In post-Hurricane Sandy months, residents along the New Jersey coastline should be concentrating on important things such as family and putting their homes and lives back in order. The last thing they should be spending their time worrying about is sales and use tax.
New Jersey residents, however, may be able to take advantage of certain provisions in the state’s sales and use tax when it comes to being excused from paying taxes for tangible personal property and services associated with disaster recovery efforts.
Disasters are costly and the people in New Jersey have paid – emotionally, mentally, physically and financially – so I would like to share some sales and use tax tips to help them understand what their rights are as New Jersey disaster victims.
In general, state residents are required to pay a 7 percent tax for every retail purchase of tangible personal property. In addition, the 7 percent tax must be paid for purchases related to maintaining, servicing or repairing real property.
Exemption for the tax may be applied if the purchase is made for capital improvement, which the state defines as an installation of tangible personal property that results in an increase of the capital value of real property or a significant increase in the useful life of property.
Hurricane or no hurricane, exempt capital improvements exist for New Jersey residents who increase the value of their property or extend its useful life. For example, the installation of new countertops would be exempt since it increases the value of the home.
How can Sandy-victims benefit from this exemption? First of all, residents who suffered severe damage to their property are able to hire a contractor to demolish any remains that are unsalvageable without paying the 7 percent service tax. Homeowners are also allowed to hire contractors to rebuild their garages with the tax exemption.
Residents along the coast whose homes were flooded are now experiencing mold problems. Mold issues are a little tricky. Exempt capital improvement may be applied to inspection for mold. In addition, the removal and replacement of all the walls and insulation is an exempt capital improvement. However, the exemption does not apply towards mold remediation services or mold removal services (spraying walls to treat mold) because these are technically the servicing of real property.
Services can be exempt if used on brand new property. For instance, if a homeowner’s deck was completely destroyed and a new one was built, the initial painting or staining of the deck would not require the 7 percent tax since it is a new deck. The same theory would apply to a new generator. Homeowners do not have to pay a service tax for a contractor to install a brand new generator because it will be permanently affixed to the property.
After Hurricane Sandy hit, many insurance companies are requiring homeowners to lift their homes to a certain elevation. Exempt capital improvement may certainly be applied to this service, meaning homeowners do not need to pay a 7 percent sales tax for the service.
With so many tax exemptions for Hurricane Sandy victims to take advantage of, I strongly encourage residents to take extra caution when determining what qualifies as an exemption and what does not. There are many similar types of purchases for tangible property and maintenance and service that do NOT qualify for the exemption.
An important service that is not exempt is debris removal. That means if a contractor is hired to haul away large branches, the property owner must pay the 7 percent sales tax. The only exception to this rule would be the removal of a fallen tree stump and roots – this service is not subject to tax.
The purchase of materials or supplies intended for the reconstruction of damaged property is not exemptible either. Therefore, any items bought for repairing a damaged deck or porch will be taxed. The same goes for shingles installation if roof shingles were damaged by the storm.
Many victims suffered serious damage to the inside of their homes. Unfortunately services like carpet cleaning, new floor covers or even payment for water and sand removal are not exempt and homeowners are still required to pay the tax. Any work done to restore damaged furniture is taxable as well.
In addition, repainting and pressure washing services are also subject to the 7 percent sales tax.
Contractors who are hired to work on disaster sites may benefit from exempt capital improvement as well. In general, anyone who has been hired to construct on a property must pay tax on all of the materials and supplies that are involved with the project. However, there are circumstances, such as constructing a new detached garage, that exempt the customer from being charged sales tax on the cost of the materials and supplies used for the job.
If the contractor must rent a crane to perform work on a job, they would be exempt from paying a sales tax on that rental.
Keeping track of what qualifies for capital improvement exemption is difficult. I strongly encourage homeowners to contact me with any questions they may have regarding the purchase of property or payment for maintenance or services related to disasters.
For more information on tax exemptions for Hurricane Sandy victims, please contact the law offices of Todd S. Unger, LLC.