When it comes to New Jersey tax credits and incentives, many are familiar with the Grow New Jersey, Economic Redevelopment and Growth grant and Angel Investor Tax Credit programs. However, an area that is often over-looked is that of sales tax exemptions—specifically for manufacturing, processing, telecom and research and development activities. And these benefits can be substantial and taken advantage of while receiving other discretionary tax incentives offered by the New Jersey Economic Development Authority.
In general, sales tax is imposed on sales of tangible personal property and certain specified services that are not purchased for resale. If sales tax is not collected on an otherwise taxable sale because the seller is not based in New Jersey and there is no available exemption from tax, the purchaser must report and pay use tax to the state, which is equivalent to the state sales tax. The current sales/use tax rate in New Jersey is 6.625 percent.
When a business is incurring additional capital investment in the state, whether as an equipment/facilities upgrade or a potential site expansion or relocation, it can avail itself of certain exemptions that allow the business to make tax-free purchases of certain property and equipment.
Specifically, N.J.S.A. 54:32B-8.13a. provides an exemption for sales of machinery, equipment or apparatus used directly and primarily in the production of property by manufacturing, processing, assembling or refining. This exemption also applies to leases and rentals of such equipment and machinery. The exemption only applies to said items that are used in the production process and not before the process starts or after the product is in the form in which it will be sold to the ultimate consumer. N.J.A.C 18:24-4.4.
Additionally, the machinery or equipment must be used more than 50 percent of the time directly in the manufacturing, processing, assembling or refining process. Id. Also included within the exemption are vessels, pumps, mixers, pipe valves, fittings and replacement parts with a useful life greater than one year.
Similarly, N.J.S.A. 54:32B-8.13c. provides an exemption for telecom equipment sold to a provider subject to the jurisdiction of the Board of Public Utilities or Federal Communications Commission used directly and primarily in receiving, transmitting, and switching telephone, telegraph or interactive telecom services for sale to the general public. The exemption covers telephones, telephone lines, cables, central office equipment or station apparatus, or other machinery, equipment or apparatus. Furthermore, in guidance from the Division of Taxation, software has been included within the scope of machinery, equipment and apparatus for both exemptions.
For businesses engaged in significant R&D, there is a sales/use tax exemption for sales of tangible personal property for use or consumption directly and exclusively in R&D in the experimental or laboratory sense as long as the property is not used for ordinary testing, quality control, surveys, studies and promotions etc. N.J.S.A. 54:32B-8.14.
Finally, these exemptions do not require prior approval or completing a lengthy application or study. These benefits are available by simply providing the seller with the requisite exemption certificate—Form ST-4.
Whether your business is upgrading equipment, moving to a new location, or expanding its current site, these exemptions can lead to meaningful savings on top of an award of tax credits or grants under the programs administered by the Economic Development Authority.