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.
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.
Software taxation rules
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.
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.
Does New Jersey plan to tax SaaS?
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.
Are digital goods taxed 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.
How SaaS taxation affects providers operating in multiple states
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.
- Physical nexus: A business with a physical presence in a state or local jurisdiction, such as offices, employees, contractors, inventory, or other property, is said to have physical nexus there.
- Economic nexus: When a business meets certain revenue or transaction thresholds in a state, it is said to have economic nexus there. In New Jersey, economic nexus is established when a remote seller reaches $100,000 in gross revenue or 200 separate transactions in the current or previous calendar year. Note that New Jersey is considering removing its 200 transaction threshold in 2025.
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.
How SaaS companies can stay compliant nationwide
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:
- Register: Many states require companies that establish nexus in the state to register for a sales tax license. In New Jersey, this can be done through the state’s official website.
- Calculate: SaaS companies will need to calculate the different tax levels for each area their customers reside in. This can include determining the state tax and any additional taxes that a local jurisdiction, such as a county, city, or parish, may include.
- Collect: Once the correct tax rate has been calculated, companies will need to collect the right amount from customers at the time of sale. For SaaS providers, this can involve adding taxes to new subscriptions, renewals, and any additional services or features.
- File: Companies must file regular sales and use tax returns. The frequency (typically monthly, quarterly, or yearly) will be determined by the state. For example, in New Jersey, quarterly sales and use tax returns are due before 11:59 p.m. on the 20th day of the month after the end of the filing period.
- Remit: Providers will need to remit (or pay) taxes when they file their returns. In New Jersey, this can be done through the Division of Taxation’s Online Filing and Payments portal.
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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New Jersey compliance resources
The New Jersey state government provides a variety of resources to help companies stay compliant, such as:
- New Jersey Division of Taxation Official Website
- Business.NJ.gov, which offers information and a tax filing portal
- The New Jersey Business & Industry Association (NJBIA), which provides taxation news and updates
You can also reach the New Jersey Department of Taxation by scheduling a telephone appointment.
The bottom line
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.
