New Jersey: Sales Tax on Rentals and Leases
- Oct 8, 2014 | Gail Cole
The rental and lease of most tangible personal property is subject to sales and use tax in New Jersey, and the duration of the rental/lease period impacts the collection/remittance of sales tax.
The lessor must collect from the renter sales tax on the short term rental or lease (periods of six months or less) of property. Each rental payment is subject to tax and the payment is due with the leasing agency’s next sales and use tax return.
For long term rentals (periods of more than six months), the accelerated payment of sales tax is required. The lessor must collect and remit sales tax on the rental, calculating it using either the original purchase price method or the total lease payments method. Either way, the full amount of tax is due up front. An explanation of both methods and examples are provided in the New Jersey Division of Taxation Leases and Rentals bulletin.
The Division of Taxation treats open-ended rentals as short-term rental agreements and “no accelerated collection is required.”
Generally, any item that is exempt from sales tax when purchased in full is exempt from sales tax when leased or rented. An exemption certificate (properly completed by the buyer/lessee and remitted to the lessor) is required to validate the exemption.
Certain property is exempt from sales and use tax “when rented/leased for a particular purpose.” Tax is due when the property is used for other purposes.
Exempt organizations may rent or lease property tax-free when the lessee provides a properly completed Exempt Organization Certificate (Form ST-5) to the renter/lessor.
New Jersey property rented or leased by an out-of-state lessee and then taken out of state is exempt from New Jersey sales tax provided it is not used in New Jersey.
Property leased or rented out-of-state and then brought into New Jersey for use is subject to New Jersey sales and use tax. Documented taxes paid to another state may be credited against the New Jersey tax due.
Additional information, including how tax on rentals applies to qualified businesses located in urban enterprise zones, is available in the bulletin.
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