Sales Tax 101 for New Jersey Small Businesses: What’s Taxable and How to Comply

Sales tax can be confusing for new entrepreneurs. New Jersey imposes a state-wide sales tax on many transactions, and as a small business owner you’re responsible for collecting and remitting it properly. Understanding Sales Tax 101 for New Jersey Small Businesses is essential for staying compliant and avoiding penalties. This section will cover the basics of NJ sales tax – who needs to charge it, what is taxable or exempt, and how to stay compliant – all in plain English.

• The Basics – Rate and Nexus: New Jersey’s sales tax rate is 6.625% statewide. Unlike many states, NJ does not allow local sales taxes, so 6.625% is the rate everywhere in the state (though there are a few reduced-rate programs like Urban Enterprise Zones, which charge half-rate in certain areas for qualified businesses). You must collect NJ sales tax if your business has nexus in New Jersey. Nexus means a significant presence or connection – e.g. having an office, store, employees, or even just exceeding certain sales thresholds in NJ. Since 2018’s Wayfair decision, even out-of-state online sellers can have nexus through economic activity. In NJ, if you sell more than $100,000 of goods/services into NJ or 200+ separate transactions in a year, you have economic nexus and must register to collect NJ sales tax. (If you’re a NJ-based business, you automatically have nexus.)

• What’s Taxable: New Jersey broadly taxes the sale of tangible personal property, specified digital products, and certain services. That means physical products are generally taxable unless exempt. NJ also taxes digital goods like downloaded software, e-books, streaming video/music subscriptions, and other digital products delivered electronically. Some services are taxable too – notably services that involve repairing, maintaining, or creating tangible property (for example, car repairs are taxable because they’re servicing a tangible item). Also information services, landscaping, janitorial services, and certain installation or catering services are taxable under NJ law. If you’re unsure about your service, check NJ Taxation’s list – many personal and professional services (like consulting, legal, accounting services) are not subject to sales tax in NJ, but construction labor and repair labor often is.

• What’s Exempt: New Jersey has a number of important exemptions intended to lessen tax on essentials. Exempt items include most food sold for home consumption (groceries), most clothing and footwear, disposable paper products for household use, and prescription drugs. For example, if you run a grocery or sell snacks (unprepared food), those are generally not taxed. Clothing for human use is tax-free in NJ (with a few exceptions for specialty items). Medical devices and over-the-counter medicines are generally exempt. Additionally, certain goods used in manufacturing or R&D, and items for resale (with a resale certificate), are exempt. As a business, it’s your job to not charge tax on exempt items – but you must document why you didn’t charge tax (usually by keeping an exemption certificate from the buyer, if it’s not a universally exempt item). Also note: New Jersey currently has no sales tax holidays (temporary tax-free periods) – clothing and shoes are exempt year-round by law.

• Collecting and Remitting: Once you’re registered (you’ll obtain a NJ Sales Tax Certificate of Authority by registering your business with the state), you need to collect 6.625% on every taxable sale to a New Jersey customer. This applies whether you sell in a brick-and-mortar store in NJ or ship items to an NJ address (for online sellers, NJ is a destination-based state, so you charge the rate of the delivery address). You then remit the tax to the state, typically by filing sales tax returns either monthly or quarterly (filing frequency depends on your volume). Most new small businesses will file quarterly at first. Returns and payments are done online via the NJ Division of Taxation’s system. Example: You run a boutique in Short Hills, NJ – you sell a dress for $100, no tax (clothing exempt). You also sell a handbag for $200 – that is taxable, so you charge $200 * 6.625% = $13.25 sales tax, collecting $213.25 total. Later, you will remit the $13.25 to the state, keeping the $200 for yourself as revenue.

• Compliance Tips: Always separately state the sales tax on receipts/invoices – this is both a legal requirement and good practice so customers see the tax. If something is exempt (e.g. you’re shipping to a customer out-of-state, or selling an exempt item), note why tax wasn’t charged (e.g. “clothing – exempt”). If you sell online across states, use software or a service to manage different state rules. Fortunately for NJ sales, no local rate changes simplifies things, but if you sell on marketplaces like Amazon or Etsy, note that marketplace facilitators are required to collect NJ sales tax on your behalf for marketplace sales. For instance, Amazon will collect the tax on an item you sell to NJ via Amazon’s platform. However, if you also sell on your own website to NJ customers above the nexus threshold, you must collect on those site sales. Keep good records of taxable vs. non-taxable sales. NJ can audit sales tax, and a common audit issue is uncollected tax on what auditors think should have been taxed. Keep exemption certificates on file for any tax-exempt sales to businesses or organizations – if you’re audited and can’t produce a valid certificate for a tax-free sale, NJ can assess the tax on you. Also, don’t forget Use Tax – if your business buys taxable items out of state without paying sales tax (say, equipment from an online retailer that didn’t charge tax), you are supposed to self-remit “use tax” at 6.625% to NJ. This often comes up in audits.

Overall, understanding NJ sales tax is about knowing what you must charge tax on and diligently filing and paying what you collect. When in doubt, consult the NJ Division of Taxation’s guides or ask a CPA. Getting sales tax wrong can lead to penalties, so it’s worth getting it right from the start. The good news is NJ’s single statewide rate makes it simpler than many states. As long as you keep invoices and reports organized – and set calendar reminders for those monthly/quarterly due dates (generally the 20th of the month following the period) – you’ll sail smoothly through sales tax compliance.

Ready to Simplify Your New Jersey Sales Tax Compliance?

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At Gregory Monaco, CPA LLC in Livingston, NJ, we help small business owners navigate New Jersey’s sales tax laws with confidence. From determining what’s taxable or exempt to filing timely and accurate returns, our team provides clear, practical guidance so you stay compliant and audit-ready year-round.

Whether you operate a retail store, service business, or online shop, we’ll help you streamline your sales tax processes and prevent costly mistakes. Stay proactive — and focus on growing your business while we handle the details.

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Gregory Monaco, CPA | Livingston NJ (serving NJ + virtual nationwide)