NJ Contractors and Developers Eligible for Sales Tax Exemption for Affordable Housing Projects

New Jersey developers and contractors may now benefit from the NJ sales tax exemption for contractors under a new law designed to support the construction and improvement of affordable housing projects. P.L. 2024, c.3 (effective May 1, 2024) expands an existing sales tax exemption to include contractors working for “housing sponsors engaged in affordable housing projects” — provided the units are intended for occupants with moderate, low, or very low incomes under the state’s Fair Housing Act.

What Is the Sales & Use Tax Exemption for Contractor Purchases?

New Jersey allows contractors to purchase materials, supplies, and particular services without paying sales tax when those items are used exclusively to improve, build, alter, or repair real property owned by an eligible entity.

Historically, the Sales and Use Tax Exemption for Contractor Purchases applied to contractors working for:

• Nonprofit organizations with a valid ST-5 Exempt Organization Certificate
• Federal, state, county, municipal, or other exempt government entities

In 2024, New Jersey expanded the exemption to include specific affordable-housing projects, which can provide significant cost savings for builders in the housing sector. Under the new law, if a contractor is doing work on a qualifying affordable-housing project, purchases of building materials, supplies, and applicable services for that project can be exempt, resulting in sizable savings that go directly to the bottom line.    

How to Claim the Exemption

Under P.L. 2024, c. 3, contractors working on approved affordable-housing projects may now purchase qualifying materials tax-free. This applies when:

• A qualified housing sponsor sponsors the project, and
• The completed units are intended for moderate-, low-, or very-low-income residents, as defined under the state’s Fair Housing Act.

To obtain the sales tax exemption, the contractor must present a fully completed Form ST-13 (Contractor’s Exempt Purchase Certificate) to the supplier at the time of purchase. If not, the supplier must collect tax.

Contractors using the NJ sales tax exemption for contractors must also ensure that Form ST-13 is accurately completed and retained as part of their project documentation.

Contractors working on affordable-housing projects under the new law must keep a copy of the Form ST-13 that they provide to suppliers — and if they buy from out-of-state sellers who don’t collect New Jersey sales tax, the contractor should still keep the completed ST-13 as proof the purchase qualified for the exemption. The qualified “housing sponsor” (i.e., owner/developer) must maintain documentation proving that all units in the project are intended for low/moderate/very-low income occupants, per the “Fair Housing Act.” This documentation must be available if requested by the New Jersey Division of Taxation.

Qualifying and Non-Qualifying Purchases

Qualifying purchases under the contractor exemption generally include:

• Construction materials (e.g., lumber, drywall, plumbing materials, etc.) 
• Construction supplies that will be entirely consumed/used in performing the work on the real property. 
• Some services are tied to the construction/improvement/repair project. 

The following do not qualify:

• Equipment that the contractor purchases, leases, or rents to perform the work — e.g., bulldozers, jackhammers, computers, etc. 
• Purchases that aren’t “exclusively and entirely consumed” in the construction/improvement.

Additional Requirements for the Sales Tax Exemption

Contractors should also be mindful of the following requirements and limitations:

• The exemption is project-specific. All materials and services must be used exclusively for the qualified project (e.g., constructing or improving the real property of a qualifying housing sponsor). 
• Equipment used to perform the work is not exempt — only materials/supplies consumed by the project. 
• If a contractor incorrectly pays sales tax when an exemption applies, they can file for a refund. They must do so within four years of the date the tax was paid. 
• Proper record-keeping is critical: copies of ST-13, proof of the housing sponsor’s “affordable housing” status/eligibility, and documentation of materials/services purchased must be retained.

How We Can Help

Scarinci Hollenbeck is well-versed in the nuances of the exemption and the many other incentives available to New Jersey developers, contractors, and other businesses involved in real estate development. We encourage you to contact a member of our Commercial Real Estate practice to learn how we can help.