Large Associations Face Sales Tax Audits Are You At Risk?

The New Jersey Division of Taxation is cracking down and performing more sales/use tax audits of Common Interest Realty Associations (CIRAs) of all types—co-ops, condominium associations, and apartment buildings—than ever before. There are many common misunderstandings about sales/use taxes, and because of that, many communities may be at risk for significant penalties for failing to file and pay.

What is "significant?" There are documented cases in the industry where the Division of Taxation's proposed assessment for a negligent association has exceeded $100,000.

Sales Tax Versus Use Tax

Most merchandise (with notable exceptions, such as food and clothing) and some specific services are subject to New Jersey sales tax. In some circumstances, a customer may purchase goods or services that would otherwise be subject to sales tax from out-of-state vendors - in which case no sales tax is charged, because the vendor is not registered with the State of New Jersey. In other cases, the vendor may be New Jersey-based, but for whatever reason—whether correct or incorrect—the vendor does not charge the required sales tax.

When either of these situations occurs, the burden for payment of the sales tax obligation shifts to the purchaser; this tax is known as use tax, and is based on the same rules as sales tax—except that it is imposed on the buyer rather than the seller.

Correcting Common Misconceptions

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