New Jersey § 54a:7-1

§ 54a:7-1.

a. A person, other than a governmental entity, homeowner, or tenant, maintaining an

office or transacting business in this State and making a payment of compensation

or remuneration for services rendered in this State to a resident unincorporated contractor

or nonresident unincorporated contractor shall deduct and withhold from the payment

a tax equal to 7 percent of the amount paid, except as otherwise provided by this

section. b. A person that obtains from its unincorporated contractor proof of the contractor's

registration with the Division of Revenue in the Department of the Treasury shall

not be required to withhold pursuant to subsection a. of this section. The types of proof required and the length of the retention period of the proofs

shall be as prescribed by the Director of the Division of Taxation. c. Withholding pursuant to subsection a. of this section shall not be required for

payments for which withholding is required pursuant to N.J.S.54A:7-1 or such other payments as the director may prescribe by regulation. d. A person required to deduct and withhold tax from a payment under subsection a.

of this section shall furnish to each unincorporated contractor an annual written

statement reflecting the total of all payments made and tax withheld in a calendar

year on or before February 15 following the close of that calendar year in the form

prescribed by the director. e. Payments to an unincorporated contractor for which withholding is required by subsection

a. of this section shall be taxable or subject to employer withholding under the “New

Jersey Gross Income Tax Act,” N.J.S.54A:1-1 et seq. , as if no withholding were required by this section, but any amount actually deducted

and withheld under this section in any calendar year shall be deemed to have been

paid to the director on behalf of the unincorporated contractor from whom withheld,

and the contractor shall be credited with having paid that amount for the taxable

year beginning in such calendar year. A person required to deduct and withhold tax under subsection a. of this section shall,

for each calendar month, on or before the 15th day of the month following the close

of the calendar month, file a return as prescribed by the director and pay over to

the director or to a depository designated by the director the amounts required to

be deducted and withheld. The director may, if the director believes such action necessary for the protection

of the revenues, require a person to make a return and pay to the director the amounts

deducted and withheld at any time, or from time to time. The director may, by regulation, require the filing of withholding returns and the

payment of withheld amounts on a semimonthly or more frequent basis or require the

filing of returns on a quarterly basis, with payments of the amounts withheld on a

monthly or more frequent basis, if the director deems such action in the best interest

of the State. Any reconciliation of withholding shall be filed on or before February 15 following

the close of the calendar year in accordance with rules and regulations prescribed

by the director. f. If a person required to deduct and withhold tax under subsection a. of this section

fails to collect, truthfully account for, pay over the withholding, or make returns

of the withholding as required in this section, the director may serve a notice requiring

such person to withhold the amounts that become withholdable after service of such

notice, to deposit such withholdings in a bank approved by the director in a separate

account, in trust for and payable to the State of New Jersey and keep the amount of

such withholdings in such account until payment over to the director. Such notice shall remain in effect until a notice of cancellation is served by the

director. g. (1) A person required to deduct and withhold tax under subsection a. of this section

is hereby made liable for such withholding, except as that person may be excused from

that withholding pursuant to subsection b. of this section. (2) The owner or lessor of the real property to which construction, improvement, alteration,

or repair of a building, structure, or improvement shall be made, required to deduct

and withhold tax under subsection a. of this section for a contractor with whom the

owner or lessor is in direct privity of contract and who is liable pursuant to paragraph

(1) of this subsection for such withholding, is hereby also made liable for that contractor's

withholding from a subcontractor, or the subcontractor's withholding from a lower

tier subcontractor on that contract, except as the contractor, subcontractor or lower

tier subcontractor may be excused from that withholding pursuant to subsection b.

of this section. (3) For purposes of assessment and collection, any tax required to be withheld and

paid over to the director and any additions to tax, penalties and interest with respect

to that tax shall be considered the tax of that person required to deduct and withhold. Any amount actually withheld under this section shall be held to be a special fund

in trust for the director. No unincorporated contractor shall have any right of action against a person required

to deduct and withhold an amount of a payment in respect to any moneys deducted and

withheld and paid over to the director in compliance or in intended compliance with

this section. h. If a person required to withhold under subsection a. of this section fails to deduct

and withhold tax as required, and thereafter the tax against which the tax may be

credited is paid, the tax required to be deducted and withheld shall not be collected

from the person required to withhold under subsection a. of this section, provided

however that the person required to withhold under subsection a. of this section shall

not be relieved from liability for any additions to tax, penalties and interest with

respect to that tax otherwise applicable in respect of that failure to deduct and

withhold. i. For the purposes of this section: “ Contractor ” means a person entering into a contract for services to construct, improve, alter,

or repair a building, structure, or improvement to real property and includes a subcontractor,

but shall not include professional services as defined in section 1 of P.L.1960, c.

40 ( C.17:16C-1 ); “ Governmental entity ” means: the State of New Jersey, or any of its agencies, instrumentalities, public

authorities, political subdivisions or public corporations, including a public corporation

created pursuant to agreement or compact with another state; the United States of

America and any of its agencies and instrumentalities; and the United Nations or

any international organization of which the United States of America is a member; “ Homeowner ” means an individual who makes a payment to a contractor to construct, improve, alter,

or repair a dwelling which the individual owns and in which the individual resides

or will reside; “ Subcontractor ” means a person entering into a contract with a contractor for services to construct,

improve, alter, or repair a building, structure, or improvement to real property,

but shall not include professional services as defined in section 1 of P.L.1960, c.

40 ( C.17:16C-1 ); “ Tenant ” means an individual who makes a payment to a contractor to construct, improve, alter,

or repair a dwelling unit which the individual rents or leases and in which the individual

resides or will reside; and “ Unincorporated contractor ” means an individual contractor or a contractor organized as a sole proprietorship,

a partnership, or any other business form not taxable as a corporation for federal

tax purposes.