New Jersey Budget Avoids Harmful Temporary Tax Hikes, Allows For State “Amazon Tax”

July 11, 2014

Last week, Governor Chris Christie signed into law a $32.5 billion state budget for New Jersey – but not before using his line-item veto to cut back significantly on scheduled pension payments and strike down a pair of temporary tax increases.

The package of budget bills that originally landed on Christie’s desk included a millionaires’ tax that would have raised the marginal tax rate for income exceeding $1 million from 8.97 percent to 10.75 for the next three years (A3485). This summer marks the fourth time in five years that the Governor has vetoed the measure – a sensible move, considering the tax’s potential negative effects on New Jersey businesses, economic growth, and regional competitiveness.

The Democratic Legislature also sought to implement a one-year surcharge of 15 percent to the state’s corporate tax rate that would have effectively increased the rate from 9 percent to 10.35 percent for 2015 (A3484). Had Christie not vetoed the increase, Garden State corporations would have temporarily faced the highest corporate tax rate in the Northeast and second-highest in the nation.

Although the Governor held firm on his promise to reject any major direct tax increase on New Jerseyans, he did so with one caveat – the creation of a “click-through nexus” tax, which requires out-of-state online retailers selling to in-state consumers to pay the New Jersey sales tax (provided that their cumulative receipts on New Jersey sales exceed $10,000 for the last four quarters). These are often nicknamed “Amazon taxes” after their most obvious target. Although New York’s highest court upheld a similar law last year, legal challenges to click-through nexus laws continue to mount.

Many states assume that taxing Internet sales will capture a new, substantial stream of revenue to supplement existing consumption taxes. But collections data shows that these taxes tend to generate far less revenue than expected, especially in the short-term.

The bill containing the click-through nexus tax also included a few other provisions meant to bring in additional state revenue, including closing “a loophole that allows out-of-state partners in New Jersey partnerships to be eligible for tax refunds,” and adjusting the definition of both operational income and net operating losses for New Jersey corporations.

More on New Jersey here. More on Amazon taxes here. More on millionaires' taxes here.

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