Note: Updated information is contained in Publication ANJ-27
P.L. 2011, Chapter 49 revises the New Jersey Sales and Use Tax Act (N.J.S.A. 54:32B-1, et. seq.) to conform with various provisions of the Streamlined Sales and Use Tax Agreement (SSUTA). As a result of these amendments, technical and substantive changes to the Sales and Use Tax Act take effect on May 1, 2011. The following are the changes created by P.L. 2011, Chapter 49.
Specified Digital Product
Effective October 1, 2006, the Sales and Use Tax Act imposed tax on “digital property” which was defined as electronically delivered music, ringtones, movies, books, audio and video works and similar products, where the customer was granted a right or license to use, retain or make a copy of such item. N.J.S.A. 54:32B-2(vv); N.J.S.A. 54:32B-3(a).
For purposes of compliance with the SSUTA, the law removes the definition of, and eliminates references to, “digital property” and replaces it with “specified digital product”.
- “Specified digital product” is defined as “an electronically transferred digital audio-visual work, digital audio work, or digital book; provided however, that a digital code which provides a purchaser with a right to obtain the product shall be treated in the same manner as a specified digital product.” N.J.S.A. 54:32B-2(zz). The new law amends N.J.S.A. 54:32B-3(a) to specifically impose tax on “specified digital product”.
- “Digital audio-visual work” means a series of related images which, when shown in succession, impart an impression of motion, together with accompanying sounds, if any. N.J.S.A. 54:32B-2(aaa).
- “Digital audio work” means a work that results from the fixation of a series of musical, spoken, or other sounds, including a ringtone. N.J.S.A. 54:32B-2(bbb).
- “Digital book” means a work that is generally recognized in the ordinary and usual sense as a book. N.J.S.A. 54:32B-2(ccc).
- “Transferred electronically” means obtained by the purchaser by means other than tangible storage media. N.J.S.A. 54:32B-2(ddd).
- “Ringtone” means a digitized sound file that is downloaded onto a device and that may be used to alert the purchaser with respect to a communication. N.J.S.A. 54:32B-2(eee).
The replacement of “digital property” with “specified digital product” technically modifies but does not substantively affect the taxability of electronically transferred music, movies, books, and certain other goods previously subject to sales and use tax.
In order to maintain the tax treatment in effect since October 1, 2006 within the parameters of the SSUTA, the law creates other ancillary changes, namely:
The law states that specified digital products are subject to tax regardless of whether the sale of the product is for permanent or less than permanent use and regardless of whether continued payment for the product is required. N.J.S.A. 54:32B-3(a). Since the definition of “sale” includes “any transfer of title of possession… license to use or consume, conditional or otherwise, in any manner or by any means whatsoever for a consideration…”, this amendment was necessary to maintain the current tax treatment within the parameters of the SSUTA.
The law states that a digital code which provides a purchaser the right to obtain the product will be treated as a specified digital product for purposes of taxation. N.J.S.A. 54:32B-2(zz).
The law adds the following language to the definition of “resale”: a sale “to a person who receives by contract a product transferred electronically for further commercial broadcast, rebroadcast, transmission, retransmission, licensing, relicensing, distribution, redistribution or exhibition of the product, in whole or in part, to another person, other than rights to redistribute based on statutory or common law doctrine such as fair use.” N.J.S.A. 54:32B-2(e)(1)(D). This amendment was necessary in order to emphasize that sales of specified digital products are only taxable to end-users since sales for resale are excluded from tax.
The law creates a new statutory exemption for all video programming services, including video on demand television services, and broadcasting services, including content to provide such services to ensure that sales of those services are not taxable as specified digital products. Note that the previous “digital property” definition excluded these services, so this exemption was added to the Act in order to maintain the same tax treatment that has been in effect since October 1, 2006.
The law provides a new statutory exemption for specified digital products that are accessed but not delivered electronically to the consumer. New Jersey does not tax digital property that is simply streamed or uploaded temporarily to a consumer to allow access to digital content. However, “specified digital products” includes electronically transferred digital audio-visual works, digital audio works, and digital books, where “transferred electronically” means obtained by the purchaser by means other than tangible storage media. Since the SSUTA definition of “transferred electronically” is intended to include instances where specified digital products are streamed or uploaded, the new statutory exemption was added to the Act to ensure that access alone is not used to determine the taxability of specified digital products. This exemption was added to maintain the same tax treatment that has been in effect since October 1, 2006.
Relief from Liability of Tax for Rate Changes
SSUTA provisions that relieve sellers from liability due to changes in the sales and use tax rate are incorporated into the Sales and Use Tax Act. N.J.S.A. 54:32B-14(i). The Director of the Division of Taxation may not hold a seller liable for failure to collect tax that may be due at a new tax rate, if the Director provides less than 30 days between the date a change in rate is enacted and the date that change takes effect. The relief from liability is limited, however, in that the Director is not required to provide relief in instances where the seller collected the tax at a rate other than the immediately preceding tax rate and where the seller’s failure to collect the tax at the new rate extends more than 30 days after the new rate is enacted. Moreover, the Director is not required to provide relief if the Director establishes that a seller fraudulently failed to collect tax due at the new rate or that the seller solicited purchasers based on the immediately preceding effective tax rate. N.J.S.A. 54:32B-14(k).
The law replaces references to the term “vendor” with the defined term “seller” where previous amendments to the Act did not already do so.
The law removes “charges for installation” from the definition of “sales price” since a separate imposition section specifies that installation services are subject to tax, regardless of how “sales price” is defined. N.J.S.A. 54:32B-2(oo)(1); N.J.S.A. 54:32B-3(b).
E-mail us questions concerning the information in this Notice. The SSUTA’s Rules and Procedures are available at: www.streamlinedsalestax.org.