Would you believe that over half of the small business owners we consult with have no idea that they may have a sales tax obligation? That’s why we ask every business consultation client “Have you confirmed if products or services are taxable?” Because here’s the thing about sales tax – if you don’t collect it, but you sell a taxable product or service, you’re still liable for remitting it to the state.” You could be losing money by not charging tax on taxable products or services, and will face penalties and interest if you file and pay late. Even worse, if you do collect it, but don’t remit it to the state, you’ve now essentially stolen from the customer (by collecting tax you didn’t remit), and from the state (by not giving them money you owe them). That could be punishable by criminal charges. Scary, right?! Let us break it down for you.
The late filing penalty is 5% of the tax due for each month (or part of a month) the return is late. The maximum penalty for late filing is 25% of the balance due. The NJ Tax Division also may charge a penalty of $100 for each month the return is late.
A late payment penalty of 5% of the tax due also may be charged.
At the end of each calendar year, any tax, penalties, and interest remaining due (unpaid) will become part of the balance on which interest is charged.
If your tax bill is sent to NJ's collection agency, a referral cost recovery fee of 10.7% of the tax due will be added to your liability.
The New Jersey Sales and Use Tax Act imposes a tax on the receipts from every retail sale of tangible personal property, specified digital products, and the sale of certain services, except as otherwise provided in the Act. Exempt items include most food sold as grocery items, most clothing and footwear, disposable paper products for household use, prescription drugs, and over-the-counter drugs.
There's definitely some weird rules when it comes to certain taxable goods, like these:
Pumpkins used for decorating are subject to sales tax, but pumpkins used as food or food prep are not.
Chocolate chips are taxed, but the bitter, unsweetened kind are not.
Popped popcorn is taxable, but the microwavable kind you make at home is not.
There are 3 principles to remember when collecting Sales Tax:
Sellers hold any Sales Tax collected in trust for the State (it should be set aside and not spent during your normal course of business; this will also ensure you have it when it’s time to remit it. We recommend a separate bank account for sales tax if you have any issues setting it aside in your regular operating account).
All receipts are considered to be taxable until the contrary is established (which is why good record keeping is so important for your business and CPA)
You can have sales tax obligations in other states, even if you only sell online (and every state’s sales tax rules are different).
Documenting taxes collected, including on your invoices, is vital for a small business and is part of the records you must maintain to make reporting and paying taxes legal and efficient.
Small business owners have to be prepared and knowledgeable about their sales tax obligation. Mistakes in reporting or remitting sales taxes — or even missing a scheduled payment — can result in penalties or criminal charges.
Consult with the professionals of ASE Group if you have a NJ small business to review your sales tax obligations on products and services you offer. Schedule a consultation today!