The following three certificates are issued to qualifying Urban Enterprise Zone (UEZ) Businesses:
UZ-2 (Certification to Collect Sales Tax at the Reduced Rate) – The New Jersey Division of Revenue and Enterprise Services issues UZ-2 certificates to qualified businesses, allowing those businesses to collect Sales Tax at the reduced rate of 3.3125% on most sales of tangible personal property when the sale physically occurs at the qualified business’s location within the zone.
To be authorized to collect Sales Tax at the reduced rate, you must apply to become a UEZ business.
Once authorized, a qualified business also receives certificates to make certain exempt purchases.
UZ-5 (Urban Enterprise Zone Exempt Purchase Certificate) – Qualified businesses may use a UZ-5 exemption certificate to make exempt purchases of most tangible personal property and services. The purchases must be used exclusively at the qualified business’s UEZ location.
Beginning January 1, 2022, only the first $100,000 of taxable purchases in a calendar year are exempt from Sales and Use Tax. Once a qualified business reaches their annual $100,000 exempt purchase limitation, they must cease using their UZ-5 and pay Sales Tax on any subsequent business purchases for the remainder of the calendar year. If a qualified business is over its annual exempt purchase limitation and a supplier does not charge the required Sales Tax on a taxable transaction, Use Tax must be remitted for that purchase.
UZ-4 (Contractor’s Exempt Purchase Certificate) – Qualified businesses may provide UZ-4 exemption certificates to contractors hired to work on the businesses’ real property in the zone. A contractor may use the UZ-4 to purchase construction materials, supplies, and services exempt from Sales Tax when used exclusively to improve, alter, or repair the real property of a qualified business at its zone location.
Beginning January 1, 2022, only the first $100,000 in taxable purchases of construction materials, supplies, and services made by all contractors hired to work on a qualified business’s property in a calendar year are exempt from Sales and Use Tax. Once all contractors’ annual taxable purchases on behalf of a qualified business total $100,000, that qualified business may no longer give the UZ-4 to contractors or subcontractors for the remainder of that calendar year. At that point, a qualified business should advise contractors and subcontractors that they may no longer use a UZ-4 to make exempt purchases for the remainder of that calendar year.
There is no limitation on the amount of exempt purchases of construction materials, supplies, and services made by a contractor for the exclusive use of erecting new structures or substantially improving, altering, or repairing the real property of a qualified business at its zone location. Substantially improving, altering, or repairing means any reconstruction, rehabilitation, addition, or other improvement to a structure, of which the total cost equals to or exceeds 50 percent of the market value of the structure before the start of the construction improvement.