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NOTICE SALES AND USE TAX RATE CHANGE 6.875%
SALES AND USE TAX RATE
(P.L. 2016, c. 57)
AMENDMENTS TO THE SALES AND USE TAX ACT, EFFECTIVE JANUARY 1, 2017

The New Jersey Sales and Use Tax will be reduced in two phases between 2017 and 2018. P.L. 2016, c. 57 decreases the Sales and Use Tax rate from 7% to 6.875% on and after January 1, 2017. The tax rate will decrease to 6.625% on and after January 1, 2018. This Notice discusses the transition of the Sales and Use Tax to the lower rates.

Changes for Sellers

Sellers must collect and remit the tax at the rate of 6.875% on all taxable sales of tangible personal property, specified digital products, and enumerated services that occur on and after January 1, 2017. This rate will remain in effect until December 31, 2017.

The Division of Taxation has updated ST-75, Sales Tax Collection Schedule, which is effective January 1, 2017. Schedule ST-75 rounds the amount of taxes owed to the nearest full cent. All tax calculations should be rounded accordingly. (See, “How to Calculate the Sales Tax” at left.) The tax rate (6.875%) is not rounded when calculating taxes owed.

Taxable Transactions

The following rules apply to taxable transactions that begin before January 1, 2017, and are completed on or after January 1, 2017, but before January 1, 2018.

Sales Made Before January 1, 2017; Delivery on and After January 1, 2017:

If the tangible personal property or specified digital products are sold and delivered or services are rendered before January 1, 2017, the seller must collect tax at the rate of 7%. If the tangible personal property, specified digital products, or services are sold before January 1, 2017, but the tangible personal property or specified digital products are delivered, or the services rendered on or after January 1, 2017, but before January 1, 2018, the seller must collect tax at the rate of 6.875%.

Sales Tax Transition from 7% to 6.875%

The following rules apply to taxable transactions that begin before January 1, 2017, and are completed on or after January 1, 2017, but before January 1, 2018.

Tangible Personal Property or Specified Digital Property

If the tangible personal property or specified digital products are sold and delivered before January 1, 2017, the seller must collect tax at the rate of 7%. If the tangible personal property or specified digital products are sold before January 1, 2017, but the tangible personal property or specified digital products are delivered on or after January 1, 2017, the seller must collect tax at the rate of 6.875%.

Leases and Rentals of Tangible Personal Property

  • If an agreement for a period of more than six months is entered into in New Jersey before January 1, 2017, the tax is imposed at the rate of 7%. Extensions or renewals of such agreements that occur on or after January 1, 2017, are subject to tax at the rate of 6.875%. If an agreement for a period of more than six months is entered into in New Jersey on or after January 1, 2017, the tax is imposed at the rate of 6.875%.

  • For an agreement that is less than six months, the tax is imposed at the rate of 6.875% for all periods that begin on or after January 1, 2017.
Boats and other vessels
  • The Sales and Use Tax Act provides a 50 percent exemption on the sale of new and used boats or other vessels (including motorboats, sailboats, yachts, and cruisers) and caps the amount of Sales and Use Tax due from a purchaser at $20,000. On and after January 1, 2017, but before January 1, 2018, sales of boats or other vessels are taxed at the rate of 3.4375%.
Building Materials
  • If taxable building materials are delivered on or after January 1, 2017, the sale of the materials is subject to tax at the rate of 6.875%. In certain circumstances (i.e., where the materials are for use in unalterable building contracts entered into before January 1, 2017), the seller must collect tax at the rate of 7%.

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Contracts

Service/Maintenance Contracts

  • Lump sum payment – If a service or maintenance agreement is entered into on or before December 31, 2016, the seller must charge and collect sales tax at the rate of 7%, regardless of whether or not the agreement covers periods after January 1, 2017, unless the bill for such service or maintenance agreement is issued on or after January 1, 2017, in which case the seller must charge and collect tax at the rate of 6.875%.

  • Periodic payment – If a service or maintenance agreement is billed periodically (e.g., on a yearly, monthly, or weekly basis) then the seller must charge and collect sales tax at the rate applicable when the bill is issued.

Sales of Services

Charges for services completed before January 1, 2017, are taxable at the rate of 7% unless the bill is rendered (e.g., dated) on or after January 1, 2017. In such case, the seller must collect tax at the rate of 6.875%.

Admission Charges

The tax rate on taxable admission charges occurring on or after January 1, 2017, are subject to tax at the rate of 6.875%. If, however, the tickets are actually sold and delivered before January 1, 2017, the seller must collect tax at the rate of 7%.


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Membership Fees


Charges for taxable initiation fees, membership fees, or dues are taxable at the rate of 7% for bills rendered on or before December 31, 2016. Charges for initiation fees, membership fees, or dues are taxable at the rate of 6.875% for bills rendered on or after January 1, 2017. A customer may apply to the Division for a refund of tax if the customer has been charged tax at the rate of 7% for membership fees or dues paid on or before December 31, 2016, and the fees or dues cover periods beginning on or after January 1, 2017.

Occupancy


Taxable occupancies occurring before January 1, 2017, are taxable at the rate of 7%. Taxable occupancies occurring on or after January 1, 2017, are subject to tax at the rate of 6.875%, regardless of any prior agreement. A customer may apply to the Division for a refund of tax if the customer has been charged tax at the rate of 7% for an occupancy which began on or before December 31, 2016, and has extended past January 1, 2017.

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Calculating the Tax

A seller has the option of calculating the tax due using either the tax bracket (See ST-75, Sales Tax Collection Schedule) or by multiplying the taxable receipts by the applicable tax rate and calculating the tax to the third decimal point. One-half cent ($0.005) or higher must be rounded up to the next cent; less than $0.005 must be dropped in order to round the result down.

Example: Customer purchases flowers for $20.00 from seller.  Seller must calculate the tax to the third decimal place as follows:


$20.00 (flowers) x 0.06875 (sales tax rate) = $1.375

The tax must be rounded to $1.38

$20.00 (flowers) + $1.38 (sales tax) = $21.38

Seller must collect $21.38 from customer. 

Use Tax

On or after January 1, 2017,  but prior to January 1, 2018, a 6.875% use tax is imposed on the use in this State of any taxable tangible personal property, specified digital products, or services on which New Jersey sales tax has not been paid.  Credit may be allowed for taxes paid to other states.  For information on remitting Use Tax, please see ANJ-7, Use Tax in New Jersey.

Atlantic City Businesses

The combined rate for sales subject to both Sales and Use Tax and the Atlantic City Luxury Tax is reduced from 13% to 12.875% (9% Atlantic City Luxury Tax and 3.875% Sales and Use Tax).  The following rules apply to all sales made in Atlantic City on and after January 1, 2017, but prior to January 1, 2018:

Sales that are subject to both taxes – other than alcoholic beverages sold by the drink, including bottles of beer, wine, etc. opened and consumed on the premises – continue to be subject to the Atlantic City Luxury Tax at 9%. However, these sales are now subject to Sales and Use Tax at the rate of 3.875%.

Alcoholic beverages that are sold by the drink in Atlantic City are taxable at the combined rate of 9.875% (3% Atlantic City Luxury
Tax and 6.875% Sales and Use Tax).

Sales of packaged goods are subject to Sales and Use Tax at the rate of 6.875%.

An update to ST-275, Combined Atlantic City Luxury Tax and State Sales Tax Collection Schedule

Cape May County Tourism Businesses

On and after January 1, 2017, but prior to January 1, 2018, businesses in Wildwood, North Wildwood, and Wildwood Crest which are subject to the Tourism Tax, will collect the 2% Tourism Tax and 6.875% Sales Tax, for a combined rate of 8.875% on tourism-related sales. This is in addition to the 1.85% Tourism Assessment and the 3.15% State Occupancy Fee on hotel occupancies.

An update to the ST-375, Cape May County Tourism Sales Tax Collection Schedule, is available

 

Urban Enterprise Zone/Salem County Businesses

On and after January 1, 2017, but prior to January 1, 2018, sellers authorized to charge the 50% reduced rate are required to charge and collect Sales Tax at the rate of 3.4375% on all qualifying taxable sales.

Updates to the ST-475U, Urban Enterprise Zone Sales Tax Collection Schedule, and the ST-475S, Salem County Sales Tax Collection Schedule, are available.


Last Updated: Tuesday, 01/31/17



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