No, according to the New Jersey Tax Division, cloud-computing services—including SaaS (software as a service)—are generally not subject to sales and use tax. An exception is when they are classified as information services.
| SaaS | |
|---|---|
| Digital Goods | |
| Confused? | Talk to us -> |
| Sales | $100,000 |
|---|---|
| Transactions | 200 |
| Physical? |
| New Jersey | 6.63% |
|---|---|
| Average Total Rate | 6.63% |
| Local Rates Apply |
For taxable goods and services, the statewide sales and use tax rate in New Jersey is 6.625%, with no additional local sales tax allowed by the state.
This article examines sales and use tax regulations in New Jersey and how you can make sure your business stays compliant. And although SaaS is currently not taxable in New Jersey, many digital products are subject to sales tax.
New Jersey’s SaaS taxation rules are laid out by the New Jersey Sales and Use Tax Act and clarified by Technical Bulletin 72, which was issued on July 3, 2013. The state classifies SaaS as software that is accessed remotely but that the customer does not download or own. The bulletin also states that because SaaS doesn’t qualify as tangible personal property, it is considered a service and, therefore, not taxed. For this reason, SaaS companies don't have to file sales tax in NJ.
However, the bulletin does emphasize that information services may be taxed, even if they involve cloud computing. New Jersey defines information services as “the furnishing of information of any kind, which has been collected, compiled, or analyzed by the seller and provided through any means or method, other than personal or individual information which is not incorporated into reports furnished to other people.” Any companies that provide these types of services will likely need to collect taxes and remit the funds to the state. These rules apply both to companies that provide business-to-business (B2B) services and to companies that provide business-to-customer (B2C) services.
While the New Jersey state government has yet to announce official plans to tax SaaS, research commissioned by the New Jersey Division of Taxation indicated that New Jersey “should review its software tax policies.” Conducted by the Bloustein School of Planning and Public Policy, the study suggested that the state may want to consider the context of contemporary software practices and the growth of the SaaS market. While nothing is confirmed, this could open SaaS to future taxation in New Jersey.
Some types of digital goods are subject to tax in New Jersey, including electronically transferred digital audio works (such as music and spoken word), digital audio-visual works, and digital books. Other types of digital products are not considered taxable, including those that relate to streaming platforms, such as video-on-demand television services, video programming services, and broadcasting services.
Currently, about half of U.S. states tax SaaS, and tax laws change frequently. So monitoring tax regulations in all fifty states is essential. The place to start is determining whether you have nexus in a state.
There are two kinds of nexus: physical and economic.
Establishing nexus in a state means that you are required to collect and remit taxes on taxable goods. In New Jersey, SaaS is generally not taxable unless classified as an information service. But as previously mentioned, tax regulations vary from state to state. To stay compliant and avoid penalties and other serious consequences, SaaS companies need to keep up-to-date on tax laws in places where they do business.
Since New Jersey doesn't charge sales tax on SaaS, you don't have to worry about NJ nexus rules if that is all you sell.
There are numerous rules that SaaS and digital goods companies must follow in order to stay compliant. While the process varies a bit from state to state, it typically follows these five steps:
Failure to complete these steps correctly can result in penalties or fines, a requirement to pay interest on unpaid taxes, and a higher potential for audits. For companies seeking to avoid these consequences, software solutions like Numeral can help by automating key processes such as calculations, filings, and remittances.
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The New Jersey state government provides a variety of resources to help companies stay compliant, such as:
You can also reach the New Jersey Department of Taxation by scheduling a telephone appointment.
In New Jersey, SaaS products are typically exempt from sales and use tax, with the exception being products that are classified as “information services.” Companies that operate in multiple states may still be subject to sales tax, so it’s important to stay updated on tax law and current compliance rules. Tax management platforms like Numeral can help simplify the compliance process when used alongside resources provided by state and federal agencies.
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