Legislation
September ‘06

SALES TAX APPLIES TOLANDSCAPING SERVICES and FLOORING INSTALLATION 
(P.L. 2006, c.44 - July 8, 2006) 
The new sales and use tax rate of 7% was effective July 15, 2006. In addition to increasing the sales tax rate from 6% to 7%, the recently amended Sales and Use Tax Act expands the base of the sales and use tax by extending the tax to a variety of new services, including certain development-related activities. As of October 1, 2006, the labor relating to certain landscaping services and the installation of flooring will be taxed. The Department of Treasury has made clear that “landscaping services” does not include “clearing land for a new development”. Members involved in purchasing or providing such services should consult their tax advisors and visit the Treasury website at: http://www.state.nj.us/treasury/taxation/salestaxbase.htm 

PROMPT PAYMENT LAW (P.L. 2006, c.96 - September 1, 2006)
Contracts entered into as of September 1, 2006 require an owner to pay an invoice from the prime contractor within 30 calendar days after the billing date specified in the contract as long as the contractor has performed in accordance with the contract.  Once the owner receives the invoice, the owner must, within 20 calendar days, provide the contractor with a statement explaining any amount being withheld.  If the owner provides the withholding statement, the owner may withhold the reasonable value of the incomplete or disputed work.  If the owner does not provide the withholding statement within 20 calendar days, the invoice is deemed approved.  The statute contains penalties for late payments and non-compliance.  Prior law creating this penalty applied to previous legislation involving contractors and subcontractors, but not to owners.  The law also authorizes contractors to suspend performance for failure to pay within the 30-day period without liability for breach of contract as long as proper notices are provided and certain conditions have been met. 

THIRD PARTY TAX LIABILITY (P.L. 2006, c.85 - August 21, 2006)
This law creates third party tax liability on owners and lessors of property.  It provides that anyone paying for services (other than professional services) rendered by an unincorporated contractor shall deduct and withhold seven percent, representing the state income tax on the payment. In addition to the requirement to deduct and withhold, the statute makes the payor liable for the tax payment. In addition, the statute makes the owner and lessor of real estate liable for the contractor’s withholding from subcontractors, and the subcontractor’s withholding from lower tier subcontractors, even though there is no direct privity between the owner and the subcontractor.  This statute becomes effective immediately, but applies only to payments made after January 1, 2007.  If the owner obtains proof that the unincorporated contractor is registered with the Division of Revenue, the owner is exempt from the withholding requirement.  

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