How Does Sales Tax Work in New Jersey?

If you’re thinking of opening up a business in New Jersey, you have to be ready to juggle a number of tasks. Aside from developing your products and services and managing your employees, part of your essential responsibilities is collecting, filing, and paying for the sales tax.

You don’t have to worry if you’re not familiar with its rules, because this article will guide you on its implications and process so filing it will feel like a breeze. We’ll also provide you with a list of taxable and non-taxable items so you know what to include in your business’ return.

What is a sales tax?

The New Jersey Sales Tax and Use Tax Act enforces taxes on the sales of certain services, tangible personal properties, and digital products. Every state or municipality will have its own tax rate, and as of 2023, the sales tax rate in New Jersey is 6.625%.

But if your business is under an Urban Enterprise Zone in an economically distressed city of the state, your business will only charge half of the standard rate on taxable goods and services. The only catch is that the purchaser must transact in person and accept deliveries within your business’s physical location.

Who collects sales tax in NJ?

Your business is qualified to collect and pay sales tax when it has a nexus or taxable connection within the state. You’ll know your business is eligible when:

It has a physical location, has employees working, and stores inventories within New Jersey.
Earns more than $100,000 in gross revenue from the sales of taxable goods and services.
Has affiliate relationships with parent or sister companies with business entities in the state.
Has marketplace facilitator transactions with out-of-state businesses that sell products or services in New Jersey.

If any of these apply to your business, you must apply for a license to collect and remit sales tax with the New Jersey Division of Taxation.

What happens if you don’t collect sales tax?

If for some reason, you don’t register your business for sales tax, you will be required to pay the uncollected or unremitted tax amount if your business gets audited. Failure to pay within the auditing period may lead to penalties or fines. The amount will also have an interest of 3% for every month it remains unpaid.

In extreme cases, it may even lead to jail time, so it’s better to apply your business for a permit before starting its operations and remain tax-compliant for the following years.

What things are taxed in New Jersey?

You can assume most non-essential prepared food, clothing, medical equipment, and over-the-counter medicines are taxable in retail stores. Some essential items, like disposable paper products, may become subject to tax if sold for commercial, industrial, or business use. A few examples of taxable items include:

Air fresheners
Alcoholic beverages
Marshmallows
Pet foods
Bed linens
Cosmetics
Deodorants
Insecticides and repellants
Crutches
Flashlights
Garden supplies
Furniture cleaners and polishes
Music
Movies

Some professional services are also subject to sales tax, such as accounting, car washing, appliance repairs, and massage services. You can also refer here for the complete list of taxable items and services in New Jersey.

What items are nontaxable in New Jersey?

Not all products sold in retail stores are taxable in New Jersey. Necessities like unprepared food, clothing, dietary supplements, prescription medicine, and medical supplies and equipment are exempt as long as they’re sold for home use.

If you qualify for government benefits like the Supplemental Nutrition Assistance Program (SNAP), taxable items such as soft drinks and candy will become exempt.

Some examples of nontaxable items include:

Distilled water
Cream, Milk, and Half and half
Canned vegetables
Biscuits and crackers
Baby formulas
Dresses
Rain hoods
Rubber gloves
Boots
Slippers
Baby wipes
Antibiotics
First Aid Products (Healing agents, solutions, etc.)
Heating pads
Corrective Eyeglasses

Who is exempt from NJ sales tax?

Most customers that purchase from your business will be subject to the sales tax, but some are exempt from paying including government officials and nonprofit organizations.

But you can also apply for an exemption certificate if you’re a reseller so you can purchase inventory, raw materials, and certain services tax-free. Registered motor vehicles, vessels, and aircraft dealers can also claim this exemption when nonresidents purchase a motorcycle, boat, or airplane in New Jersey.

Registered contractors may also be exempt when they purchase supplies, materials, or services for performing work on real property of a qualified exempt organization.

Need help with your taxes?

If you need help with filing your business’ sales taxes, you can reach out for help to Lear & Pannepacker. They have a team of professional accountants with extensive experience in various industries. They also offer business advisory, auditing, bookkeeping, and budgeting services. For questions or inquiries, feel free to contact their team now.