United States

New Jersey enacts economic sales tax nexus legislation

TAX ALERT  | 

Update:  On Oct. 4, 2018, New Jersey Gov. Phil Murphy signed Assembly Bill 4496, enacting economic sales tax nexus and marketplace facilitator provisions, effective Nov. 1, 2018.

The bill provides that a seller who makes a retail sale of tangible personal property, specified digital products, or taxable services for delivery into New Jersey and who does not have a physical presence in the state is subject to the sales tax if the seller meets either of the following criteria:

  1. The seller's gross revenue from delivery of tangible personal property, specified digital products, or taxable services into the state in the calendar year or the prior calendar year exceeds $100,000; or
  2. The seller sold tangible personal property, specified digital products, or taxable services for delivery into the state in 200 or more separate transactions during the calendar year or the prior calendar year.

The bill also enacts marketplace facilitator sales tax collection requirements. Facilitators must collect the sales tax on any retail sale made or facilitated to a purchaser in New Jersey. A marketplace facilitator includes a person, including any affiliate of the person, who facilitates a retail sale of tangible personal property, specified digital products, or taxable services by conducting certain activities detailed in the legislation.

Earlier remote seller sales and use tax guidance from the New Jersey Division of Taxation established both economic sales tax nexus and marketplace facilitator collection requirements. The original effective date of that guidance was established as Oct. 1, 2018. That date has since been updated to Nov. 1, 2018. Assembly Bill 4496 also includes a provision permitting the division to suspend or delay the provisions related to marketplace facilitators. Remote sellers to New Jersey, or New Jersey marketplace facilitators, should speak to their tax advisers with questions about the new economic sales tax nexus provisions.

For more information on economic sales tax nexus, please read our article, Wayfair, sales tax, and economic presence laws.


On Aug. 14, 2018, the New Jersey Division of Taxation issued a notice explaining that, consistent with the recent decision in South Dakota v. Wayfair, the division will begin to enforce economic sales tax nexus on remote sellers without a physical presence in the state effective Oct. 1, 2018.

Accordingly, a remote seller that makes a retail sale of tangible personal property, specified digital products, or services for delivery to a location in New Jersey must register, collect, and remit New Jersey sales tax if the remote seller meets either of the following criteria:

  1. The remote seller's gross revenue from delivery of tangible personal property, specified digital products, or services into New Jersey during the current or prior calendar year, exceeds $100,000; or
  2. The remote seller sold tangible personal property, specified digital products, or services for delivery into New Jersey in 200 or more separate transactions during the current or prior calendar year.

These thresholds only apply to remote sellers that have not otherwise established a physical presence in the state. The notice explains that the enforcement of the sales thresholds will be on a prospective basis.

The guidance appears to preempt Assembly Bill 4261 that passed both chambers of the New Jersey legislature as of July 1, 2018. The bill would statutorily apply economic sales tax nexus using the same threshold. Additionally, Assembly Bill 4261 provides for marketplace facilitator provisions, requiring marketplaces to collect sales tax when a third-party sells through the marketplace’s forum. “Forums” include stores, booths, web sites, catalogs, or dedicated sales software applications, where tangible personal property or taxable services are offered for sale. The marketplace will not be required to collect the tax if the third-party seller provides a certificate of registration. While it is unclear whether the bill will be necessary to enforce the economic sales tax nexus provisions, the governor may still take action on the bill, and the marketplace facilitator provisions, in the next couple of weeks.

Takeaways

To date, New Jersey is one of the largest states to adopt an economic sales tax nexus provision. A number of states have recently provided guidance on economic sales tax nexus since the Wayfair decision came down on June 21, 2018.

Currently, over two dozen states have adopted some form of economic sales tax nexus provisions with varying effective dates through statute, regulation or policy and guidance. It was expected that the states would respond quickly to Wayfair, even as the litigation continues in the South Dakota state courts. Taxpayers with questions about New Jersey’s upcoming nexus provisions, or economic sales tax nexus generally, should speak to their state tax advisers. For more information on Wayfair, please read our article, Wayfair, sales tax, and economic presence laws.

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