New Jersey – Good Faith Policy and the Acceptance of Exemption Certificates

SALT Report 1130 – The New Jersey Division of Taxation has issued a sales and use tax bulletin that discusses the division’s policy on good faith, as revised by the Streamlined Sales and Use Tax Agreement, and its use in the acceptance of exemption certificates.

Based on recent revisions to the SST Agreement, “good faith” is no longer applicable at the point of purchase.  In other words, sellers are relieved from the taxes due so long as the seller obtains a fully completed exemption certificate or receives the relevant data required under the SST Agreement within 90 days of the sale. Good faith is now only a factor during an audit situation.

As of October 1, 2011, the rules in an audit situation have changed, specifically, in circumstances where the seller either has not obtained an exemption certificate or the seller has obtained an incomplete exemption certificate.  In either situation, the seller will now have at least 120 days from the division’s request for verification of the claimed exemption to either:

(1) Obtain a fully completed exemption certificate from the purchaser, that

  • Was available on the date of the transaction
  • Is applicable to the item being purchased
  • Is reasonable for the purchaser’s type of business; or

(2) Obtain additional supporting information establishing that the transaction was not subject to tax.

If the seller obtains the additional information, the seller is now relieved of any liability for the tax on the transaction unless it is discovered that the seller had knowledge that the information relating to the exemption was false, or the seller knowingly participated in activity intended to evade the tax that is due on the transaction.

The burden is now on the division to establish that the seller had knowledge or had reason to know at the time the information was provided that the information was false.

For Further Information:

New Jersey Division of Taxation Technical Bulletin TB-66