If you sold petroleum-based consumer products into New Jersey and paid petroleum products gross receipts tax, you have a refund opportunity.

The New Jersey Division of Taxation’s long-standing position is that petroleum-based consumer products are subject to a 2.75% gross receipts tax. Under the Division’s policy, the following types of consumer products are subject to tax: baby lotion, body cream, cooking spray, furniture polish, hair care products, lighter fuel, lip balms, lipstick, makeup remover, mineral oil, nail care products, personal lubricants, shoe polish, and wood treatments. The tax is computed on the gross receipts from the initial sale of petroleum products delivered into New Jersey, so the burden of the tax generally falls on manufacturers and distributors.

The Division’s policy extends beyond the plain language of the statute, which imposes the tax only on “refined products” (such as gasoline) made from crude oil—not on consumer products that include petroleum derivatives as ingredients.

Effective November 1, the petroleum products gross receipts tax rate increases to 7% as a result of recent legislation (P.L. 2016, c.57) to replenish New Jersey’s Transportation Trust Fund. Fortunately, the Division has announced that effective on that same date, it will discontinue its policy of treating consumer products, like those listed above, as taxable merely because they include petroleum derivatives as ingredients.

Whether the Division intends to apply this new policy retroactively is unclear. In any case, if your company paid petroleum products gross receipts tax on consumer products, you may still have a refund opportunity, because the Division’s previous policy of taxing receipts from consumer products that included petroleum derivatives was not authorized by the plain language of the statute.

If you have questions about New Jersey’s petroleum products gross receipts tax, and the Division’s change in policy with respect to application of the tax to consumer products, please contact one of the authors of this Alert or the Reed Smith attorney with whom you usually work.

Client Alert 2016-288