New Jersey sales tax guide

Sales tax is a tax paid to a governing body (state or local) on the sale of certain goods and services. New Jersey first adopted a general state sales tax in 1935 at a rate of 2 percent, but it was quickly repealed. It was reinstituted at 3 percent in 1966, and since that time, the base sales tax rate has risen to 6.625 percent. New Jersey does not generally allow the imposition of local sales tax, although certain locations may impose special luxury or tourism sales taxes. And in established Urban Enterprise Zones, qualified businesses with a UZ-2 certificate may charge sales tax at half the regular rate on certain sales.

As a business owner selling taxable goods or services, you act as an agent of the state of New Jersey by collecting tax from purchasers and passing it along to the appropriate tax authority. As of March 2019, sales and use tax in New Jersey is administered by the New Jersey Division of Taxation. 

Any sales tax collected from customers belongs to the state of New Jersey, not you. It’s your responsibility to manage the taxes you collect to remain in compliance with state and local laws. Failure to do so can lead to penalties and interest charges.

In New Jersey, sales tax is levied on the sale of tangible goods and some services. The tax is collected by the seller and remitted to state tax authorities. The seller acts as a de facto tax collector.

To help you determine whether you need to collect sales tax in New Jersey, start by answering these three questions:

1. Do you have nexus in New Jersey?
2. Are you selling taxable goods or services to New Jersey residents?
3. Are your buyers required to pay sales tax?

If the answer to all three questions is yes, then you’re required to register with the state tax authority, collect the correct amount of sales tax per sale, file returns, and remit to the state.

If you meet the criteria for collecting sales tax and choose not to, you’ll be held responsible for the tax due, plus applicable penalties and interest.

It’s extremely important to set up tax collection at the point of sale — it’s near impossible to collect sales tax from customers after a transaction is complete.

The need to collect sales tax in New Jersey is predicated on having a significant connection with the state. This is a concept known as nexus. Nexus is a Latin word that means "to bind or tie," and it’s the deciding factor for whether the state has the legal authority to require your business to collect, file, and remit sales tax.

Sales tax nexus in all states used to be limited to physical presence: A state could require a business to register and collect and remit sales tax only if it had a physical presence in the state, such as employees or an office, retail store, or warehouse.

In June 2018, the Supreme Court of the United States overruled the physical presence rule with its decision in South Dakota v. Wayfair, Inc. States are now free to tax businesses based on their economic and virtual connections to the state, or economic nexus.

While physical presence still triggers a sales tax collection obligation in New Jersey, it’s now possible for out-of-state sellers to have sales tax nexus with New Jersey.

Out-of-state sellers with no physical presence in a state may establish sales tax nexus in the following ways:

Click-through nexus: Having an agreement to reward a person(s) in the state for directly or indirectly referring potential purchasers of goods through an internet link, website, or otherwise, and:

• Sales from these referrals to customers in New Jersey are in excess of $10,000 for the prior four quarterly periods ending on the last day of March, June, September, and December.

Economic nexus: Having a certain amount of economic activity in the state. For sales made on and after November 1, 2018, a remote seller must register then collect and remit New Jersey sales tax if the remote seller meets either of the following criteria (the economic thresholds):

• The remote seller's gross revenue from sales of tangible personal property, specified digital products, or services delivered into New Jersey during the current or prior calendar year exceeds $100,000; or
• The remote seller sold tangible personal property, specified digital products, or services delivered into New Jersey in 200 or more separate transactions during the current or prior calendar year.

Marketplace sales: Making sales through a marketplace. Effective November 1, 2018, marketplace facilitators are responsible for collecting and remitting sales tax on behalf of marketplace sellers in New Jersey, regardless of whether the marketplace seller is above or below either of the economic thresholds.

Please note that remote sellers aren’t required to collect and remit sales tax on their marketplace sales of tangible personal property, specified digital products, or services delivered into New Jersey. New Jersey law requires the marketplace facilitator to collect and remit sales tax on all marketplace transactions, regardless of whether the marketplace seller meets either of the economic thresholds. 

However, remote sellers that make sales through marketplaces and other channels may have a sales tax collection obligation for their non-marketplace sales.

Trade shows: Attending conventions or trade shows in New Jersey. You may be liable for collecting and remitting New Jersey use tax on retail sales of products or services made during New Jersey conventions or trade shows.

If you have sales tax nexus in New Jersey, you’re required to register with the New Jersey Division of Taxation and to charge, collect, and remit the appropriate tax to the state.

For more information, see Sales Tax Information for Remote Sellers and Sales Through a Marketplace.

Sales tax nexus can linger even after a retailer ceases the activities that caused it to be “engaged in business” in the state. This is known as trailing nexus. As of December 2018, New Jersey does not have an explicitly defined trailing nexus policy. 

If you’re an active Amazon seller and you use Fulfillment by Amazon (FBA), you need to know where your inventory is stored and if its presence in a state will trigger nexus. FBA sellers can also download an Inventory Event Detail Report from Amazon Seller Central to identify inventory stored in New Jersey.

If you sell taxable goods to New Jersey residents and have inventory stored in the state, you may have nexus and an obligation to collect and remit tax. Although marketplaces are required by law to collect and remit tax on all marketplace transactions delivered into New Jersey, marketplace sellers may be required to collect and remit tax on sales made through other channels.

To begin to understand your unique nexus obligations, check out our free economic nexus tool or consult with a trusted tax advisor.

In some states, sales tax rates, rules, and regulations are based on the location of the seller and the origin of the sale (origin-based sourcing). In others, sales tax is based on the location of the buyer and the destination of the sale (destination-based sourcing). 

New Jersey generally uses destination-based sourcing. In New Jersey, the sales tax rate is generally determined by the point of delivery, which is where ownership and/or possession of the item is transferred by the seller to the purchaser. For services, the rate is based on where the service is delivered, or where the property on which the service is performed is delivered.

For additional information, see the New Jersey Division of Taxation.

After determining you have sales tax nexus in New Jersey, you need to register with the proper state authority and collect, file, and remit sales tax to the state. We get a lot of questions about this and recognize it may be the most difficult hurdle for businesses to overcome. Avalara Licensing can help you obtain your New Jersey business license and sales tax registration.

You can register for a New Jersey Sales Tax Certificate of Authority online through the New Jersey Division of Revenue and Enterprise Services. To apply, you’ll need to provide certain information about your business, including but not limited to:

• Business name, address, and contact information
• Federal EIN number
• Date business activities began or will begin
• Projected monthly sales
• Projected monthly taxable sales
• Products to be sold

There is currently no cost to register for a seller's permit in New Jersey.

You must register with the New Jersey Division of Revenue and Enterprise Services if you acquire an existing business in New Jersey. The state requires all registered businesses to have the current business owner’s name and contact information on file.

You may also choose to register through the Streamlined Sales Tax Registration System (see next section).

The Streamlined Sales and Use Tax Agreement (SSUTA), or Streamlined Sales Tax (SST), is an effort by multiple states to simplify the administration and cost of sales and use tax for remote sellers. Remote sellers can register in multiple states at the same time through the Streamlined Sales Tax Registration System (SSTRS).

New Jersey became a full member of the SST on October 1, 2005.

Once you've successfully registered to collect New Jersey sales tax, you'll need to apply the correct rate to all taxable sales, remit sales tax, file timely returns with the New Jersey Division of Taxation, and keep excellent records. Here’s what you need to know to keep everything organized and in check.

How you collect New Jersey sales tax is influenced by how you sell your goods:

Brick-and-mortar store: Have a physical store? Brick-and-mortar point-of-sale solutions allow users to set the sales tax rate associated with the store location. New tax groups can then be created to allow for specific product tax rules.

Hosted store: Hosted store solutions like Shopify and Squarespace offer integrated sales tax rate determination and collection. Hosted stores offer sellers a dashboard environment where New Jersey sales tax collection can be managed.

Marketplace: Marketplaces like Amazon and Etsy are required to collect and remit sales tax for all of their sales into New Jersey, including those by third-party sellers.

Mobile point of sale: Mobile point-of-sale systems like Square rely on GPS to determine sale location. The appropriate tax rate is then determined and applied to the order. Specific tax rules can be set within the system to allow for specific product tax rules.

New Jersey sales tax collection can be automated to make your life much easier. Avalara AvaTax seamlessly integrates with the business systems you already use to deliver sales and use tax calculations in real time.

Some goods are exempt from sales tax under New Jersey law. Examples include clothing and footwear, most non-prepared food items, food stamps, and medical supplies. New Jersey also offers a partial exemption for certain products, such as boats.

We recommend businesses review the laws and rules put forth by the New Jersey Division of Taxation to stay up to date on which goods are taxable and which are exempt, and under what conditions.

Some customers are exempt from paying sales tax under New Jersey law. Examples include government agencies, some nonprofit organizations, and merchants purchasing goods for resale.

Sellers are required to collect a valid exemption or resale certificate from buyers to validate each exempt transaction.

New Jersey sales tax exemption and resale certificates are worth far more than the paper they’re written on. If you’re audited and cannot validate an exempt transaction, the New Jersey Division of Taxation may hold you responsible for the uncollected sales tax. In some cases, late fees and interest will be applied and can result in large, unexpected bills.

Sales tax holidays exempt specific products from sales and use tax for a limited period, usually a weekend or a week. Approximately 17 states offer sales tax holidays every year. There are no sales tax holidays in New Jersey, but the state does provide a year-round sales tax exemption for clothing and footwear.

You're registered with the New Jersey Division of Revenue and Enterprise Services and you've begun collecting sales tax. Remember, those tax dollars don't belong to you. As an agent of the state of New Jersey, your role is that of intermediary to transfer tax dollars from consumers to the tax authorities.

Once you’ve collected sales tax, you’re required to remit it to the New Jersey Division of Taxation by a certain date. The New Jersey Division of Taxation will then distribute it appropriately.

Filing a New Jersey sales tax return is a two-step process comprised of submitting the required sales data (filing a return) and remitting the collected tax dollars (if any) to the New Jersey Division of Taxation. The filing process forces you to detail your total sales in the state, the amount of sales tax collected, and the location of each sale.

While form ST-50 is still available for download, online filing is required in New Jersey. New Jersey sales and use tax returns must be filed electronically, either online or by phone through the NJ Sales and Use Tax EZ File Systems.

The New Jersey Division of Taxation will assign you a filing frequency. Typically, this is determined by the size or sales volume of your business. State governments generally ask larger businesses to file more frequently. See the filing due dates section for more information.

New Jersey sales tax returns and payments must be remitted at the same time; both have the same due date.

The New Jersey Division of Taxation has phased out paper returns and now requires sales and use tax returns to be filed electronically, either online or by phone through the NJ Sales and Use Tax EZ File Systems. Payments must be made electronically, by electronic check, electronic funds transfer (EFT), or credit card (additional fees apply).

You may file directly with the New Jersey Division of Taxation by visiting their site and entering your transaction data manually. This is a free service, but preparing New Jersey sales tax returns can be time-consuming — especially for larger sellers.

Note: The Division of Taxation allows paper filing for certain sales tax returns, such as an Urban Enterprise Zone sales tax return.

For additional information, see New Jersey Sales and Use EZ File Frequently Asked Questions.

To save time and avoid costly errors, many businesses outsource their sales and use tax filing to an accountant, bookkeeper, or sales tax automation company like Avalara. This is a normal business practice that can save business owners time and help them steer clear of costly mistakes due to inexperience and a lack of deep knowledge about Missouri sales tax code.

Once you have a New Jersey seller's permit, you’re required to file returns at the completion of each assigned collection period. 

There’s no provision for a “zero” monthly filing in New Jersey: If a seller collected $30,000 or less in New Jersey sales and use tax during the preceding calendar year, a monthly remittance statement isn’t required regardless of the amount of tax due for that particular month. However, a quarterly return must be filed even if no tax is due and no sales were made for that particular quarter.

If a registered business finds it’s not required to collect sales or use tax (e.g., it sells only nontaxable items or items for resale, and doesn’t incur any use tax liability on its own taxable purchases), it may file a Request to be Placed on a Non-Reporting Basis (Form C‑6205-ST).

Failure to file and remit sales tax as required can result in penalties and interest charges.

The New Jersey Division of Taxation requires all businesses to "close their books" by filing a final sales tax return. This also holds true for business owners selling or otherwise transferring ownership of their business.

Many states encourage the timely or early filing of sales and use tax returns with a timely filing discount. As of December 2018, the New Jersey Division of Taxation does not offer sales tax filers a timely filing discount.

It's important to know the due dates associated with the filing frequency assigned to your business by the New Jersey Division of Taxation. This way you'll be prepared and can plan accordingly. Failure to file by the assigned date can lead to late fines and interest charges.

The New Jersey Division of Taxation requires all sales tax filing to be completed by the 20th of the month following the assigned filing period. Upon completing your sales tax registration, businesses are assigned quarterly filing frequency. A business may also be required to make monthly payments if they meet the following criteria:

• Collected more than $30,000 in Sales and Use Tax in New Jersey during the prior calendar year; and
• Collected more than $500 in the first and/or second month of the current calendar quarter.

Below, we've grouped New Jersey sales tax filing due dates by filing frequency for your convenience. Due dates falling on a weekend or holiday are adjusted to the following business day.

Source: New Jersey Division of Taxation

Filing a New Jersey sales tax return late may result in a late filing penalty as well as interest on any outstanding tax due. For more information, refer to our section on penalties and interest.

In the event a New Jersey sales tax filing deadline was missed due to circumstances beyond your control (e.g., weather, accident), the New Jersey Division of Taxation may grant you an extension. However, you may be asked to provide evidence supporting your claim.

Hopefully you don't need to worry about this section because you're filing and remitting New Jersey sales tax on time and without incident. However, in the real world, mistakes happen.

If you miss a sales tax filing deadline, follow the saying, “better late than never,” and file your return as soon as possible. Failure to file returns and remit collected tax on time may result in penalties and interest charges, and the longer you wait to file, the greater the penalty and the greater the interest.

A return filed late is fined as follows:

• 5 percent of the tax due for each month or part of a month the return is late (multiple by 0.05)
• A penalty of $100 for each month the return is late may also be charged above and beyond the percentage penalty
• A penalty of 5 percent of the tax due may also be charged for late payments

The maximum penalty for late filing is 25 percent of the late taxes.

Interest is calculated at the annual rate of 3 percent above the prime rate for every month or part of a month the tax remains unpaid, compounded annually. If outstanding taxes, penalties, and interest remain unpaid at the end of the calendar year, the outstanding balance becomes part of the balance on which interest is charged.

Because businesses are not required to file returns for periods in which $500 or less is due, there’s no provision for a “zero” monthly filing. However, a quarterly return must be filed even if no tax is due and no sales were made for that particular quarter.

Note: You may be subject to fines and a jail sentence if you fail to make, render, sign, certify, or file any return or report. You may be subject to fines and a jail sentence if you willfully fail to deposit taxes in a financial institution as required or fail to remit the state and local taxes collected.

If you’re in the process of acquiring a business, it’s strongly recommended that you contact the New Jersey Division of Taxation and inquire about the current status of the potential acquisition. Once you've purchased the business, you’ll be held responsible for all outstanding New Jersey sales and use tax liability.

Because New Jersey is one of the most populous states in the country, with a population of 9 million, most businesses have customers in the Garden State. If you’re collecting sales tax from New Jersey residents, you’ll need to consider how to handle taxes on shipping and handling charges.

New Jersey sales tax may apply to charges for shipping, delivery, freight, handling, and postage. 

The taxation of shipping and handling charges in New Jersey has changed more than once. As of October 1, 2005, handling charges are included in the definition of delivery charges. From October 1, 2005, through September 30, 2006, shipping and handling charges imposed by the seller were exempt whether separately stated or included in the sales price. 

However, the exemption for delivery charges imposed by the seller was repealed for taxable goods and services as of October 1, 2006. Charges by a seller to a customer for the delivery of taxable goods and services in New Jersey, which includes transportation, shipping, postage, handling, crating, packing, etc., are generally taxable even if separately stated on the bill. Charges to deliver exempt goods and services are generally exempt.

For shipments including both taxable and exempt property, sellers should allocate the delivery charge based on either the total sales price or total rate, and collect tax on the portion of the delivery charge allocated to the taxable goods. If delivery charges aren’t allocated, the entire delivery charge is taxable.  

For additional information, see the New Jersey Division of Taxation Sales Tax Guide.