Why are most clothing items exempt from sales tax in New Jersey?

New Jersey law generally exempts everyday clothing and footwear from sales tax to reduce the tax burden on consumers for essential goods.

What period did the investigation into Skims’ sales tax practices cover?

The investigation found that Skims improperly collected sales tax over a five-year period, from 2019 through 2024.

What penalties did Skims agree to under the Consent Order?

Skims agreed to pay a USD 200,000 civil penalty and committed to improving its systems to ensure exempt merchandise is not taxed in New Jersey.

What additional obligations does Skims have toward consumers?

For the next four years, Skims must use its best efforts to promptly process and complete any additional consumer refund requests related to improperly collected sales tax.

Why is over-collecting sales tax a risk for companies?

Over-collecting sales tax can expose companies to consumer protection investigations, penalties, refund obligations, and reputational damage, similar to the risks associated with under-collecting tax.

Skims Settles New Jersey Sales Tax Case for $200,000

Q: What was the New Jersey sales tax issue involving Skims?

The issue involved Skims collecting sales tax from New Jersey customers on clothing items that are exempt from sales tax under New Jersey law, which triggered a consumer protection investigation.

On January 16, the New Jersey Department of Law and Public Safety, more specifically the Division of Consumer Affairs, issued a Consent Order in a case concerning the investigation of whether Skims Body, Inc., an online apparel company founded by, violated the New Jersey Consumer Fraud Act. The investigation and the issued Consent Order center on whether the Skims improperly collected sales tax from New Jersey customers on clothing items that are exempt from sales tax under state law.

Skims Obligations Under the Consent Order

Under the New Jersey tax law, most everyday clothing and footwear are exempt from sales tax. Following the investigation conducted by investigator Aziza Salikhova and Gregory Turner, Assistant Deputy of Enforcement within the Division’s Office of Consumer Protection, the Division of Consumer Affairs determined that Skims incorrectly collected sales tax from New Jersey customers over a five-year period from 2019 through 2024.

As a result of the findings, Skims has agreed to pay a USD 200,000 civil penalty to settle allegations. Additionally, the company is committed to maintaining systems and procedures designed to ensure that New Jersey customers are not charged sales tax on merchandise that is exempt under the New Jersey Sales and Use Tax Act. Furthermore, for the next four years, the company will use its best efforts to process and complete any further consumer refund requests promptly.

Attorney General Matthew J. Platkin stated that Skims was held accountable because its actions caused consumers to pay more than they legally owed, and stressed that the state will not tolerate conduct that unfairly takes money from hardworking New Jersey residents.

Conclusion

By agreeing to pay the penalty and take other necessary steps to address it, Skims resolved the issue without admitting wrongdoing. Nonetheless, this case emphasizes that over-collecting taxes may be equally harmful to companies as under-collecting, and that it may expose companies to consumer protection issues, law enforcement, refund procedures, penalties, and reputational damage.

Source: State of New Jersey – Department of Law and Public Safety