New Jersey Sales and Use Tax Guide for E-commerce & Retail

Sales and Use Tax Basics in New Jersey

Sales Tax

The New Jersey Sales and Use Tax Act imposes sales tax on retail sales of most tangible personal property, commonly referred to as tangible goods, specified digital products, and listed services. The sales tax is charged at the point of sale and is paid by the final consumer. However, it is collected and remitted by the seller.

Use Tax

When individuals or businesses in New Jersey buy products or taxable services outside the state, online, or via mail, from out-of-state sellers or providers and bring or receive products in New Jersey, they must pay use tax as buyers or consumers.

In other words, consumers must pay use tax if the seller does not charge, collect, and remit sales tax on taxable retail sales in New Jersey.

New Jersey Sales and Use Tax Rates

Unlike many other US states, which have state-wide sales and use tax applicable rates and local tax rates, such as county or municipality, New Jersey has a single-rate sales tax for the entire state, currently set at 6.625%. The rate has been changed on several occasions since 2006, when it was set to 6%. 

The sales and use tax rate increased to 7% in 2016, then decreased to 6.875% in 2017. The last change was in 2018, when it declined to 6.625%. 

Tax-Exempt Transactions

Transactions relating to sales of food sold as grocery products, clothing and footwear, disposable paper products for household use, prescription drugs, and over-the-counter drugs are not subject to sales and use tax. Additionally, dietary supplements are also exempt from sales tax.

The list of exempt services includes professional, advertising, architectural, jewelry, and real estate appraisal, bookkeeping, and cable or satellite television subscription services. Furthermore, data processing services, delivery charges on non-taxable items, internet access charges, and mail processing services for advertising and promotional materials distributed outside the state are not subject to sales and use tax.

Nexus Rules in New Jersey

Taxable persons established in New Jersey and outside the state can be subject to sales and use tax rules and regulations if they meet the defined conditions. These rules are defined as physical, economic, and marketplace nexus rules.

Physical Nexus

Individuals or businesses that have a physical presence in New Jersey and sell taxable tangible goods and services must register for sales tax purposes whenever such sales are completed by delivery to a New Jersey location or when the service is performed within this state.

Physical presence or nexus is established when taxable persons are selling, leasing, or renting tangible goods, specified digital products, or services, have an office, distribution house, showroom, warehouse, service enterprise, or other place of business, or have employees, independent contractors, agents, or other representatives in New Jersey.

Additionally, if activities occurring in New Jersey include selling, storing, delivering, or transporting energy, such as natural gas or electricity, to users or customers, collecting initiation fees, membership fees, or dues for access to or use of health, fitness, athletic, sporting, or shopping club property or facilities, parking, storing, or garaging motor vehicles, or delivering goods sold in seller’s vehicle, they result in the establishment of physical nexus.

Economic Nexus

In 2018, following the well-known Wayfair ruling, New Jersey introduced an economic nexus, requiring certain remote sellers to collect and remit New Jersey Sales Tax. 

Therefore, if out-of-state or remote sellers make a retail sale of tangible goods, specified digital products, or taxable services delivered into New Jersey and exceed the gross revenue registration threshold of USD 100,000 or have 200 or more separate transactions during the current or prior calendar year, they must register for, collect, and remit New Jersey sales tax.

Marketplace Nexus

Together with the economic nexus, New Jersey introduced the marketplace nexus rules. Under these rules, marketplace operators or facilitators, not sellers, must collect and remit sales tax on all marketplace transactions if they exceed the threshold set in the same way as for the economic nexus: USD 100,000 in gross revenue or 200 or more separate transactions during the current or prior calendar year.

Taxable Goods and Services in New Jersey

Although most retail clothing and footwear sales are exempt from sales and use tax in New Jersey, the exemption does not apply to fur clothing, accessories, sport or recreational equipment, or protective equipment. 

Tangible goods can include prewritten computer software delivered electronically. In addition, most services performed on tangible goods and specified digital products are taxable unless specifically exempted by law.  The specified digital products include electronically transferred digital audiovisual work, digital audio work, and digital books.

Notably, the term specified digital products does not refer to video programming services, including video on demand television services, and broadcasting services, including content to provide such services.

Bundled Transactions and the True Object Test

Under the New Jersey rules and regulations, bundled transactions are retail sales of two or more products,  including services, digital property, and other taxable products, except real property and services to real property, where products are distinct and identifiable. Additionally, products must be sold for one non-itemized, or single, price for the transaction to be considered bundled.

The general rule is that if a sale meets the bundled transaction definition, and any distinct and identifiable products are taxable, the whole sales price is taxable. 

However, there are exceptions to this rule, which include the retail sale of tangible goods and services where the tangible good is essential to the use of services or sale of services where one service is provided that is essential to the use or receipt of a second service and the first service is provided exclusively in connection with the second service. In these cases, the true object test is used to determine taxability on a transaction.

Also, in transactions that include sales of taxable and non-taxable tangible goods, where more than 50% of the products are not taxable, the sales price is not subject to tax.

Finally, following the de minimis rule, if a transaction includes taxable and non-taxable products, and the purchase price or sales price of the taxable products is 10% or less of the total price, the sales price is not subject to sales tax.

E-Commerce Framework

Out-of-state or remote sellers who offer and sell tangible goods, specified digital products, or taxable services for delivery into a state via the Internet, catalog, or telephone and have no physical presence in that state are subject to the remote sellers' rules.

Consequently, due to their lack of physical presence, these sellers must pay attention to economic nexus rules and whether their gross revenue from sales of tangible goods, specified digital products, or taxable services delivered into New Jersey during the current or prior calendar year exceeded USD 100,000.

Additionally, even if they do not exceed the registration threshold in the stated period, but they have 200 or more separate transactions relating to sales of tangible goods, specified digital products, or taxable services to consumers in New Jersey, they must register for sales tax.

Marketplace Rules

However, not all remote sellers sell goods and services through their website. Many remote sellers utilize marketplaces to offer and sell their goods or taxable services to local consumers and users. These sellers are known as marketplace sellers and are subject to specifically defined rules.

Marketplace sellers are not required to collect and remit sales tax on the sale of tangible goods, specified digital products, or taxable services delivered into New Jersey when a marketplace facilitator is required to collect and remit sales tax on the transaction. Nevertheless, if they exceed the economic nexus threshold, they must register for New Jersey sales tax and request to be placed on a non-reporting basis for sales tax.

Digital Goods and Services

Digital goods included in the definition of the specified digital product are subject to sales and use tax in New Jersey. These products may be digital audiovisual works, digital audio works, or digital books. They are also taxable if sold with tangible goods like a USB.

However, if specified digital goods are accessed but not delivered electronically to the purchaser, they are exempt from tax. Furthermore, no tax is imposed on other types of property that are delivered electronically, such as digital photographs or digital magazines. Services relating to installing, maintaining, servicing, or repairing specified digital products are also subject to sales tax.

Therefore, music, ringtones, movies, books, audio and video works, and similar products delivered electronically are subject to sales tax in New Jersey. In contrast, streaming services are not subject to sales tax.

Digital Marketplace

Digital marketplaces that facilitate the sales of tangible goods, specified digital products, and taxable services between marketplace sellers and consumers located in New Jersey must register for, collect, and remit sales tax if they meet certain conditions. 

Therefore, if the marketplace directly or indirectly lists, makes available, or advertises tangible goods, specified digital products, or services for sale by a marketplace seller in a forum owned, operated, or controlled by them, they are considered a marketplace facilitator. 

Additionally, this status can be established by transmitting or otherwise communicating an offer or acceptance of a retail sale of tangible goods, specified digital products, or taxable services between a marketplace seller and a purchaser.

Furthermore, if the marketplace owns, rents, licenses, makes available, or operates any electronic or physical infrastructure or any property, process, method, copyright, trademark, or patent that connects marketplace sellers to buyers, it is considered a marketplace facilitator.

Other criteria include providing a marketplace for making or facilitating retail sales of tangible goods, specified digital products, or taxable services, regardless of ownership or control of goods and services, providing or offering fulfillment or storage services for a marketplace seller, setting prices for a marketplace seller's sale, or branding or otherwise identifying sales as those of the marketplace facilitator.

To be considered a marketplace facilitator, the marketplace must perform at least one of the state activities, and directly or indirectly manage payments, collect money from buyers, or offer a digital currency for the buyers.

Digital Platform Operator

If a marketplace both offers the platform where sales happen and takes part in making the sale go through, it is legally responsible as a marketplace facilitator and must follow the related tax rules. These rules include registering for sales tax in New Jersey for the collection and remittance of sales tax on made or facilitated sales on behalf of marketplace sellers.

Moreover, the marketplace facilitator must collect and remit tax, regardless of whether the marketplace seller is above or below the threshold. Additionally, the marketplace facilitator must issue a sales slip, invoice, receipt, or other statement or memorandum of the price paid or payable following each retail sale made through the marketplace to the buyer.

The marketplace facilitator is liable for taxes on all retail sales for which it is required to collect and remit sales tax. However, if during or after an audit, the marketplace facilitator proves that it has made reasonable efforts to obtain accurate information from the marketplace seller about retail sales and that the failure to fulfill its obligations was due to incorrect information provided by the marketplace seller, then the marketplace facilitator will be relieved of liability for the tax for that retail sale.

Filing and Payment Requirements in New Jersey

Once registered for sales and use tax purposes, taxable persons must file tax returns and pay the due amount. The filing and payment frequency is typically quarterly, especially for newly registered taxable persons. However, some sellers may be subject to monthly filing and payment.

Therefore, if the taxable person collected more than USD 30,000 in sales and use tax in New Jersey during the previous calendar year, and collects more than USD 500 in the first or second month of the current calendar quarter, it must make monthly payments.

The tax return must be filed electronically, either online or by phone through the New Jersey sales and use tax EZ File Systems, by the 20th day of the month after the end of the filing period.

Taxable persons do not need to file a monthly return when the amount due for any monthly period is USD 500 or less. Moreover, a zero monthly return cannot be filed, and payment for that month must be made with the next return.

Penalties for Non-Compliance with Sales and Use Tax Requirements

Taxable persons who fail to file a tax return on time will face a 5% penalty of the tax due for each month or part of a month if the return is late. The maximum late filing penalty is 25% of the owed amount. In addition, a USD 100 penalty may be imposed for each month the return is late. The late payment penalty is also 5% of the due tax amount.

Besides penalties, the interest rate, consisting of the prime rate plus 3% compounded annually, is charged for every month or part of a month that the tax remains unpaid. The prime rate is reviewed twice a year and is currently 7.75%.