Many foreign sellers may sell their products or services remotely to customers based in New Jersey. However, they may be wondering at what point they need to register and file a sales tax return in New Jersey.
Sales tax returns should be filed by the 20th of the month following the reporting period. New Jersey requires an extra business day to process payments, so the “payment” is due a day before the filing date.
If a foreign seller has an economic nexus with New Jersey, they usually need to register, collect, and pay New Jersey sales tax. After registering, the seller should file sales tax returns as required by the New Jersey Division of Taxation. Depending on their tax liability and reporting needs, returns might be due monthly, quarterly, or yearly.
If a foreign seller has no economic nexus or other sales tax connection with New Jersey, they usually do not need to register, collect, or pay New Jersey sales tax.
There may be situations in which a foreign seller collects sales tax but purposely does not remit it to the state of New Jersey. Next, let’s understand what will happen if the foreign seller collects the sales tax and purposely does not remit it to the state of New Jersey.
In New Jersey, anyone who collects Sales Tax from customers does so as a trustee on behalf of the State. All tax collected, including amounts in excess of the required tax (calculated by multiplying the amount of the taxable receipts by the Sales Tax rate), should be periodically remitted to the State with the appropriate Sales and Use Tax return. Under the law, business owners, partners, corporate officers, and some employees may be personally liable to the State for failure to collect Sales Tax when required or to file a return and remit any tax when due. Penalties and interest are imposed for such violations.
Penalties, Interest, and Collection Fees:
When a quarterly return or monthly remittance statement is filed after its due date, or if tax is paid late, penalties and interest will be applied as follows:
Late Filing Penalty: A late filing penalty of 5% per month (or part of a month) will be assessed on the balance of the tax liability due as of the original return due date, up to a maximum of 25% of that tax liability. Additionally, a penalty of $100 per month (or part of a month) will be imposed for each month the return is late.
Late Payment Penalty: A late payment penalty of 5% of the outstanding tax balance may also be applied.
Interest: An interest rate of 3% above the prime rate will be charged for every month (or part of a month) that the tax remains unpaid, compounded annually. At the end of each calendar year, any outstanding tax, penalties, and interest will be added to the balance on which interest is calculated.
Collection Fees: If your tax bill is sent to a collection agency, an additional referral cost recovery fee of 10.7% of the tax due will be added to your liability. Furthermore, if a certificate of debt is issued for your unpaid liability, additional collection fees may also be imposed.
Criminal Penalties
Criminal penalties for sales tax are some of the most severe tax penalties that exist. Essentially, if you knew you owed sales tax and you didn’t pay it, then criminal liabilities could apply.
New Jersey’s categories that are used for grading criminal offenses are distinct from those of most jurisdictions. For example, the majority of states grade offenses as either felonies or misdemeanours and then have several levels further contained within each. The most serious crimes are charged as first-degree offenses in New Jersey. The least serious category is a disorderly person offense–those that are unlikely to result in a jail sentence.
In New Jersey, failing to pay sales tax is categorized as a disorderly persons offense if the failure occurs due to recklessness or negligence (N.J.S.A. 54:52-9).
If the failure to pay sales tax is done with the intent to evade, it is considered a third-degree crime. A third-degree crime in New Jersey is classified as a felony and can result in a jail sentence of up to five years, along with a fine of up to $15,000.
If an individual fails to remit $75,000 or more in collected tax, this is classified as a second-degree crime. A second-degree crime in New Jersey carries a penalty of 5-10 years in prison and fines of up to $150,000.
Generally, New Jersey sales tax applies when a buyer takes possession of taxable goods in New Jersey. For this reason, a sales tax refund is usually not available simply because the buyer later takes the goods out of the United States.
For example, if a foreign visitor purchases taxable goods from a store in New Jersey and picks them up in-store, New Jersey sales tax will generally apply. Even if the visitor later carries the goods to another country, the sales tax is typically not refundable.
However, sales tax generally does not apply if the retailer ships the goods directly to an address outside the United States. In this situation, the buyer cannot take possession of the goods in New Jersey, and the retailer arranges the international shipment.
Therefore, if a foreign buyer has goods shipped directly to their home country, New Jersey sales tax generally will not apply because the buyer did not take possession of the goods in the state.