Understanding New Jersey Sales and Use Taxes
Understanding and complying with the sales tax requirements in the states in which you do business is absolutely essential. More states are taxing services, as well as retail sales, so no business owner can afford to be in the dark. In addition, you may find that you are liable for use taxes for products purchased out of state. This article answers some of the basic questions regarding sales tax in New Jersey.
New Jersey imposes a 7 percent state tax upon receipts from:
- retail sales of tangible personal property, including leases and rentals;
- sales to construction contractors;
- sales of restaurant and catered meals and ready-to-eat meals or food, including sandwiches, for off-premises consumption, except food (other than sandwiches) sold in an unheated state if commonly sold in the same form and condition in food stores other than those principally engaged in selling prepared foods;
- admission charges exceeding $0.75 (except for certain boxing, wrestling, kick boxing or combative sports contests otherwise taxable);
- hotel and motel accommodations when the daily charge exceeds $2 and the occupancy is not for more than 90 consecutive days;
- services such as producing, fabricating, storing, maintaining, repairing, processing and installing (except when performed at a residence or on exempt personal property); and
- most advertising services, other than advertising in newspapers and magazines, and direct-mail advertising sent to out-of-state recipients.
Leases. In New Jersey, the term retail sale includes the purchase of tangible personal property for lease. A transaction is a lease when the possession or control of tangible personal property by an agreement is more than 28 days. A rental is a short-term transaction lasting 28 days or less. The tax is due at the time of the lease, and the lessor is considered the end user and is responsible for payment of the sales tax. The lessor may elect to pay tax on either the purchase price of the property, or the total of the lease payments. Lessors who elect to pay tax on the total of the leased payments must make the election each time a new lease is executed. If the lessor elects to pay tax on the amount of the sales price, any and each subsequent lease or rental is a retail sale, and a subsequent sale of such property is a retail sale.
Local governments can assess taxes. In addition, make sure you contact your local governments in New Jersey because they are allowed to assess a local sales and use tax. Also specific areas are allowed to assess a different state rate in New Jersey, so contact the state for your specific area and the specific products you are selling.
Vendors Must Collect Sales Tax from Customers
In New Jersey sales tax is collected by vendors from their customers. The vendors are personally liable for the tax collected or required to be collected. If a customer fails to pay a tax to the vendor, the customer must pay the tax directly to the state.
Absorbing the tax is prohibited. In New Jersey it is against the law to refund or offer to refund all or any part of the amount collected, or to absorb the amount of sales tax required to be added to the sales price and collected from the purchaser. As a seller, it is also against the law for you to advertise directly or indirectly that you will absorb the sales tax that is required to be added to the sales price.
Tax Permits Are Required in New Jersey
In New Jersey persons required to collect the tax and persons purchasing taxable property for resale must register with the Director of the Division of Taxation. New Jersey requires no fee for a sales tax permit.
Investigate If Exemptions Apply to Your Transactions
New Jersey has many specific items that are exempt from sales tax — for example, certain prescription medications are exempt from New Jersey sales tax. You'll want to check and see if you are exempt from the sales tax.
An exemption certificate may be issued by a purchaser of a nontaxable item. The exemption certificate may be based on the type of transaction (such as a resale exemption) or on the item itself.
Urban Enterprise Zone exemption New Jersey small business owners might be particularly interested that a "small" qualified business in an Urban Enterprise Zone (UEZ) is exempt from paying New Jersey sales tax on the purchase of goods and materials at the time of purchase. An eligible small business must have had less than $10 million in gross receipts in its prior annual tax period. To be exempt from paying sales tax on purchases, a small qualified business must apply for the exemption certificate.
Sales for Resale Are Not Taxed
Sales for resale are not subject to tax in New Jersey. The definition of retail sale expressly excludes a sale of tangible personal property for resale by you the purchaser.
Requirements for resale exemption certificate. In New Jersey a resale certificate (Form ST-3) must be used for the exemption to apply. The certificate should be signed and indicate the name, address, certificate of authority number of the purchaser, and the basis of exemption. The following requirements must be met in order for a certificate to disclose a proper basis for exemption:
- the certificate must be an official form or reproduction
- the certificate has to be dated and executed according to instructions and complete in all respects
- a proper basis for exemption must be stated
- the vendor has no reason to believe that property purchased is not ordinarily used in the purchaser's business for the purposes disclosed in the certificate
- good faith must be exercised in each transaction (each transaction is a separate claim for exemption if a blanket certificate is accepted)
New Jersey Permits Blanket Certificates
Sellers may accept blanket certificates from you as a purchaser if you repeatedly purchase the same type of property or service for processing or resale. However, blanket certificates may not be used to purchase property or services not covered by a blanket certificate. If a seller has not accepted a blanket certificate in good faith, liability for the tax does not shift from the seller to the purchaser.
Physical Presence Triggers Taxation
New Jersey has a statute that specifically taxes out-of-state mail order and catalogue sellers. However, you will be responsible for paying this tax only if you have physical presence within New Jersey. To determine if you have physical presence, ask yourself the following:
- Do I have retail facilities, a warehouse, or any office space in New Jersey? Maintaining retail or warehouse facilities will give you physical presence. Also, having an office for employees, even for business activities unrelated to mail order sales, will give you physical presence.
- Do my employees or I enter New Jersey for purposes of taking and transmitting orders from New Jersey? If your employee or independent contractor goes into New Jersey to take or transmit orders, your business may have physical presence in New Jersey. However, contracting with a common carrier to deliver mail order goods does not constitute physical presence.
- Do my delivery vehicles frequently enter New Jersey for purposes of delivering property? Frequent deliveries in New Jersey by your trucks will give you physical presence in New Jersey.
New Jersey Allows Use of Sales Tax "Bracket System"
The bracket system may be followed by sellers in computing the sales tax. The tax is computed on each dollar and/or fraction of a dollar according to the following table:
|Amount of Sale ||Tax |
|$0.01 to $0.10 ||no tax |
|0.11 to 0.19 ||$0.01 |
|0.20 to 0.32 ||0.02 |
|0.33 to 0.47 ||0.03 |
|0.48 to 0.62 ||0.04 |
|0.63 to 0.77 ||0.05 |
|0.78 to 0.90 ||0.06 |
|0.91 to 1.10 ||0.07 |
Claims Must Be Filed for Refund of Overpaid Tax
As a seller, you may exclude from taxable receipts, charges, or rentals of amounts representing sales when the sale has been canceled or the property has been returned. You or your customer who has actually paid the tax may file for a refund. You can only file for a refund if you:
- have collected the tax and paid it to the state,
- filed the application within four years after receiving payment from the customer, and
- satisfactorily establish that the refund amount applied for has been repaid to your customer.
New Jersey Imposes Use Tax on Out-of-State Purchases
A person who brings tangible personal property or who uses taxable services in New Jersey and has paid tax on the services in another state owes New Jersey use tax on the difference between the New Jersey rate and the other state's rate. If the other state's rate is higher than New Jersey's, no New Jersey use tax is owed.