Sales and Use Taxes in New Jersey

April 13, 2006

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In New Jersey a tax is imposed 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)
most advertising services, other than advertising in newspapers and magazines, and direct-mail advertising sent to out-of-state recipients

Sales and use tax rate. Effective July 15, 2006, the New Jersey state sales and use tax rate is 7 percent (previously 6 percent). 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. As an example, in Salem County the state tax rate is only 3 percent on qualified items; however, items like meals and beverages are taxed at the full rate.

Tax-exempt items. 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.

New Jersey small business owners might be particularly interested that, effective July 15, 2006, 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 $1 million in gross receipts in its prior annual tax period. Small qualified businesses can continue to use a Temporary Exempt Purchase Certificate (UZ-5-SB-Temporary) until September 30, 2006, to make exempt purchases without paying sales tax. To continue to be exempt from paying sales tax on purchases made on or after October 1, 2006, a small qualified business must apply for the exemption certificate (UZ-5-SB-A) prior to August 31, 2006.

Responsibility for paying sales tax. 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.

Use tax. Unless the property or service is subject to the sales tax, the use tax is imposed on the use, storage for use or consumption of taxable property or services in New Jersey.

Responsibility for collecting use tax. 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.

Obtaining tax permits 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.

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.

The following discussions address additional sales and use tax issues that many small business owners face: