Taxes Archives - Marc Wasserman CPA

When shopping for gifts in New Jersey, it’s important to understand which items are subject to sales tax and which are exempt. The state exempts certain essential goods from sales tax, while other items remain taxable.

Non-Taxable Gifts in New Jersey

New Jersey does not impose sales tax on many everyday necessities, including some items commonly given as gifts. The following gifts are generally tax-free:

• Clothing – Most articles of clothing, including shirts, pants, dresses, and shoes, are exempt from sales tax. However, accessories like jewelry and handbags are taxable.
• Groceries – Food items, including packaged snacks, fresh produce, and non-prepared meals, are not subject to sales tax. However, prepared foods (such as restaurant meals) and candy are taxable.
• Books – Printed books, such as novels, educational materials, and children’s books, are exempt from sales tax.

Taxable Gifts in New Jersey

While many essential goods are tax-free, luxury and non-essential items are still subject to sales tax. These include:

• Electronics – Items such as smartphones, tablets, gaming consoles, and laptops are taxable.
• Toys – Dolls, board games, video games, and other toys are subject to sales tax.
• Jewelry and Accessories – Items such as watches, bracelets, necklaces, and handbags are not exempt from sales tax.

Special Considerations

New Jersey also offers periodic sales tax holidays, during which certain taxable items (like back-to-school supplies) may be temporarily exempt. Additionally, exemptions may apply to medical and adaptive equipment, depending on the specific regulations.

Conclusion

If you’re shopping for gifts in New Jersey, understanding tax exemptions can help you save money. Clothing, groceries, and books are generally tax-free, while electronics, toys, and jewelry are taxable. Be sure to check state regulations for any updates or exemptions that may apply to your purchases.

In New Jersey, capital improvements to real property are generally exempt from sales tax. However, for the exemption to apply, the work must be permanent, add value to the property, and meet certain requirements set by the state. Additionally, homeowners must provide the correct exemption certificate to their contractor to avoid being charged sales tax.

What Qualifies as a Capital Improvement?

A capital improvement is any work that enhances the value or extends the useful life of a property. The improvement must be permanent, meaning it cannot be easily removed without causing damage. Common examples of capital improvements in New Jersey include:

• Installing a new roof
• Building an addition or deck
• Upgrading plumbing or electrical systems
• Installing new flooring (permanent, not removable carpet)
• Constructing a driveway or patio

The Importance of Form ST-8

To claim the sales tax exemption, the homeowner must complete and submit Form ST-8, the Certificate of Exempt Capital Improvement, to the contractor before work begins. This document certifies that the work qualifies as a capital improvement under New Jersey tax laws. Without this form, the contractor is required to collect sales tax on labor costs.

What Work Is Not Exempt?

While capital improvements are tax-exempt, certain types of work are still subject to sales tax, including:

• Repairs and maintenance (e.g., fixing a leaky pipe, repainting a room)
• Cleaning services
• Temporary or removable installations (e.g., carpet that is not glued down)

If a project includes both taxable repairs and exempt improvements, the contractor must itemize the costs separately. Only the capital improvement portion will be exempt from sales tax.

Final Thoughts

Capital improvements in New Jersey can qualify for a sales tax exemption, but homeowners must ensure their project meets the criteria and submit Form ST-8 to their contractor. Understanding these rules can help homeowners save money and ensure compliance with tax regulations.

New Jersey generally exempts most unprepared grocery items from sales tax, making it more affordable for residents to purchase essential food products. However, not all food items are tax-free. Certain prepared and specialty items remain taxable, and understanding these distinctions can help you shop smarter.

Which Groceries Are Exempt from Sales Tax?

Most basic, unprepared grocery items are not subject to New Jersey’s 6.625% sales tax. This includes:

• Fresh fruits and vegetables
• Meat, poultry, and seafood
• Dairy products like milk, cheese, and butter
• Bread, rice, and pasta
• Unprepared frozen foods

Since these are considered essential staples, the state does not impose a tax, helping consumers manage their grocery budgets more effectively.

Which Grocery Items Are Taxable?

Although many groceries are tax-exempt, there are exceptions, including:

• Prepared Meals – Any food sold hot, ready-to-eat, or requiring minimal preparation, such as deli sandwiches or rotisserie chicken, is subject to sales tax.
• Alcoholic Beverages – Beer, wine, and spirits are always taxed.
• Candy and Soft Drinks – Unlike other grocery items, sugary snacks and beverages, including soda, are taxable in New Jersey.
• Food from Restaurants and Takeout – Any meal purchased from a restaurant, fast-food chain, or cafe is considered prepared food and is therefore subject to sales tax.

Why Does New Jersey Have These Tax Rules?

New Jersey’s grocery tax policy is designed to ease the financial burden on consumers when purchasing essential food items. However, prepared foods and specialty items are taxed because they are seen as convenience or luxury purchases rather than necessities.

Final Thoughts

If you’re buying groceries in New Jersey, remember that most unprepared foods are tax-free, while prepared meals, candy, soft drinks, and alcohol are taxable. Understanding these distinctions can help you avoid unexpected costs at checkout and make better shopping decisions.

New Jersey is one of the few states in the U.S. that offers a sales tax exemption on most clothing and footwear. This tax-friendly policy benefits residents and visitors alike by making everyday apparel purchases more affordable. However, there are exceptions to this rule that shoppers should be aware of.

What Clothing Is Exempt from Sales Tax?

In New Jersey, most articles of clothing and footwear are not subject to the state’s 6.625% sales tax. This exemption includes:

• Everyday apparel such as shirts, pants, dresses, and socks
• Standard footwear like sneakers, boots, and sandals
• Baby clothing and diapers

Since clothing is considered a basic necessity, the state has chosen to relieve consumers of sales tax when purchasing these items.

What Clothing Is Still Taxable?

Despite the general exemption, certain types of clothing and related services are still subject to sales tax, including:

• Fur Clothing – Any apparel made from real animal fur or containing more than three times the value of the fur than other materials.
• Sporting Equipment – Items like ski boots, cleats, shoulder pads, and helmets are taxed because they are designed for specific sports rather than everyday use.
• Custom Tailoring Services – Alterations and customization, such as hemming or embroidery, are considered taxable services.

Why Does New Jersey Have This Policy?

New Jersey’s tax exemption on clothing is designed to help consumers save money on essential goods. It also attracts shoppers from neighboring states like New York, where most clothing purchases over $110 are subject to sales tax. As a result, New Jersey retailers often see an influx of customers looking to take advantage of these tax savings.

Sales Tax on Clothing

If you’re shopping for clothing in New Jersey, you can enjoy tax-free purchases on most items. However, be mindful of exceptions like fur clothing, sporting equipment, and tailoring services, which remain taxable. Understanding these rules can help you make more informed shopping decisions and maximize your savings.

New Jersey has specific tax exemptions that benefit consumers by reducing the cost of essential goods and services. Understanding these exemptions can help residents and businesses navigate the state’s sales tax regulations effectively. Below are some of the key tax-exempt items in New Jersey:

Clothing

One of the most significant exemptions in New Jersey is on clothing. Unlike many other states that impose sales tax on apparel, New Jersey exempts most clothing items, including shirts, pants, dresses, socks, and shoes. However, accessories such as jewelry, handbags, and certain protective sports equipment may still be taxable.

Groceries

Most grocery items are tax-exempt in New Jersey. This includes fresh produce, meat, dairy products, and non-prepared foods. However, certain snack foods, candy, soda, and prepared meals from restaurants or delis may still be subject to sales tax. This distinction is important for consumers when making grocery purchases.

Prescription Medications

All prescription medications are exempt from sales tax in New Jersey. This exemption applies to both over-the-counter drugs that require a prescription and medications purchased at pharmacies. This helps reduce healthcare costs for residents who rely on prescription drugs for medical treatment.

Medical Devices

Medical devices, including wheelchairs, prosthetic devices, hearing aids, and other essential medical equipment, are tax-exempt in New Jersey. This exemption ensures that individuals with medical conditions do not face additional financial burdens when purchasing necessary medical supplies.

Newspapers

Printed newspapers are another tax-exempt item in New Jersey. This exemption is designed to promote access to news and information, recognizing the importance of journalism and public awareness. However, digital subscriptions and magazines may still be subject to taxation.

Certain Services

While most services in New Jersey are taxable, some are exempt. For example, medical and legal services, educational services, and certain labor services related to the installation of tax-exempt goods are not subject to sales tax. Businesses and consumers should verify which services qualify for exemption to ensure compliance with state tax laws.

Conclusion

New Jersey’s tax exemptions provide financial relief to residents by making essential goods and services more affordable. By understanding which items are tax-exempt, consumers can make informed purchasing decisions while businesses can ensure proper tax compliance. For detailed tax guidelines, it’s always best to consult the New Jersey Division of Taxation or a tax professional.

Introduction

New Jersey is known for its 6.625% state sales tax, but did you know that many everyday items are exempt from this tax? Whether you’re a New Jersey resident looking to save money on essential goods or a business owner navigating tax exemptions, understanding what is and isn’t taxed can be crucial for managing expenses and staying compliant.

In this guide, we’ll break down the key sales tax exemptions in New Jersey, including clothing, groceries, capital improvements, and gifts. With a clear understanding of these exemptions, you’ll be able to save on your everyday purchases and ensure that your business is following the rules.

What Are Examples of Tax-Exempt Items in New Jersey?

In New Jersey, several categories of items and services are exempt from sales tax. Some common exemptions include:

• Clothing and Footwear (most everyday wear)
• Unprepared Groceries and Food Items
• Prescription and Over-the-Counter Medications
• Medical Equipment and Devices
• Newspapers and Magazines
• Capital Improvements (in specific cases)
• Certain Professional Services (e.g., legal, financial)

Let’s take a closer look at each category.

Is There No Sales Tax on Clothing in New Jersey?

Yes, New Jersey is one of the few states that doesn’t charge sales tax on most clothing and footwear. This exemption includes most types of everyday wear, such as shirts, pants, dresses, and shoes. However, there are exceptions:

• Fur clothing – Sales tax is applied to fur coats and other fur items.
• Sporting equipment – Items like cleats, helmets, and certain protective gear (e.g., work gloves or safety boots) are taxable.
• Custom tailoring services – While the clothing itself is tax-free, services like custom tailoring may still be taxable.

Are Groceries Taxed in NJ?

No, most unprepared food items are exempt from sales tax in New Jersey. Tax-free items include:

• Fresh fruits and vegetables
• Meat, poultry, and dairy products
• Bread, cereals, and snacks
• Canned and packaged goods

However, there are some exceptions:

• Prepared meals – Hot foods or food sold for immediate consumption (e.g., takeout meals) are taxable.
• Alcoholic beverages – Alcohol is always taxed in New Jersey.
• Candy and soft drinks – These can be taxable depending on their ingredients.

Are Capital Improvements Exempt from Sales Tax in NJ?

Yes, capital improvements are generally exempt from sales tax in New Jersey, but only under specific conditions. The work must meet the following criteria:

• It must be a permanent improvement that increases the value of the property (e.g., installing a new roof, central air conditioning, or a new driveway).
• The homeowner must provide the contractor with a completed Certificate of Capital Improvement (Form ST-8).

However, repairs and maintenance, such as replacing a water heater or fixing a door, are generally taxable.

What Gifts Are Non-Taxable in New Jersey?

In New Jersey, whether or not a gift is taxable depends on the type of gift itself, rather than the fact that it’s a gift. Tax-free gifts include items that are already exempt from sales tax, such as:

• Clothing
• Groceries
• Books and newspapers

On the other hand, gifts such as electronics, jewelry, and toys are taxable. Also, monetary gifts, like cash or gift cards, are not subject to sales tax—though there may be federal gift tax rules to consider for large amounts.

How to Claim a Sales Tax Exemption in New Jersey

Sales tax exemptions in New Jersey vary depending on whether you are an individual shopper or a business entity. Here’s how you can ensure you receive the correct exemption:

For Individuals

Most sales tax exemptions for consumers are automatically applied at the point of sale. This means that when you purchase tax-exempt items—such as clothing, groceries, prescription medications, or newspapers—you do not need to take any additional action.

However, there are a few key things to keep in mind:

• If you are charged sales tax on a tax-exempt item, check your receipt and ask the retailer for a refund. Retailers may occasionally misclassify products, especially in cases where taxable and non-taxable items are similar.
• Some products have partial exemptions based on their ingredients or use. For example, while most groceries are tax-free, certain beverages and candy may be taxable depending on their ingredients.

For Businesses or Specific Services

Businesses and service providers that qualify for a sales tax exemption must submit the appropriate exemption certificate to their suppliers. The type of certificate required depends on the nature of the exemption:

• ST-3 Resale Certificate – Used by businesses that purchase goods for resale. This prevents sales tax from being charged on wholesale purchases, ensuring that tax is only collected when the product is sold to the final consumer.
• ST-4 Exempt Use Certificate – Used by organizations that purchase products for specific exempt uses, such as manufacturing or research.
• ST-5 Exempt Organization Certificate – Used by non-profit organizations, charities, and religious institutions that qualify for a tax exemption.
• ST-8 Certificate of Capital Improvement – Used by contractors performing tax-exempt capital improvements on real estate. Homeowners must provide this certificate to contractors to ensure that labor costs are not taxed.

Steps to Properly Claim a Business Sales Tax Exemption

1. Determine Eligibility: Make sure your business qualifies for the exemption and that the product or service you are purchasing falls under the exemption rules.
2. Complete the Correct Form: Download the necessary sales tax exemption certificate from the New Jersey Division of Taxation website. Fill it out completely and accurately.
3. Provide the Certificate to the Seller: Submit the completed exemption certificate to your supplier at the time of purchase. Retailers and wholesalers will not automatically apply exemptions without this documentation.
4. Maintain Proper Records: Keep copies of all exemption certificates and related documentation for at least four years, as required by law. If audited, you must prove that your exempt purchases were legitimate.
5. Ensure Compliance: If you improperly claim an exemption, you may be liable for unpaid sales tax, penalties, and interest. Always verify that your purchases qualify under the exemption rules.

Conclusion

New Jersey’s sales tax exemptions help residents save on essential goods and services like clothing, groceries, medical items, and capital improvements. Consumers can shop strategically by understanding what’s tax-free, while businesses should ensure compliance by correctly applying the rules.

To make your shopping and business operations even smoother, download our NJ Sales Tax Exemption Cheat Sheet or consult a tax expert for advice on how to stay compliant.

FAQs:

What are examples of tax-exempt items in New Jersey?

Clothing, groceries, prescription medications, medical devices, newspapers, and certain services.

Is there no sales tax on clothing in New Jersey?

Correct! Most clothing and footwear are exempt, except for items like fur clothing, sporting equipment, and custom tailoring services.

Are groceries taxed in NJ?

Most unprepared groceries are exempt, but prepared meals, alcoholic beverages, candy, and soft drinks may be taxed.

Are capital improvements exempt from sales tax in NJ?

Yes, if the work is permanent and increases property value, and the homeowner provides the correct certificate to the contractor.

What gifts are non-taxable in New Jersey?

Gifts such as clothing, groceries, and books are tax-free. However, electronics, toys, and jewelry are taxable.

Receiving an inheritance can be a financial boost, but many beneficiaries wonder whether they will have to pay taxes on the money or assets they receive. The short answer is that inheritance itself is not federally taxable, but certain aspects of inherited assets—such as investment income—may be subject to taxation.

Federal Inheritance Tax

The IRS does not impose a federal inheritance tax, meaning heirs generally do not owe taxes simply for receiving money or property from a deceased person’s estate. However, some states impose their own inheritance taxes, which depend on the heir’s relationship to the decedent and the value of the inheritance.

State Inheritance Taxes

Only a few states levy an inheritance tax, including:

• Iowa
• Kentucky
• Maryland
• Nebraska
• New Jersey
• Pennsylvania

Each state has different tax rates and exemption thresholds, often favoring close family members with lower or no taxes. If you inherit from someone in one of these states, you may owe state inheritance tax depending on the amount received and your relationship to the deceased.

 

Taxes on Investment Income from Inherited Assets

While the inheritance itself is not taxable, any income generated from inherited assets is subject to federal and possibly state taxes. Examples include:

• Interest and dividends: If you inherit stocks, bonds, or savings accounts that generate interest or dividends, those earnings are taxable.
• Capital gains tax: If you sell inherited assets, such as real estate or stocks, you may owe capital gains tax. The good news is that inherited assets receive a step-up in basis, meaning the asset’s value is adjusted to its fair market value at the time of the decedent’s death. This often reduces capital gains tax liability.
• Retirement accounts: Inherited 401(k)s or IRAs (except Roth IRAs) are generally subject to income tax when withdrawn. Heirs must follow distribution rules that could impact their tax situation.

Conclusion

While you won’t owe federal inheritance tax, state inheritance taxes or taxes on investment income from inherited assets may apply. Understanding the tax implications of your inheritance can help you plan accordingly. Consulting a tax professional can ensure you make informed decisions and comply with tax regulations.

In New Jersey, the executor or estate administrator is typically responsible for filing an inheritance tax return when required. The state imposes an inheritance tax on certain beneficiaries who receive assets from a deceased person’s estate. Understanding who must file this return and under what circumstances is crucial for estate planning and compliance.

Who is Responsible for Filing?

The executor (if there is a will) or the estate administrator (if there is no will) is legally responsible for filing the New Jersey inheritance tax return. This individual manages the estate’s assets, settles debts, and ensures that any tax obligations are met before distributing the remaining assets to beneficiaries.

When is a NJ Inheritance Tax Return Required?

Not all estates need to file an inheritance tax return. A return is required if:

• The estate includes beneficiaries subject to the NJ inheritance tax (Class C, D, or E beneficiaries).
• The total inheritance received by these beneficiaries exceeds exempt amounts.

New Jersey categorizes heirs into different classes, determining whether they owe inheritance tax:

• Class A beneficiaries (spouse, children, grandchildren, parents, etc.) are exempt from NJ inheritance tax.
• Class C beneficiaries (siblings, sons/daughters-in-law) are taxed on amounts over $25,000.
• Class D beneficiaries (friends, distant relatives, or non-related individuals) are taxed at rates starting at 15%.
• Class E beneficiaries (charities, religious institutions, etc.) are exempt from inheritance tax.

 

Filing Deadlines and Process

The inheritance tax return (Form IT-R or Form IT-NR for non-residents) must be filed within eight months of the decedent’s date of death. The executor must calculate tax liability, report distributions to beneficiaries, and ensure timely payment to avoid penalties.

Conclusion

The responsibility of filing a New Jersey inheritance tax return falls on the executor or estate administrator when applicable. Understanding the state’s tax classifications, deadlines, and exemptions helps ensure compliance and avoid legal complications. If you’re handling an estate in New Jersey, consulting a tax professional can provide valuable guidance.

Many people assume that New Jersey has eliminated its inheritance tax, but this is not the case. While NJ abolished its estate tax in 2018, it still imposes an inheritance tax on certain beneficiaries. Understanding the difference between these taxes and who is affected is crucial for estate planning.

The Difference Between Estate Tax and Inheritance Tax

• Estate tax is a tax on the total value of a deceased person’s estate before distribution to heirs. NJ eliminated its estate tax as of January 1, 2018.
• Inheritance tax is a tax imposed on certain beneficiaries based on their relationship to the deceased. This tax remains in effect in New Jersey.

Who Pays NJ Inheritance Tax?

NJ classifies beneficiaries into different groups, determining whether they owe inheritance tax:

• Class A Beneficiaries – Exempt from inheritance tax. Includes:
  • Spouses
  • Domestic partners
  • Parents
  • Grandparents
  • Children (including stepchildren and adopted children)
• Class C Beneficiaries – Taxed at rates between 11% and 16% but with a $25,000 exemption. Includes:
  • Siblings
  • Sons-in-law and daughters-in-law
• Class D Beneficiaries – Taxed at 15% or 16%. Includes:
  • Nieces, nephews, cousins, friends, and non-relatives
• Class E Beneficiaries – Exempt from inheritance tax. Includes:
  • Charities, religious institutions, and tax-exempt organizations

 

NJ Inheritance Tax Rates

• 0% for Class A and Class E beneficiaries
• 0% on the first $25,000 for Class C beneficiaries
• 11%-16% for Class C and D beneficiaries, depending on the amount inherited

How to Reduce Inheritance Tax in NJ

Since inheritance tax is still in effect, careful estate planning can help minimize its impact. Strategies include:

• Gifting assets before death (outside the three-year lookback period)
• Setting up trusts
• Naming tax-exempt beneficiaries, such as charities or Class A heirs

Final Thoughts

While New Jersey eliminated its estate tax, inheritance tax is still in place for certain beneficiaries. Understanding who is taxed and at what rate can help individuals plan their estates more effectively. Consulting an estate planning attorney can help ensure the most tax-efficient strategy.

New Jersey imposes an inheritance tax on certain beneficiaries, with rates ranging from 11% to 16%. However, strategic planning can help reduce or eliminate this tax burden. Here are some effective ways to minimize inheritance tax in NJ.

1. Gifting Assets During Your Lifetime

One of the simplest ways to reduce inheritance tax is by gifting assets while you’re alive. New Jersey does not impose a gift tax, but gifts made within three years of death may still be subject to inheritance tax unless given to tax-exempt beneficiaries.

2. Setting Up Trusts

Trusts can be an effective way to manage and transfer wealth while reducing tax liabilities. Some useful trust options include:

• Irrevocable Trusts – Assets placed in an irrevocable trust are removed from your estate, avoiding inheritance tax.
• Life Insurance Trusts – A properly structured life insurance trust can ensure that life insurance proceeds remain tax-free.

3. Favoring Tax-Exempt Beneficiaries

Certain beneficiaries are completely exempt from New Jersey inheritance tax. These include:

• Spouses and domestic partners
• Children, stepchildren, and grandchildren
• Parents and grandparents
• Charitable organizations

 

4. Making Charitable Donations

Donating a portion of your estate to charity can reduce the taxable value of your inheritance. Since charities are considered Class E beneficiaries, they are exempt from inheritance tax, making charitable giving a tax-efficient strategy.

5. Structuring Business Succession Plans

If you own a business, structuring a proper succession plan can help minimize tax implications. Transferring business interests through buy-sell agreements or family limited partnerships can be advantageous.

6. Using Life Insurance as a Tax-Free Benefit

Life insurance proceeds paid directly to a named beneficiary are not subject to NJ inheritance tax. Consider using life insurance as a means to transfer wealth without tax liability.

Final Thoughts

Proper estate planning is key to avoiding or minimizing inheritance tax in New Jersey. Consulting with an estate planning attorney or tax professional can help you implement the right strategies for your financial situation.