New Jersey Urban Enterprise Zone Changes on the Horizon

For decades, qualified businesses based in New Jersey’s Urban Enterprise Zones (“UEZ”) have not seriously considered the sales tax ramifications for most purchases, aside from utilities and telecom. This is due to the sales tax exemption available to qualified businesses on most purchases used in the business based in the UEZ. Beginning in 2022, this paradigm is about to change under new legislation.

On August 16th, Acting Governor Sheila Oliver signed into law the UEZ Reform Bill. The new law makes two significant changes involving certified UEZ businesses:

• The business to business sales tax exemption will now be capped at the first $100,000 of purchases;
• A 10-year limit on UEZ business certification, with businesses certified prior to the effective date of the bill to lose certification at the end of the tenth state fiscal year following the effective date of the bill.

The above changes mean that beginning on or after January 1, 2022, UEZ businesses will only be able to purchase tangible property or taxable services without paying sales tax on up to $100,000 of purchases. There is an exception to this limitation for grocery stores and supermarkets located in food desert communities.

The $100,000 limitation also applies to materials and supplies purchased by contractors performing construction on the real property of UEZ businesses, unless there are “substantial improvements, alterations or repairs,” which means that the cost of the work done must equal or exceed 50 percent of the market value of the structure before the start of construction.

UEZ municipalities include: Asbury Park; Bayonne; Bridgeton; Camden; Carteret; East Orange; Elizabeth; Gloucester City; Guttenberg; Hillside; Irvington; Jersey City; Kearney; Lakewood; Long Branch; Millville; Vineland; Mount Holly; Newark; New Brunswick; North Bergen; Orange; Passaic; Paterson; Pemberton; Perth Amboy; Phillipsburg; Plainfield; Pleasantville; Roselle; Trenton; Union City; Vineland; West New York; and Wildwood.

A copy of the legislation and press release can be found here:

• Legislation
• Press release
  
  

If you have any questions regarding New Jersey’s Urban Enterprise Zone changes, please contact your Citrin Cooperman advisor or State and Local Tax Principal Jaime Reichardt at jreichardt@citrincooperman.com or 215.545.4800 x4520.