The Jersey Boys' Tax Reform

July 28, 2006 - Dear Readers: Because of the importance of the tax rate changes to all New Jersey citizens, this issue's column has been authored by the tax department of Mintz Rosenfeld & Co., Fairfield, one of New Jersey's leading accounting firms. I am indebted to MR& Co. for their kind permission to reproduce it here. RMJ

Recently passed legislation increases the New Jersey sales and use tax rate from 6% to 7%. The rate change affects all retail sales of taxable merchandise or services that take place on and after July 15, 2006. The bill also extends the base of the sales and use tax, beginning October 1, 2006.

SALES AND USE TAX RATE CHANGE
You must remit 7% sales and use tax on all taxable sales of property and services that occur on and after July 15, 2006.

TRANSITION FROM 6% TO 7%
If you have any taxable sale transactions that began before July 15, 2006, and are completed on or after July 15, 2006, the following rules apply:

Sales Made Before July 15, 2006; Delivery On And After July 15, 2006 - If the property was sold and delivered or services were rendered before July 15, 2006, the tax rate is 6%. If the property or services were sold but the property was not delivered or the services were not rendered until on or after July 15, 2006, or after, you must charge tax at the rate of 7%. This rule applies whether or not payment has been made in whole or in part prior to delivery.

Contracts Entered Into Before July 15, 2006 - If you have entered into a written agreement with your customer for a product or service and have accepted a partial payment or deposit, you must still charge 7% sales and use tax. Your customer may apply to the Division of Taxation for a refund of the 1% under certain circumstances.

Sales of Services - Unless the services were entirely rendered before July 15, 2006, you must charge 7% tax on the sale of the services. Receipts applicable to services prior to July 15, 2006, are taxable at 6%. However, if a service agreement is in effect prior to July 15, 2006 and covers billing periods ending after July 15, 2006, the seller shall collect 6% tax unless the billing period starts on or after July 15, 2006, in which case the seller must collect 7% tax.

Room Occupancy - Periods of taxable occupancy on or after July 15, 2006, are subject to tax at 7%, regardless of any prior lease or other rental agreement. Periods of taxable occupancy prior to July 15, 2006, are taxable at 6%.

Admission Charges - The tax on taxable admission charges on or after July 15, 2006, is 7%, even if the charges for the tickets were paid prior to July 15, 2006. However, if the tickets were actually delivered prior to July 15, 2006, and the tax of 6% was paid, there is no additional tax due.

Building Materials - If taxable building materials are delivered on or after July 15, 2006, the sale of the materials is subject to tax at 7%. In certain circumstances (i.e. where the materials are for use in unalterable building contracts entered into before July 15, 2006), the contractor who has paid the tax may seek a refund of 1% from the Division of Taxation. A Claim for Refund (A-3730) is available under Sales Tax Forms.

Leases and Rentals of tangible personal property - If an agreement for a period of more than six months is entered into prior to July 15, 2006, the tax is imposed at the rate of 6%. If an agreement for a period of more than six months is entered into on or after July 15, 2006, the tax is imposed at the rate of 7%. For agreements which are less than six months, the tax is imposed at the rate of 7% for all rental periods that begin on or after July 15, 2006.

USE TAX
A 7% use tax is imposed on the use in this State of any taxable property or service on which New Jersey sales tax has not been paid. Credit may be allowed for taxes paid to other states.

If you purchase taxable property or services on or after July 15, 2006, from a vendor who has not collected New Jersey sales tax, you are required to include the 7% use tax on your sales and use tax return (Form ST-50).

In addition to the rate hike, the sales tax base has been significantly expanded. The following changes are effective beginning October 1, 2006.

Separately stated delivery charges on taxable items will become taxable. Delivery charges on nontaxable items like food and clothing are exempt.

The current exemption for prewritten software delivered electronically will only apply to software that is used directly and exclusively in the conduct of the purchaser's business or occupation.

"Digital property" comprised of electronically delivered music, ringtones, movies, books, audio and video works and similar products become subject to sales tax.

The bill limits sales tax exemptions for laundering, dry cleaning, tailoring, weaving, and pressing to services provided on clothing only. Other items, such as drapery and carpets, are no longer exempt.

Exemptions were also limited on building contractor services. Landscaping and the installation of carpeting and other flooring used to be exempt if they constituted a "capital improvement." The exemption has been eliminated for landscaping and the installation of flooring.

The following services become subject to sales tax:
self-storage rentals, tanning services, tattooing, investigation & security services, information services, and limousine services.

Initiation fees, membership fees or dues for access to or use of the property or facilities of a health and fitness, athletic, sporting or shopping club or organization will become taxable.

Parking, storing or garaging a motor vehicle other than employee parking, municipal metered pking and parking subject to municipal parking taxes will be subject to sales tax.