NJ Urban Enterprise Zone (UEZ) Limitations

NJ Urban Enterprise Zone (UEZ) LimitationsNew Jersey issued new guidance on changes to Urban Enterprise Zone (UEZ) 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.

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Urban Enterprise Zone caps do not apply to:

1) Purchases by a grocery store or supermarket in a food desert community

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.

About the Author

Matt Dodge is a member of the HBK Tax Advisory Group with a focus on State and Local Tax (SALT) issues with a focus on sales/use tax. Matt has vast experience in the construction, oil & gas, manufacturing,
retail, service provider and transportation industries. He can be reached at 724-934-5300, or by email at mdodge@hbkcpa.com.