Helper online or contact our team at (855) 919-4633 to understand and protect your legal rights.