New Jersey Division of Taxation Issues Sales Tax Guidance on Taxability of COVID-19 Surcharges
By Harold Hecht, Seth Rabe and Katie Massey
August 10, 2020
The New Jersey Division of Taxation issued guidance on July 24, 2020 on the application of sales tax on surcharges related to the COVID-19 pandemic.
Many businesses have added COVID-19 surcharges to customers’ invoices to offset some of the costs of conducting business during the pandemic. These cover additional costs such as protective equipment or cleaning supplies. The surcharges – which are variously referred to as a COVID-19 fee, coronavirus fee, PPE fee, sanitation fee, cleaning fee, etc. – may be subject to sales tax.
Pursuant to the definition of “sales price” provided in N.J.S.A. 54:32B-2(oo)(1), New Jersey considers the surcharge part of the total sales price as “a charge by the seller necessary to complete the sale.” Thus, the sales tax on a COVID-19 surcharge follows the taxability of the good or service being sold. If the good or service being sold is subject to sales tax, the separately stated COVID-19 surcharge is also subject to sales tax. If the good or service being sold is not subject to sales tax, the COVID-19 surcharge is similarly not subject to sales tax.
New Jersey has provided a few examples: a “COVID-19 Fee” included on a customer’s restaurant bill would be subject to sales tax, as meals and beverages are a taxable good. On the other hand, a “PPE Fee” added to a patient’s bill at a dentist’s office would not be subject to sales tax, as dental services are not taxable.
Taxpayers with any questions regarding the application of sales tax on COVID-19 surcharges should reach out to Mazars USA LLP for further guidance.