New Jersey’s Sales Tax Exceptions and Anomalies

Sales taxes are an inevitable part of life in New Jersey, and indeed, across the country. Sales taxes make it possible for the state to fund important government programs and operations such as transportation infrastructures, aid to schools (to the extent that it supplements local property tax and other funding sources), health and welfare aid programs, licensing and compliance departments, and other general state expenditures.

However, individual taxpayers may also benefit from their payment of sales tax on a more direct basis by claiming sales taxes as an itemized deduction on their tax returns. Generally people who itemize their deductions for their federal taxes also deduct their income taxes. However, taxpayers have the option to elect to deduct any state and local general sales taxes paid during the course of the year instead.

The taxpayer can make this election by either keeping all receipts of all purchases made, specifically including all receipts and add up all the sales tax that was paid during the year. This method is often too burdensome for most people, but could, potentially, lead to a higher tax deduction. Obviously, the taxpayer wants to maximize the possible deductions to minimize her taxes, but maintaining all receipts for every purchase could be too cumbersome.

Therefore, taxpayers can alternatively use the Sales Tax Tables or calculator provided by the IRS to come up with a deduction amount. That amount includes a set calculation based upon various considerations, such as residence and income, plus any sales tax paid on major items such as homes, motor vehicles, boats, or aircrafts. If married couples file separately, both must make the same election regarding itemized or standard deductions.

Additionally, taxpayers and businesses can take advantage of New Jersey’s Urban Enterprise Zone (“UEZ”) Program. The UEZ Act was enacted in 1983 to help struggling urban communities and to try to stimulate economic growth in those areas. The UEZ attempts to accomplish this by allowing participating businesses in designated areas to charge half the standard sales tax rate on certain purchases. These businesses can charge a 3.5 percent sales tax, while others must charge 7 percent and can thereby give these businesses a competitive edge in pricing.

In addition to that, these UEZ businesses obtain tax exemption for certain purchases in connection with the operations of their business. The business may receive tax credits for hiring new, permanent, full-time employees or enjoy a tax credit against the Corporate Business Tax. The UEZ company may also be eligible for priority financial assistance in some situations.

There are currently 32 Urban Enterprise Zones which span over approximately 37 municipalities in the state of New Jersey. Businesses seeking to benefit from the UEZ program must be: (1) registered with the State of New Jersey, (2) located within one of the designated zones, (3) in tax compliance with the State, and (4) certified as a UEZ business with the State.

McLaughlin & Nardi, LLC’s tax attorneys are experienced with both Federal and New Jersey state tax laws, and with obtaining tax benefits for both individuals and businesses in the state looking to minimize their tax liabilities. To learn more about what we may be able to do to help, please visit our website, or contact one of our New Jersey lawyers by e-mail or telephone at (973) 890-0004.