TAX NEWS - June 2010

North Jersey Tax: DeMarrais - Sales tax overcharges in Passaic and Paramus

Customers have been overpaying sales tax at two major North Jersey retailers due to computer glitches – and possibly a lack of familiarity with complicated tax laws.

And most shoppers probably didn't even know they were being overcharged.

A manager blamed a computer glitch for charging shoppers at the Kmart in Passaic 7 percent sales tax, not the 3.5 percent they're supposed to pay in Urban Enterprise Zones like Passaic's.

And a computer problem left shoppers at the Fairway market in Paramus paying sales tax on toilet paper, napkins and other products that are not taxed in New Jersey.

In both cases, the merchants fixed the problems after being contacted by The Record, which received complaints from readers.

Until then, however, consumers were being overcharged, and the state was getting money it didn't deserve. There is no indication that the retailers benefited.

At Kmart, the overcharge wasn't a big deal for me because it cost me a mere 15 cents extra on the $4.25 I spent on three items.

But it would be costly to a consumer buying a big-ticket item, such as the Kenmore appliances sold there. On a $500 purchase, that's an extra $17.50.

When we visited the store last Thursday, the woman at the service desk said the problem was due to a computer glitch, but made no offer to refund what I overpaid.

On Monday, Christopher Vickers, the sales manager, said this was an issue over the "last couple days" that affected "only some items" and was being fixed.

That view was repeated by a company spokeswoman Tuesday.

"A computer error caused some of the customers to be charged extra" in recent days, and only certain items were affected, said Kim Freely, a spokeswoman for Sears Holding Corp., Kmart's parent.

But a reader reported overpaying tax for dog food more than a week earlier, and I paid the higher tax on a variety of products, including a baseball, vegetable seeds and a can of cat food. Also, shoppers I spoke to in the parking lot Monday overpaid on everything from a $1.25 chocolate bar to a $5.85 jar of skin cream to a $14.95 toaster.

Urban Enterprise Zones, with their lower sales tax rate, were created in 1983 to spur development and jobs in economically distressed business districts. There are 32 of them in the state, including in Passaic, Paterson, and much of Hudson County.

At Fairway, the taxing problem was limited to a few items, primarily paper goods. But that doesn't make it any less frustrating, said Lilian Cheah of Ridgewood.

"In order to get your money back, you have to stand around and wait at the service desk, week after week," she said. "You get your money, but they never fix the problem."

That should be different since we visited the store on Tuesday, armed with receipts from Cheah's last shopping trip.

"Toilet paper isn't taxed?" general manager Dehliah Martinez said. "I didn't know that."

But the computer system should have known, and apparently did when the store opened last year. But that changed somewhere along the way, and customers got hit with the sales tax.

Within minutes of our visit, Martinez had employees going through all the paper goods to make sure they were properly registered in the system.

Not all sales tax issues are due to computer problems; some result from fine distinctions state law makes between what is taxed and what is exempt.

For example, Cheah was taxed on a bottle of Walnut Acres mango juice, but not on Walnut Acres Concord grape juice.

That was not a mistake, however, because the mango juice was only 30 percent juice, while the grape product was more than 70 percent juice. Under New Jersey law, any drink that is less than 50 percent juice – including lemonade and Hi-C – is taxed.

Sometimes, it comes down to a definition. Cheah says the Gold Bond Ultra Healing Lotion she purchased should be exempt as a "skin irritation reliever," and not a moisturizing or cleansing lotion, which is taxed.

Those are the kinds of distinctions retailers must make, armed with their copy of the tax division's Bulletin S&U-4, the 32-page New Jersey Sales Tax Guide.

The state relies on customer complaints, along with investigations and audits, to identify and correct tax collection errors, treasury spokesman Andy Pratt said.

A customer who has been improperly charged sales tax may apply to the division for a refund.

But the tax division doesn't impose fines or penalties for improper taxation, Pratt said. That would be up to the Department of Law and Public Safety, which would be unlikely to act unless there was evidence of fraud or theft.