News and Insights

New Jersey Adopts Significant Sales and Use Tax Changes

Tax Development Aug 10, 2006

In a compromise decision between the New Jersey Legislature and Governor Jon Corzine, the state has enacted a variety of sales and use tax changes geared toward raising additional sales tax through an increase in the tax rate and by expanding the tax base to include more services. Governor Corzine was adamant that the sales tax rate had to be increased in order to cut the budget shortfall. The Legislature was against the increase but compromised only after certain concessions were made relating to reducing property taxes. This contentious debate between the Governor and the Legislature led to the shut down of all non-essential services in July for four days.

The other changes to the Sales and Use Tax Act mirror modifications being adopted by member states participating in the Streamlined Sales and Use Tax Agreement of which New Jersey is a member state.

Effective July 15, 2006, the sales and use tax rate increased from 6% to 7%. The following changes to the Sales and Use Tax Act are effective October 1, 2006.

The following definitional changes and services will be subject to tax effective October 1, 2006: space for storage, tanning services, massage services, tattooing, investigation and security services, information services, limousine services, membership fees at health, fitness, and sports clubs, shopping clubs, and parking are now subject to tax. The most noteworthy item on this list that companies need to be aware of relates to the taxation of information services. The majority of the other services will affect New Jersey residents more directly.

The Law Change extends the sales and use tax to the following property and services:

  1. Magazines and Periodicals, whether or not accessed by electronic means are subject to tax. However, magazines and periodicals sold by subscription are exempt and the exemption for newspapers is retained. 
  2. "Digital Property" is subject to tax. Digital Property is defined as electronically delivered music, ringtones, movies, books, audio and video works and similar products.
  3. Prewritten computer software electronically delivered to individuals is subject to tax. The exemption for electronically delivered software used by a purchaser's business, trade, or occupation is retained.
  4. Sales tax will apply to laundering, dry cleaning, tailoring, and the weaving and pressing of all products with the exception of clothing.
  5. Floor covering and landscaping services are now subject to sales tax. Businesses that provide floor covering and landscaping services are still treated as contractors under the law for all other business purposes.
  6. Delivery charges for taxable goods and services are now subject to tax but the exemption remains for delivery charges on nontaxable items such as clothing.