WHICH GOODS AND SERVICES ARE TAXABLE?
Determining whether or not the products or services your company sells are taxable in New Jersey is the first step in sales tax compliance.
Traditional Goods or Services
Goods that are subject to sales tax in New Jersey include physical property, like furniture, home appliances, and motor vehicles.
The purchase of both prescription and non-prescription medicine, groceries, gasoline and clothing are tax-exempt.
Some services in New Jersey are subject to sales tax. For a detailed list of taxable services view this PDF from the New Jersey Division of Taxation website.
Digital Goods or Services
A digital good or service is anything electronically delivered, such as an album downloaded from iTunes or a film purchased from Amazon.
New Jersey requires businesses to collect sales tax on the sale of digital goods or services.
HOW TO REGISTER FOR NEW JERSEY SALES TAX
If you determined that you need to charge sales tax on some or all of the goods and services your business sells, your next step is to register for a seller's permit. This allows your business to collect sales tax on behalf of your local and state governments.
In order to register, you will need the following information:
- Federal Identification Number
- Trade Name
- Type of Ownership
- New Jersey Business Code
- Owner, partnership, corporate officers info
- Other basic info (if the business is seasonal, entity, subsidiary, info about what you sell, etc.)
Save Money with a Resale Certificate
With a resale certificate, also known as a reseller's permit, your business does not have to pay sales tax when purchasing goods for resale.
COLLECTING SALES TAX
After getting your seller's permit and launching your business, you will need to determine how much sales tax you need to charge different customers. To avoid fines and the risk of costly audits, it's important for business owners to collect the correct rate of sales tax.
When calculating sales tax, you'll need to consider the following kinds of sales:
- Store Sales
- Shipping In-State
- Out-of-State Sales
For traditional business owners selling goods or services on-site, calculating sales tax is easy: all sales are taxed at the rate based on the location of the store.
Here's an example of what this scenario looks like:
Mary owns and manages a bookstore in Trenton, New Jersey. Since books are taxable in the state of New Jersey, Mary charges her customers a flat-rate sales tax of 6.875% on all sales.
The state of New Jersey follows what is known as a destination-based sales tax policy. This means that long-distance sales within New Jersey are taxed according to the address of the buyer. This policy applies to state, county, and city sales taxes.
Consider the following example:
Steve runs his own business selling electronics on eBay out of his home in Clinton, New Jersey. A customer living in Jersey City finds Steve’s eBay page and purchases a $350 pair of headphones. When calculating the sales tax for this purchase, Steve applies the 3.500% reduced state tax rate for a New Jersey Urban Enterprise zone. With no other forms of sales tax for the state of New Jersey, the total cost is $362.25 ($12.25 sales tax).
New Jersey businesses only need to pay sales tax on out-of-state sales if they have nexus in other states. Nexus means that the business has a physical presence in another state.
Common types of nexus include:
- A physical location, such as an office, store, or warehouse
- An employee who works remotely or who is a traveling sales representative
- A marketing affiliate
- Drop-shipping from a third party seller.
- A temporary physical location, including festival and fair booths.
FILE YOUR SALES TAX RETURN
Now that you’ve registered for your New Jersey seller's permit and know how to charge the right amount of sales tax to all of your customers, you are all set to file your sales tax return. Just be sure to keep up with all filing deadlines to avoid penalties and fines.
Recommended: Hiring a business accountant can help your business file tax returns as well as issue payroll and manage bookkeeping. Schedule a consultation with a business accountant today to save thousands of dollars on your taxes.
How to File
New Jersey requires businesses to file sales tax returns and submit sales tax payments online.
How Often Should You File?
How often you need to file depends upon the total amount of sales tax your business collects.
- Quarterly filing: If your business collects less than $500.00 in sales tax per month then your business should elect to file returns on a quarterly basis.
- Monthly filing: If your business collects $500.00 or more in sales tax per month then your business should file returns on a monthly basis.
Note: New Jersey requires you to file a sales tax return even if you have no sales tax to report.
All New Jersey sales tax return deadlines fall on the 20th day of the month, unless it is a weekend or federal holiday, in which case the deadline is moved back to the next business day.
Annual filing: January 22nd, 2020
- Q1 (Jan. - Mar.): Due April 20
- Q2 (April - June): Due July 20
- Q3 (July - Sept.): Due October 22
- Q4 (Oct. - Dec.): Due January 22
Monthly filing: The 20th day of the following month, or the next business day, e.g. April 20 for the month of March, or May 22 for the month of April.
Penalties for Late Filing
New Jersey charges a late filing penalty of $100 plus 5% per month or partial month up to a maximum of 25% of the tax that is reported on the tax return.
New Jersey also charges a late payment penalty that is equal to 5% of the tax that is unpaid.
The state assesses the unpaid tax with a compounded interest rate of 3% per year for any unpaid tax or penalty.