The New Jersey Supreme Court held that the New Jersey Division of Taxation improperly exercised its discretion when it refused to waive its imposition of $1.8 million in late payment penalties and tax amnesty penalties. The taxpayers, five subsidiaries of United Parcel Service of America (collectively, UPS), used a cash management system for intercompany transfers but did not report New Jersey corporation business tax (CBT) related to the transfers. The State assessed the CBT, imposed the two types of penalties at issue, and assessed interest, asserting that the intercompany transfers were actually loans upon which the State could impute interest income. The New Jersey Superior Court, Appellate Division, upheld the lower court’s determination that the State abused its discretion by imposing the penalties, explaining that UPS had reasonable cause to waive penalties because the taxability of the intercompany transfers was an issue of first impression. The New Jersey Supreme Court agreed and further explained that a taxpayer’s “honest misunderstanding of fact or law that is reasonable in light of the experience, knowledge and education of the taxpayer” supported a finding of reasonable cause to waive late payment penalties. Additionally, the court held that the imposition of tax amnesty penalties, which apply to taxpayers that fail to pay any state tax, did not apply to taxpayers that timely filed returns and paid their tax liabilities, but whom the State assessed on audit. The court emphasized that the legislative history of the tax amnesty penalties supported its determination that the State could not impose such penalties on deficiencies discovered through an audit of UPS’s timely filed returns. United Parcel Serv. Gen. Servs. Co. v. Dir., Div. of Taxation, No. 072421 (N.J. Dec. 4, 2014).