On October 4, 2018, New Jersey Governor Phil Murphy signed Assembly Bill 4496 (Bill) into law, imposing a sales tax collection requirement on remote sellers with no physical presence nexus with New Jersey. The Bill adopts an economic nexus standard similar to the South Dakota provision that was the subject of the U.S. Supreme Court's ruling in South Dakota v. Wayfair, as well as marketplace facilitator provisions. Provisions of the Bill take effect November 1, 2018.

The Bill imposes the collection requirement on remote sellers that sell tangible personal property, services and specified digital products reported to New Jersey destinations exceeding $100,000, or with 200 or more separate transactions in the state, in any one calendar year. The Bill further provides for a one-year trailing requirement to collect tax if one of the two thresholds was met in the prior year. The Bill does not include limiting language from an earlier version of the Bill, which would have required at least one sale of tangible personal property per year into the state. The exclusion of this language expands the scope of the Bill to entities selling only services and specified digital products.

Marketplace facilitators are defined as entities that facilitate retail sales of items taxable in New Jersey. To qualify as such, an entity must fall under at least one category on each of two statutory lists. The first list includes, for example, entities that run an online forum for sales, provide a marketplace for sales, advertise sales, provide software or intellectual property for the sales forum, or provide related fulfillment or storage, among others. The second list includes entities that collect or transfer the sales price or other fees, process payments, or provide virtual currencies. The marketplace facilitator is only relieved of the requirement to collect tax if the third party has failed to provide correct information about sales despite the marketplace facilitator's reasonable efforts. Finally, the Bill clarifies that regular and online travel agencies are not transient space marketplaces and are thus not required to collect or remit sales use tax or any hotel tax for sales made through their platforms.

Implications

The New Jersey Division of Taxation (the Division) has stated that the obligation of out-of-state sellers with no physical presence nexus to collect sales tax will only apply prospectively, starting on November 1, 2018 (note, the Division initially stated an October 1 collection start date, but revised the date to November 1 to conform to the Bill). It remains to be seen what regulations the Division will implement and how the specific details of the obligation to collect will be implemented.

The definition of marketplace facilitator could result in entities besides the main forum being liable for the collection of sales tax. For example, an entity that provides virtual currency for orders and fulfills or provides storage for those orders made with the virtual currency, or a payment processor that also provides related software development, would meet at least one category of each of the two tests, making them liable to collect the tax. The Division has suggested that it will issue further guidance on this topic in the future.

Finally, it appears that the Division will only apply the marketplace facilitator collection requirement if the marketplace facilitator meets the $100,000 in sales or 200 transactions. The requirement of a marketplace facilitator meeting the threshold to collect tax applies regardless of whether each third-party seller using the marketplace meets the threshold or not.

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