New Jersey Sets Transition Guidelines for Sales Tax Reduction

By Harold Hecht, Seth Rabe and Katie Massey

As reported in our previous alert, effective January 1, 2017, New Jersey reduced its sales tax rate from 7% to 6.875% statewide. The state has set guidelines to aid in the transition which may apply to your organization.

Sales, Charges, & Fees
If tangible personal property (TPP) or specified digital products were sold and delivered prior to January 1, 2017, the prior sales tax rate of 7% applies. If the TPP or specified digital products were sold before January 1, 2017, but were delivered on or after that date, the applicable sales tax rate is 6.875%. Taxable admission charges on or after January 1, 2017 are subject to the new 6.875% tax rate. However, if the tickets were sold and delivered prior to the effective date of January 1, 2017, the previous 7% rate applies. Initiation fees, membership fees, or dues are subject to the new rate of 6.875% for dates on or after January 1, 2017. If the tax rate of 7% was collected and remitted for a period beginning on or after January 1, 2017, a customer can apply for a refund from the New Jersey Division of Taxation (the Division). Taxable occupancies occurring on or after January 1, 2017 are subject to a rate of 6.875%, regardless of prior agreements. Taxable occupancies in which a 7% rate was already charged can qualify for a refund of tax with the Division, if the customer has extended a stay which began on or before December 31, 2016 and ended on or after January 1, 2017.

Leases, Agreements, & Contracts
If a lease for a period of more than six months began prior to January 1, 2017, the tax rate remains 7% for the remainder of the lease term. For an agreement less than six months in length, the tax is immediately shifted to the new 6.875% rate for all periods beginning on or after January 1, 2017. If taxable building materials are delivered on or after the effective date of January 1, 2017, a sales tax rate of 6.875% applies. If, however, the materials are for use in unalterable building contracts which were entered into prior to January 1, 2017, a tax rate of 7% still applies. Service or maintenance agreements which were entered into prior to January 1, 2017 are subject to the previous 7% rate, unless the bill for such service or maintenance is issued on or after January 1, 2017. If the service or maintenance agreement is billed periodically, the applicable rate is based on the date on which the bill is issued.

As New Jersey reduces its sales tax rate, transactions which overlap within the transition period may require extra attention.