How to Calculate NJ Sales and Use Tax on Out-of-State Purchases

New Jersey imposes both sales and use tax to ensure taxable purchases are properly taxed, regardless of where they occur. While most people are familiar with paying sales tax on in-state purchases, fewer understand their obligation to pay use tax on out-of-state transactions when no sales tax was collected. This applies to online shopping, mail orders, or purchases made while traveling.

Understanding how to calculate and report New Jersey’s sales and use tax is essential for compliance and avoiding penalties.

Sales Tax and Use Tax Distinctions

New Jersey taxes goods and services whether they are bought in-state or from an out-of-state seller. Sales tax applies when a New Jersey retailer collects tax at the time of purchase, while use tax is owed when a taxable item is purchased from an out-of-state seller that does not collect New Jersey sales tax. Both taxes are set at 6.625%.

The key difference is who remits the tax. A New Jersey-registered retailer collects and submits sales tax, while a buyer must pay use tax directly to the state if an out-of-state seller does not collect it. This ensures fair competition for local businesses.

Some transactions require adjustments. If a New Jersey resident buys furniture in Delaware, where no sales tax is imposed, they must pay the full 6.625% use tax when bringing the item into New Jersey. If they purchase a laptop in Pennsylvania and pay that state’s 6% sales tax, they owe only the 0.625% difference to New Jersey. This prevents double taxation while ensuring the correct amount is paid.

Nexus and Registration Requirements

A business must collect and remit New Jersey sales tax if it has a “nexus” with the state, meaning a significant connection that triggers tax obligations. Traditionally, this required a physical presence, such as a store, warehouse, or employees in New Jersey. However, economic nexus laws now require remote sellers to collect tax if they exceed $100,000 in gross revenue from sales into New Jersey or complete 200 or more transactions with New Jersey customers in the current or prior calendar year.

This threshold, established under P.L. 2018, c.132, aligns with the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc. (2018), which allowed states to require tax collection from out-of-state sellers based on economic activity alone.

Marketplace facilitators—platforms like Amazon, eBay, and Etsy—must also collect and remit sales tax if they meet the economic nexus threshold. This shifts tax collection responsibility from individual sellers to the platform.

Businesses meeting these criteria must register with the New Jersey Division of Revenue and Enterprise Services using the NJ Business Registration Application (Form NJ-REG). Registration is required before making taxable sales in the state. Once registered, sellers must file sales tax returns, typically monthly or quarterly, depending on tax liability. Late or inaccurate filings can result in penalties and interest.

Exemptions

Certain transactions and entities qualify for sales and use tax exemptions. Purchases made by government agencies, nonprofit organizations, and specific industries may be exempt if they meet the necessary requirements and maintain proper documentation.

Nonprofit organizations, including religious institutions, educational groups, and charities, can apply for tax-exempt status by obtaining an Exempt Organization Certificate (Form ST-5) from the New Jersey Division of Taxation. This certificate allows them to make tax-free purchases, but only if the items are used exclusively for their exempt purpose. If a nonprofit resells goods or uses them for non-exempt activities, tax must be collected or paid.

Manufacturing and processing businesses may qualify for exemptions when purchasing equipment and materials used directly in production. Machinery used in manufacturing tangible personal property for sale is tax-free under New Jersey law. Similarly, raw materials that become part of the final product are exempt, ensuring tax is only applied to the final consumer. Agricultural businesses receive similar exemptions for farming equipment, seeds, and fertilizers used exclusively for agricultural production.

Certain goods and services are exempt based on necessity. Prescription drugs and most over-the-counter medications are not taxable. Groceries, excluding prepared foods and certain beverages, are also exempt. Clothing and footwear, except for accessories and formal attire, remain untaxed, unlike in neighboring states that impose sales tax on apparel.

Reporting Out-of-State Purchases

When taxable goods or services are purchased outside New Jersey without sales tax being collected, the buyer must self-report and pay use tax. Individuals report use tax on the New Jersey Gross Income Tax Return (Form NJ-1040), while businesses use the Sales and Use Tax Return (Form ST-18). The tax is calculated at 6.625% of the purchase price, including delivery charges if they were part of the transaction.

For businesses, tax treatment may vary depending on whether the purchase is a capital asset, inventory, or an operational expense. High-value purchases like furniture, electronics, or jewelry often trigger reporting obligations, particularly if bought in states with no or lower sales tax.

New Jersey cross-references data from federal filings, credit card transactions, and online retailers that submit sales records. To ensure compliance, taxpayers should keep detailed receipts and invoices, documenting the purchase price, vendor details, and any tax paid to another jurisdiction.

Penalties for Noncompliance

Failing to report and pay use tax can result in penalties, interest charges, and audits. New Jersey enforces compliance through data-sharing agreements with other states and online marketplaces.

A late payment incurs a penalty of 5% of the unpaid tax per month, up to 25%, along with interest at the prime rate plus 3%. If the failure to pay is intentional, an additional 5% negligence penalty may apply. Businesses that knowingly evade tax collection can face more severe consequences, including revocation of their sales tax permit and potential criminal charges.

To reduce penalties, taxpayers can voluntarily disclose unpaid use tax through New Jersey’s Voluntary Disclosure Program. If they come forward before an audit, penalties may be reduced or eliminated.

Record Retention Guidelines

Taxpayers must keep records related to sales and use tax for at least four years. This includes invoices, receipts, exemption certificates, and correspondence with vendors regarding tax collection. Businesses must maintain detailed records of taxable and exempt transactions to justify any deductions or exclusions claimed on their returns.

Digital recordkeeping is increasingly important, as the Division of Taxation may request electronic records during an audit. Cloud-based accounting software and enterprise resource planning (ERP) systems can help businesses organize and store tax-related documents efficiently. Individuals should also keep detailed purchase records, particularly for high-value items bought from out-of-state sellers. Failure to provide documentation can result in tax assessments based on estimated liabilities, which may exceed the actual tax due.