New Jersey Tax Guide
Motor Vehicle Purchases/Leases
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Motor Vehicle Purchases
1. How is a motor vehicle defined in the Sales and Use Tax Act?
Motor vehicles are designed for operation on public highways and powered by a motor
(not by muscular power). Examples include cars, motorcycles, and house trailers. Examples
of products that are not considered motor vehicles include snowmobiles, all-terrain
vehicles, lawn tractors, and bulldozers.
2. When is the purchase of a motor vehicle in New Jersey subject to Sales Tax?
When you purchase a motor vehicle and any of the following conditions are met:
• You are a New Jersey resident;
• You have a place of abode (see question 41) in New Jersey;
• You are a business purchaser who maintains a place of business in New Jersey;
• You will use the motor vehicle for business purposes in this State.
For more information, see the Casual Sales FAQ.
3. When is the purchase of a motor vehicle in New Jersey exempt from tax?
When the purchase is made by:
• Someone else as a gift. If a vehicle is gifted to somebody, there is no Sales Tax;
• A nonresident with no place of abode in this state. (See question 41);
• An exempt organization with a valid Exempt Organization Certificate (Form ST-5)
for its exclusive use;
• A person recognized as a Foreign Diplomat by the United States of America; or
• A purchaser who claims the vehicle will be used in an exempt manner (e.g., a
limousine company).
For more information, see the Casual Sales FAQ.
4. Are dealerships required to separately disclose Sales Tax on a sales invoice?
Yes. The Sales and Use Tax Act requires retailers to state the Sales Tax separately on any
sales slip, invoice, receipt, or other statement of the price provided to the customer.
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(N.J.S.A. 54:32B-12(a)) This
includes paperwork
the customer signs
after agreeing to a
transaction price
as well as paperwork signed
when a customer takes delivery
of the
vehicle.
5. What must a dealership include when determining the sales price (i.e., purchase
price) of a motor vehicle?
• Federal excise taxes;
• Destination charges from a manufacturer to a dealership;
• Charges for preparing the motor vehicle for delivery to the purchaser or for
additional work on the motor vehicle;
• Documentary service fees (See Question 7.);
• Charges for an extended warranty contract and service/maintenance agreement;
• Charges for additional accessories or equipment; and
• Any manufacturer’s rebate or cash, either shown as a down payment or as a
deduction from the sales price.
6. What must a dealership exclude when determining the sales price of a motor
vehicle?
The amount of any credit the dealership gives the purchaser for a trade-in, and actual
costs imposed by the New Jersey Motor Vehicle Commission (MVC) for a motor vehicle
title and registration.
Dealership Services
7. Are documentary fees taxable?
Yes. Retailers charge “documentary service fees” to prepare title and registration
paperwork as part of the process of selling a motor vehicle to a retail consumer. They can
include clerical and messenger services, computer time, and paperwork preparation
charges. Dealers charge these fees to process documents.
Documentary fees are not required by the State, unlike Motor Vehicle Commission fees
for the actual title and registration, which are required by the State. Documentary fees are
considered expenses of the dealer or services necessary to complete the sale, both of
which should be included in the “sales price” as defined by law.
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8. Is the service of etching a motor vehicle window (i.e., engraving a vehicle's
vehicle identification number onto the windshield and windows) taxable?
Yes. However, window etching is a negotiable service between the dealer and the
consumer. The engraving service is not required by the State of New Jersey.
9. Are Motor Vehicle Commission fees taxable?
No. Charges for the actual costs of title and registration fees imposed by the New Jersey
Motor Vehicle Commission are not subject to tax. These fees and documents are required
by the State of New Jersey.
Warranties
10. Is the purchase of an extended warranty taxable?
Yes. Because the maintenance, repair, or servicing of motor vehicles is taxable, and an
extended warranty is an agreement to provide such services, the purchase of the
extended warranty also is subject to tax, whether or not any services are actually
performed under the warranty.
11. Is the purchase of an extended warranty by a nonresident taxable?
No. The purchase of an extended warranty for a motor vehicle that is registered outside
of New Jersey is not taxable. The purchase also is exempt from tax if you are eligible to
complete Form ST-10. (See question 40).
Repairs
12. Are charges for maintaining, servicing, or repairing a customer’s motor vehicle
taxable?
Yes. For more information, see ANJ-6: Auto Repair Shops & New Jersey Sales Tax.
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13. Are charges for towing, including charges for the use of special equipment such
as a dolly or tilt-bed truck, subject to tax?
No. These charges are not taxable if the nontaxable towing charges are stated separately
from any taxable charges on the repair order or other invoice.
14. Are repairs made to a vehicle under an extended warranty taxable?
Sales Tax is not due on either charges for parts or charges for services when performed
under an extended warranty. However, if the agreement requires the customer to meet a
deductible, the amount of the deductible payment is subject to Sales Tax when made in
connection with a repair service.
15. Are inspections performed by an official inspection station taxable?
No. Inspections are not taxable.
16. Are disposal fees taxable?
Disposal Fees are only taxable when a repair shop passes the fees to the consumer as part
of the taxable service. For example, if you buy four new tires and are charged a tire
disposal fee of $10 for the old tires, the entire amount (cost of new tires + $10 fee) is
subject to New Jersey Sales Tax. No Sales Tax is charged on the disposal fee if you take
your old tire to a repair shop to dispose of it and you are not purchasing any other goods
or services.
Motor Vehicle Leases
17. How are motor vehicle leases taxed?
The length of the lease agreement dictates when tax is due.
• Short-term agreement: For leases with a term of six months or less (or open ended
with no expiration), Sales Tax is due on each payment.
• Long-term agreement: For leases with a term of more than six months, Sales Tax
is due on the entire lease amount and must be paid at the beginning of the lease.
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A motor vehicle lease is subject to Sales Tax unless a valid exemption applies. The person
who leases the motor vehicle from the dealership (the lessee) is responsible for paying
Sales Tax on the transaction. The dealership (the lessor) is responsible for collecting and
remitting the Sales Tax to New Jersey.
18. In a lease transaction, are “bank fees” or “acquisition fees” taxable?
Yes. They are considered part of the sales price when using the total lease payments
method (see below).
19. How is Sales Tax calculated for long-term leases?
For long-term leases, Sales Tax must be calculated using either the:
• Original purchase price method; or
• Total lease payments method.
Original purchase price method
When calculating the tax using this method, the following items must be included in the
sales price:
• The amount the dealership paid for the leased motor vehicle. (The dealership cannot
deduct the value of any trade-in the dealership received when acquiring the motor
vehicle being leased);
• Any separately stated charges for transportation to the dealership’s place of
business; and
• The cost of any accessories or options installed or any services performed by the
dealership (or others on the dealership’s behalf) on or in connection with the leased
motor vehicle.
The following item is excluded from the sales price:
• The value of the lessee’s trade-in. (See question 28 below).
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Total lease payments method
When calculating the tax using this method, the following items must be included in the
sales price:
• The lease amount (including depreciation, interest, or finance charges, often
referred to as the money factor);
• Acquisition fees, capital cost reduction payments, and all other fees and charges
paid to the lessor that represent the lessor’s charge for the lease;
• Any manufacturer’s rebate or reimbursed coupon applied toward the cost of the
lease; and
• Any charge for documentary service fees imposed by the dealership (See question
7).
The following items are excluded from the sales price:
• The value of the lessee’s trade-in motor vehicle. (See question 28);
• Any negative equity from a trade-in motor vehicle that is rolled into the lease;
• Any prior lease payment balance that is rolled into the lease;
• Sales Taxes that are rolled into the lease; and
• Actual costs imposed by the New Jersey Motor Vehicle Commission for title and
registration.
20. Can the dealership incorporate the Sales Tax due at the beginning of a long-
term lease into the monthly lease payments?
Yes. If the dealership and lessee agree, the full amount of Sales Tax due may be
incorporated into the lease payments. However, the dealership is still
required to remit
the full amount of tax due
with the Sales Tax return filed for the period in which the leased
motor vehicle was delivered to the lessee in this state.
21. Must a dealership separately state the Sales Tax on the monthly invoice issued
to the lessee?
For long-term agreements, Sales Tax is due in full at the beginning of the lease. A monthly
payment by the lessee to the dealership does not contain Sales Tax, but may contain a
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monthly reimbursement for Sales Tax paid by the dealership. As such, any periodic invoice
does not require a separate Sales Tax line item.
For short-term agreements, Sales Tax is due on the monthly payments. Each invoice must
contain a Sales Tax line item.
22. If the lease agreement is cancelled before the expiration of the term, is the lessee
entitled to a refund of any portion of the Sales Tax paid?
Yes. For a long-term lease, for which the dealership collected and remitted Sales Tax at
the inception of the lease (based on the entire lease amount), the lessee may seek a refund
for the Sales Tax paid for the remaining portion of the lease. The lessee may seek a refund
from the dealership or from the Division of Taxation.
The lessee may request a refund from the Division of Taxation by filing a Claim for Refund
(Form A-3730). The claim and all supporting documents must be filed within four years of
payment of the tax.
23. What are the Sales Tax consequences when a long-term lease agreement is
extended beyond the original term of the contract?
When a long-term lease is extended beyond the original term without a new agreement,
the dealership may collect and remit Sales Tax on a monthly basis. If the extension is
treated as a new lease, i.e., it contains new terms or conditions, the dealership must collect
and remit tax based on whether the new agreement is a short-term or long-term lease.
(See question 19).
No Sales Tax is owed for the extension period if the Sales Tax was calculated using the
original purchase price method.
24. Is Sales Tax due on a replacement leased motor vehicle if the original leased
motor vehicle is stolen or destroyed during the term of the lease?
Additional Sales Tax is due for a short-term lease because the Sales Tax is applied to each
lease payment, regardless of the motor vehicle leased.
For long-term leases, if the dealership calculated the tax due using the total lease
payments method, additional Sales Tax may be due if there is a difference in the lease
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amount of the two motor vehicles. If the dealership used the original purchase price
method for the original motor vehicle, it must calculate Sales Tax on the new motor
vehicle either using the total lease payments method or the original purchase price
method.
Leases to Nonresidents
25. Are motor vehicle leases to nonresidents subject to Sales Tax if the motor vehicle
is registered out of state?
No. New Jersey Sales Tax is not due as long as the motor vehicle is not registered in New
Jersey. The dealership does not collect New Jersey Sales Tax if the lessee indicates that
the primary property location of the motor vehicle is located at an address outside of New
Jersey.
Form ST-10 is not required for a lease transaction.
26. Is Sales Tax due if the motor vehicle is initially leased to a nonresident who
moves into New Jersey during the course of the lease?
Yes. When a leased motor vehicle is brought into New Jersey, Sales Tax is due on each of
the remaining periodic payments attributable to the period of the agreement remaining
after the first use in New Jersey. The lessee must remit Sales Tax with each periodic
payment.
27. Can a lessee obtain a refund for Sales Tax if the lessee was initially a resident,
but moved out of New Jersey during the term of the lease?
Yes. The lessee is entitled to a refund of the Sales Tax allocated to the remainder of the
lease if the lessee paid the full amount of Sales Tax at the beginning of the lease (long-
term agreement) and the primary property location of the motor vehicle originally leased
in New Jersey is permanently relocated to another state before the lease expires.
The lessee may request a refund from the Division of Taxation by filing a Claim for Refund
(Form A-3730) The refund and all supporting documents must be filed within four years
of payment of the tax.
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Trade-Ins
28. When is a purchaser of a motor vehicle allowed a credit against the sales price
for the value of a trade-in?
A trade-in credit is permitted only when:
• The vehicle the purchaser trades in is a motor vehicle as defined in the Sales and
Use Tax Act;
• The purchaser trades in a motor vehicle to a registered motor vehicle dealership
that takes the trade-in for resale; and
• The contract for purchase of the motor vehicle and the trade-in are executed at
the same time.
29. Can a dealership apply the value of a trade-in from a purchaser as a credit for a
leased motor vehicle?
Yes. The value of a trade-in can be used to reduce the tax base if the execution of the
contract for lease and the trade-in occur at the same time. The dealership must obtain
the certificate of title for the trade-in and retain a copy of it as part of the lease transaction.
The credit for the value of the trade-in from the lessee can be used when calculating the
Sales Tax due on a short-term or long-term lease using either the original purchase price
method or the total lease payments method. (See Question 19).
A lessee may not trade in a leased motor vehicle. However, if the lessee purchased the
previously leased vehicle through a buy-out, the lessee may use the vehicle as a trade-in.
30. Is a purchaser who trades in a motorcycle for a motor vehicle eligible for a trade-
in credit against the sales price?
Yes. A motorcycle is a motor vehicle as defined in the Sales and Use Tax Act.
31. Are there any vehicles that cannot be used as a trade-in for a motor vehicle?
Yes. Items such as snowmobiles, all-terrain vehicles, lawn tractors, bulldozers, etc., cannot
be used as a trade-in for a motor vehicle because they are not motor vehicles as defined
in the Sales and Use Tax Act.
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32. Can a purchaser receive a trade-in credit for more than one motor vehicle when
purchasing a vehicle?
Yes. As long as the trades are part of the purchase transaction, the purchaser is eligible
for a credit against the sales price of a motor vehicle.
33. Does the purchaser have to be the title holder of the motor vehicle that he or
she is trading in to receive a credit against the sales price?
No. The Sales and Use Tax Act does not require that the purchaser who is trading in a
motor vehicle be the title holder.
34. Can the value of a motor vehicle that a purchaser is trading in be applied to the
purchase of two motor vehicles?
Yes. As long as the requirements under question 28 are met.
Rebates and Discounts
35. Is a manufacturer’s rebate or a rebate from a credit card program included in
the sales price of the motor vehicle?
Yes. Rebates are treated like cash because the dealership that accepts them is reimbursed
by a third party. When a purchaser uses a manufacturer’s rebate or credit card program
rebate, Sales Tax is charged on the price of the motor vehicle before any rebate(s) because
that is the amount that the dealership ultimately receives - part from the purchaser, and
the balance from the manufacturer or credit card company.
36. If the dealer gives the purchaser a discount on the sales price, is the dealer’s
discount included in the sales price of the motor vehicle?
No. When the motor vehicle is offered at a discounted price and a third party does not
reimburse the dealership, Sales Tax is due only on the discounted price of the motor
vehicle.
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37. Is the title transfer involved in assigning or refinancing a motor vehicle loan
subject to Sales Tax?
No. Refinancing or assigning a motor vehicle loan and the subsequent transfer of title is
a financial transaction and is not subject to tax under the Sales and Use Tax Act.
Residency/Nonresidency
38. Who is considered to be a resident for Sales Tax purposes?
For Sales Tax purposes, a resident is:
• Any person who has a place of abode in New Jersey. (See question 41);
• Any person who is in the Armed Forces of the United States and listed New Jersey
as his or her home of record or currently resides in New Jersey, whether or not they
are assigned to a military reservation in this State;
• Any business established under the laws of New Jersey;
• Any entity that has a place of business in New Jersey; or
• An entity engaged in any employment, trade, business, or profession for which the
motor vehicle will be used in this state.
39. Who is considered to be a nonresident for Sales Tax purposes?
For Sales Tax purposes, a nonresident is any person or entity that does not meet any of
the criteria to be considered a resident.
40. Is a motor vehicle purchase by a nonresident exempt?
For the purchase of a motor vehicle to a nonresident to be exempt, the nonresident
purchaser must fully complete the Motor Vehicle Sales and Use Tax Exemption Report
(Form ST-10). The dealership must mail the completed form to the New Jersey Division of
Taxation.
41. A resident is defined, in part, as anyone who has a place of abode in New Jersey.
What is a place of abode?
A place of abode is a dwelling place maintained by a person or by another for him or her,
whether or not owned by such person, on other than a temporary or transient basis.
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The dwelling may be a house, apartment or flat, a room, including a room in a hotel, motel,
boarding house or club, or at a residence hall operated by an educational or charitable
institution, barracks, billets, or other housing provided by the Armed Forces of the United
States, or a trailer, mobile home, houseboat, or any other premises.
42. Is a person who purchases a motor vehicle while in the process of moving out of
New Jersey considered a resident for Sales Tax purposes?
Yes. A person who is in the process of moving out of New Jersey still has a place of abode
in New Jersey and is considered a resident.
43. Is a person who maintains a place of abode in another state, but who meets one
of the conditions of residency considered a New Jersey resident?
Yes. It doesn’t matter if a purchaser maintains a place of abode in another state if the
purchaser is a New Jersey resident.
44. Is an out-of-state resident who attends college in New Jersey considered a
resident of New Jersey for Sales Tax purposes?
Yes. Out-of-state residents attending college in New Jersey have a place of abode in New
Jersey and are considered residents for Sales Tax purposes.
45. Is an out-of-state resident who purchases a motor vehicle in New Jersey and pays
New Jersey Sales Tax also required to pay Use Tax on that purchase in his or her
home state?
It depends on the law of the purchaser’s home state. The out-of-state purchaser should
contact his or her home state’s taxing authority to determine whether he or she will be
eligible for a credit of Sales Tax paid in New Jersey.
New Jersey law allows a credit against the Use Tax due for any Sales or Use Tax legally due
and paid to another state or local jurisdiction.
46. Is Sales Tax due if the purchaser is an out-of-state resident who maintains a
vacation home in New Jersey?
Yes.
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New Jersey considers the purchaser to be a resident for Sales Tax purposes because he or
she maintains a permanent place of abode in this state.
47. Is a person who is serving in the military and stationed in New Jersey required to
pay tax on the purchase of a motor vehicle in this state if his or her home of record
is not New Jersey?
Yes. All nonresident military personnel, whether living on or off a military reservation within
the territorial limits of New Jersey, must pay New Jersey Sales Tax on motor vehicles
purchased or leased in this state.
48. Are there any tax deferments for New Jersey residents serving in the military
who purchase a car out-of-state?
If you are a resident service member, stationed out of state, and buy a car outside of New
Jersey, but wish to title the vehicle in New Jersey, you may defer payment of Sales Tax
until the vehicle is brought to New Jersey. You must first complete a Military Sales Tax
Deferment Application (Form MD-1), have it notarized, and mail it to the address on the
application. Once we receive your application and approve it, we will send you a Letter of
Deferment. You must present this letter at the time of titling. If the Letter of Deferment is
not received, Sales Tax must be paid. If you already have a deferment for a motor vehicle,
you must pay the Sales Tax on that vehicle, or provide proof that you no longer own it,
before we can issue a deferment for this request. Only one vehicle can be deferred at a
time.
49. Is a veteran exempt from paying Sales or Use Tax on the purchase of a motor
vehicle?
If you are a disabled veteran and received funds from the U.S. Department of Veterans
Affairs (VA), or the New Jersey Department of Military and Veterans Affairs (NJDVA), to
purchase a car, the amount received for the vehicle is not subject to Sales Tax. The
exemption is only applicable if the funds for the vehicle purchase came directly from the
VA/NJDVA, or the VA/NJDVA provides a loan. The funds received must equal the total
purchase price of the vehicle for it to be totally exempt. The payment for the vehicle can
be a combination of personal funds and funds received from the VA/NJDVA. Any amount
that you pay out of pocket toward the purchase of the vehicle is subject to Sales Tax.
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Replacement Motor Vehicles
50. A purchaser accepts a replacement motor vehicle in lieu of a cash refund from
the manufacturer under the lemon law. The value of the replacement motor
vehicle is greater than the value of the motor vehicle the purchaser is replacing.
Does the purchaser owe additional Sales Tax?
No. Additional Sales Tax is not due in this instance. An exchange of this type is not
considered to be a retail sales transaction under the Sales and Use Tax Act. However, if
the purchaser buys a higher priced replacement vehicle and pays an additional amount
to the motor vehicle dealership, that additional amount is subject to Sales Tax. If the
purchaser receives a cash refund for the original vehicle and then purchases a new motor
vehicle, Sales Tax is due on the sales price of the new motor vehicle because it is a
separate transaction.
51. A purchaser receives a check from his or her insurance company for a motor
vehicle which the company declared to be a total loss. If the purchaser buys a
replacement motor vehicle, is credit allowed for the amount of Sales Tax paid
on the original motor vehicle?
No. A credit is not allowed because the purchase of the replacement motor vehicle is a
separate transaction from the original purchase. Sales Tax is due on the sales price of the
replacement motor vehicle.
Exempt Organization Certificate (Form ST-5)
52. What is an exempt organization?
An exempt organization includes certain nonprofit organizations to which the Division of
Taxation has granted exempt status (e.g., churches, rescue squads, volunteer fire and
ambulance companies, and organizations that are organized and operated exclusively
for religious, charitable, scientific, testing for public safety, literary, or educational
purposes). To be exempt from Sales and Use Tax in New Jersey, the entity must register
with the New Jersey Division of Taxation and apply for and receive an Exempt
Organization Certificate (Form ST-5).
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53. Is every exempt organization purchase exempt from tax?
Yes. Sales made by an exempt organization that pays for purchases using organization
funds and issues the seller a fully completed Form ST-5 are exempt from tax. The
dealership must enter the appropriate exemption code on the NJ Sales Tax Satisfied
stamp imprint. Sales Tax exemption codes for the MVC are listed here.
If the person making the purchase for the exempt organization pays with personal funds,
the exemption from Sales Tax does not apply, even if the purchaser will receive
reimbursement from the exempt organization.
54. If an official or employee of an exempt organization registers a motor vehicle
in his or her own name, is the official or employee exempt from paying tax?
No. The employee or official must pay the tax. The motor vehicle purchase is only exempt
from tax if the vehicle is titled and registered in the name of the exempt organization.
55. If an exempt organization purchases a motor vehicle to be used as a prize in a
fund-raising raffle, is the purchase exempt from Sales Tax?
Yes. The purchase of a motor vehicle by an exempt organization for use as a prize is
exempt, so long as the exempt organization issues the dealership a fully completed
Form ST-5 and pays using the organization’s funds.
56. When is the raffle winner of the motor vehicle required to pay Sales Tax?
It depends on the circumstances. The winner is required to pay Sales Tax if the dealer
transfers the title directly to the raffle winner. The winner will pay Sales Tax based on
the price the exempt organization paid for the motor vehicle.
The winner is not required to pay Sales Tax if the exempt organization transfers the
automobile title to the winner.
57. Is the raffle winner of a motor vehicle required to pay Income Tax on the
value of the prize?
Yes. Any prize won in a raffle, drawing, contest or television game show or any other
event is taxable and must be included on the Other Income line of your New Jersey
Resident Tax Return.
