New Jersey Law Changes Affecting
Payment of Contractors and Sales Tax

New Jersey Now Requires Prompt Payment of Contractors

On September 1, 2006 New Jersey Gov. Jon S. Corzine signed new legislation requiring contractors (Prime or Sub) to be paid by owners within 30 days of their billing date if the contractor has performed in accordance with the provisions of a contract and the billing for the work has been approved and certified by the owner or an authorized approving agent of the owner. This legislation applies to both the private and public sectors.

If the owner fails to make payment within the mandated time frame, the owner is now liable for the full payment plus interest equal to the prime rate plus 1 percent.

If the owner fails to make a timely payment, the owner has 20 days to dispute the charges. This must evidenced in writing explaining the reason that payment is being withheld. Once the 20 days have lapsed, arbitration will be needed for settlement of any disputes.

This legislation is designed to “level the playing field”. Previously, the law applied only to contractors and subcontractors and did not hold project owners responsible for late payments or late payment interest penalties.

New Jersey Sales Tax Changes

As a reminder, effective with previous legislation signed into law on July 8, 2006, the sales tax exemption for seller delivery charges that are separately stated from the purchase price has been eliminated. Also eliminated is the exemption for property installation services that constitute a capital improvement for landscaping.

You should review your bills to make sure your vendors are charging sales tax properly. Remember, both the seller and the buyer can be held liable for payment of sales tax on a taxable item if the proper amount of sales tax is not being charged.