New Jersey's sales and use tax system plays a vital role in the state's revenue structure, affecting both businesses and consumers throughout the Garden State. With certain unique features and recent changes, New Jersey's approach to sales taxation includes specific rates, exemptions, and special provisions that distinguish it from neighboring states. This article covers the essential aspects of New Jersey sales tax that residents and business operators should know.
New Jersey's current sales tax rate
New Jersey imposes a statewide sales tax rate of 6.625% on most retail sales of tangible personal property and specified services. This rate reflects a slight reduction from the previous 7% rate, which was lowered as part of a tax reform package that also included an increase in the state's gas tax.
Unlike many states, New Jersey does not authorize counties or municipalities to impose additional local sales taxes, with one significant exception. This creates a relatively straightforward compliance environment with a uniform rate throughout most of the state.
The Urban Enterprise Zone exception
The most notable exception to New Jersey's uniform sales tax rate is found in designated Urban Enterprise Zones (UEZs). Qualified retailers in these zones may charge a reduced sales tax rate of 3.3125% (half the standard rate) on certain in-person sales of tangible personal property.
New Jersey established the UEZ program to stimulate economic growth in designated urban communities by providing tax incentives to businesses and consumers. There are currently 32 designated Urban Enterprise Zones across the state, including parts of:
- Camden
- Elizabeth
- Jersey City
- Newark
- Paterson
- Trenton
- Vineland
The reduced UEZ rate does not apply to motor vehicles, alcoholic beverages, cigarettes, catalog purchases, or most services, which remain taxable at the standard 6.625% rate even within UEZs.
Salem County reduced sales tax
Another exception to the standard rate exists in Salem County, which borders Delaware (a state without sales tax). To help Salem County businesses compete with Delaware retailers, qualified sellers may charge a reduced 3.3125% rate on certain in-person retail sales of tangible personal property.
As with the UEZ exception, this reduced rate does not apply to motor vehicles, alcoholic beverages, cigarettes, or services.
What items and services are taxable in New Jersey?
New Jersey taxes the retail sale, rental, or lease of most tangible personal property unless specifically exempted. Taxable items include:
- Furniture and home furnishings
- Electronics and appliances
- Motor vehicles (subject to sales tax or title fee)
- Clothing and footwear (with exceptions for certain protective equipment)
- Restaurant meals and prepared foods
- Alcoholic beverages
- Tobacco products
- Digital products, including electronically delivered software, music, videos, and e-books
Additionally, New Jersey taxes various services including:
- Telecommunications services
- Utility services (with residential exceptions)
- Hotel and motel occupancies
- Certain digital products and services
- Parking, storing, and garaging motor vehicles
- Information services
- Investigation and security services
- Cleaning services for commercial properties
Key exemptions from New Jersey sales tax
New Jersey provides numerous exemptions from sales tax. Some of the most significant include:
Food and grocery exemptions
- Unprepared food and grocery items for human consumption
- Prescription drugs and certain over-the-counter medications
- Prosthetic devices
- Disposable household paper products (unique to New Jersey)
Clothing and footwear
- Most clothing and footwear regardless of price (one of New Jersey's most distinctive exemptions)
- However, accessories, sports equipment, protective equipment, and fur items remain taxable
Other notable exemptions
- Residential gas, electricity, and heating fuels
- Certain manufacturing equipment and supplies
- Advertising services and materials
- Professional services (legal, accounting, medical)
- Sales to qualified nonprofit organizations
- School textbooks
- Child safety seats for automobiles
New Jersey's use tax requirements
Like other states with sales tax, New Jersey imposes a complementary use tax at the same 6.625% rate. The use tax applies when:
- Items are purchased outside New Jersey for use in the state and no sales tax was collected, or tax was collected at a lower rate than New Jersey's
- Items are purchased online or through catalogs when the seller did not collect New Jersey sales tax
New Jersey residents can report use tax on their state income tax returns or file a separate use tax return. The state has increased enforcement efforts for use tax compliance, including data sharing agreements with customs authorities and neighboring states.
Special taxation categories in New Jersey
Several categories of purchases receive special tax treatment in New Jersey:
Motor vehicles
- Subject to sales tax at the standard 6.625% rate
- Tax is collected by the Motor Vehicle Commission rather than the dealer when registering the vehicle
- Reduced rates do not apply, even in UEZs or Salem County
- Private party sales are taxable based on purchase price or vehicle value
Digital products
- Digital products delivered electronically are subject to sales tax at 6.625%
- This includes downloaded or streamed music, videos, e-books, apps, and digital codes
- Software as a Service (SaaS) and other cloud computing services are generally taxable
Prepared food and restaurant meals
- Restaurant meals and prepared foods are taxable at 6.625%
- This includes food prepared by grocery stores for immediate consumption
- Catering services are taxable
Business requirements for collecting New Jersey sales tax
Businesses with sales tax obligations in New Jersey must:
Registration requirements
- Register with the Division of Revenue and Enterprise Services
- Obtain a New Jersey Certificate of Authority (sales tax permit)
- Registration is available online through the NJ Business Gateway
Filing and payment obligations
- File sales tax returns monthly, quarterly, or annually depending on tax liability:
- Monthly: When tax liability exceeds $500 per month
- Quarterly: When tax liability is $500 or less per month
- Annual: For businesses with minimal tax liability
- Returns are generally due by the 20th day of the month following the reporting period
- Electronic filing is mandatory for most businesses through the NJ SOAP (Sales and Operating Performance) system
Record keeping requirements
- Maintain complete records of all sales transactions for at least four years
- Retain exemption certificates for exempt sales
- Document the proper collection of sales tax at different rates (standard rate vs. UEZ rate)
Remote seller and marketplace requirements
Following the Supreme Court's 2018 South Dakota v. Wayfair decision, New Jersey updated its laws regarding remote sellers:
- Remote sellers with over $100,000 in gross revenue from New Jersey sales or 200 or more separate transactions in the state must register, collect, and remit sales tax
- Marketplace facilitators (like Amazon, eBay, and Etsy) must collect and remit sales tax on behalf of third-party sellers using their platforms
- Marketplace sellers may need to register but can be relieved of collection requirements for sales made through compliant marketplaces
Recent changes and developments
New Jersey's sales tax system has undergone several changes in recent years:
- Reduction of the general rate from 7% to 6.625% (effective January 1, 2018)
- Expansion of the tax base to include digital products and services
- Implementation of economic nexus provisions for remote sellers
- Marketplace facilitator legislation
- Extension of certain UEZ designations that were set to expire
Comparison with neighboring states
New Jersey's sales tax approach differs from its neighbors in several important ways:
- New York: Has a 4% state rate plus local taxes that often create combined rates of 8-8.875%
- Pennsylvania: Imposes a 6% state rate with additional local taxes in Philadelphia (2%) and Pittsburgh (1%)
- Delaware: Has no sales tax, creating cross-border shopping incentives for New Jersey residents
- Connecticut: Charges 6.35% with more limited exemptions than New Jersey, particularly for clothing
The clothing and footwear exemption is perhaps the most distinctive feature of New Jersey's system compared to its neighbors, making the state an attractive shopping destination for these items.
Special considerations for New Jersey businesses
Businesses operating in New Jersey face some unique sales tax challenges:
Multi-state operations
- Businesses selling to customers in neighboring states must navigate different rates and exemptions
- New York and Pennsylvania both have local tax jurisdictions, unlike New Jersey
- Different rules regarding taxability of clothing and digital products
Urban Enterprise Zone participation
- Businesses in UEZs must properly apply the reduced rate only to qualifying sales
- Must maintain proper documentation of UEZ certification
- Need systems capable of applying different tax rates based on product type and customer location
Exemption certificate management
- Businesses must collect and maintain properly completed exemption certificates
- Different exemption requirements apply for resale purchases, exempt organizations, and specific exempt uses
Resources for New Jersey sales tax assistance
Those seeking help with New Jersey sales tax matters can utilize these resources:
- New Jersey Division of Taxation: Provides forms, publications, and guidance
- Business Registration Services: Assists with initial registration requirements
- Taxpayer Service Centers: Located throughout the state for in-person assistance
- New Jersey Business Action Center: Offers guidance to businesses on various regulatory matters, including taxation