Earlier this year, New Jersey passed legislation intended to overhaul its antiquated liquor license laws. That reform was intended to boost the number of available liquor licenses across the state and reduce restrictions affecting New Jersey’s breweries, distilleries, and restaurants. Governor Murphy’s press release here.
As part of that initiative, the New Jersey Economic Development Authority (“NJEDA”) has announced that it is developing a proposed $10 million grant program to provide funding for eligible small businesses holding a recently purchased inactive plenary retail consumption liquor license. As currently proposed, NJEDA would award grants of up to $100,000, but no more than 50% of the purchase price of the liquor license. NJEDA press release here.
This is exciting news as this is, apparently, the first major substantive reform of New Jersey’s liquor license rules since Prohibition. But what does this have to do with taxation? Great question.
Small businesses, especially those in the hospitality and restaurant industries need to ensure they stay on top of their various tax obligations, including sales tax, payroll tax, income tax, and excise taxes. The thrill and excitement of opening and operating a business (especially a new brewery) must be balanced against a multitude of significant tax compliance and regulatory obligations. Understanding what’s subject to tax and what’s exempt is not always obvious. Understanding and implementing good recordkeeping practices is essential.
Consider, for example, just the sales tax: Are you charging, collecting, filing, and remitting correctly? Are you invoicing correctly? Are you treating the build-out of your new space as a capital improvement correctly? Are you properly using and maintaining exemption certificates? Are you tracking and paying use tax on your purchases? Are you aware that key owners and operators can be held personally accountable for sales tax (i.e., a trust fund tax)?
A tax audit can be a difficult and onerous process for everyone involved, but it does not have to be. Developing healthy business practices should be top of mind. Reaching out for assistance early in the process when an audit letter arrives in the mail can make a big difference in the ultimate outcome. Partnering with experienced advisors can help.
To conclude, we applaud New Jersey’s efforts to reform its liquor license rules, and we hope it leads to a boost in economic activity across downtowns statewide from Red Bank to Morristown, New Brunswick to Montclair, Trenton to Edison, Atlantic City to Jersey City, etc. But business owners, operators, and investors should be mindful to take into account the appliable tax law requirements and obligations – the tax auditor, once she comes along, will be glad to remind you.
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