New Jersey issued new guidance on changes to Urban Enterprise Zone program that goes into effect on January 1, 2021. The UZ-4 (contractor) and UZ-5 (business) exemption certificates are used by contractors and businesses, respectively, to make tax-free purchases of purchases of services and tangible personal property. In 2022, the amount of exempt purchases will be limited to the first $100,000 in taxable purchases at the UEZ location. There are two exceptions to the exemption limitations enacted by New Jersey. The caps will not apply to 1) purchases by a grocery store or supermarket in a food desert community; and 2) purchases of construction materials, supplies and services by a contractor when erecting new structures or substantially improving, altering or repairing a qualifying property.

The New Jersey Division of Taxation, in its notice on the UEZ changes, informed UEZ businesses of its intent to scrutinize the use of the UZ-4 and UZ-5 exemption certificates. Businesses located in and utilizing the sales tax benefits of the UEZ program should take measures to ensure proper tracking and reporting of the $100,000 limitations. The Division of Taxation indicated that taxpayers will be responsible for sales/use tax as well as penalty and interest if they exceed the annual purchase limitations. Please contact HBK’s SALT Advisory group at HBKSalt@hbkcpa.com with questions.