The effect of repealing a tax exemption in New Jersey on hard-wired electronic security systems was beginning to be felt at press time by installers of large-scale residential systems. How much farther the pain may spread remains to be seen.

As of Oct. 1, 2006, customers in New Jersey no longer are exempt from taxes on hard-wired electronic security system installations including home control and home theater systems. Before Oct. 1, customers could file a certificate of capital improvement and be exempt from paying taxes for security systems in which the wires were placed within the walls because they increased the value of a property.

Wireless, rented or leased systems are not considered capital improvements and hence have been subject to the tax. Monitored systems have been taxed as a telecommunications service since 1990.

As of July 15, the tax rate was increased from 6 percent to 7 percent, but because the tax had never been paid by most customers before, the 1-percent increase is actually a 7-percent increase, maintained Casey Guagenti, president of the New Jersey Burglar and Fire Alarm Association (NJBFAA). The 7 percent tax amounts to $70 on every $1,000 of a security system that is installed.

“I think the residential client, typically the residential homeowner, is looking to install a system and have protection,” stated Guagenti. “It may end up causing them to do less work. There may be less opportunity for the dealer to sell more hardware to that client because of it. I think it will reflect quite a bit on the residential marketplace.”

As CEO and part owner of Controlled Access LLC, Maple Shade, N.J., Guagenti is not sure what the effect might be for commercial customers. “Most commercial customers understand the tax implications that are inherent with doing business,” he declared.

Robert Bitton, CEO, Supreme Security Systems, Union, N.J., agreed that the effect of the change will be felt mostly by residential rather than commercial customers, and he’s not even sure residential customers will feel it that much.

“It has virtually no impact on any commercial jobs,” Bitton maintained. “In the commercial market, all the difference in the tax change was it went from 6 percent to 7 percent, and that’s obviously not going to have any impact on our sales, even going back to residential.

“I didn’t see that having any impact, because when the salesman sells the job, he tells the customer how much the job is going to cost,” Bitton explained. “In your contract, it says plus any applicable taxes, but the customer is not aware of it or thinking about it until they get the invoice. So we don’t see that as being a deterrent to selling jobs.

“We don’t intend to modify our pricing in any way, and the nice thing about it is, now we don’t have to pay the use tax on the equipment we’re purchasing, since we’re selling it to the customer and collecting sales tax that satisfies the state,” he noted.

Guagenti asserted that lobbyists for major security companies are petitioning for a change in the law, possibly a reinstatement of the tax exemption for homeowners who file the certificate of capital improvement.

“We have been pretty active as well trying to set up a grass roots movement,” he said of the NJBFAA. But he conceded the struggle may be difficult.

“Under the scenarios that exist, where we’re spending more than we make in the state, they’re looking for dollars everywhere they can get them,” Guagenti said of government officials. “And they’re affecting security for that dollar.”