The IRS announced this week that hackers successfully stole sensitive information from over 100,000 taxpayers using the IRS' online Get Transcript service. Identity thieves used this data to file fraudulent tax returns, ...
- The Tax Policy Blog
- New Jersey Reverses on Cosmetics Tax
New Jersey Reverses on Cosmetics Tax
On January 17, 2012 New Jersey Governor Chris Christie signed into law the abolition of the state's 6 percent tax on cosmetic procedures.
A cosmetic medical procedure is any medical procedure performed on an individual which is directed at improving the subject's appearance, and which does not meaningfully promote the proper function of the body or prevent or treat illness or disease. Examples include cosmetic surgery, cosmetic injections, dermabrasion, laser skin resurfacing, and cosmetic dentistry.
The phase out will begin after July 1 of this year with an immediate reduction to 4 percent in the first calendar quarter. The rate then drops to 2 percent after that first quarter until its complete elimination on July 1, 2013.
The measure operates like a selective sales tax on cosmetic services, where a 6 percent tax was levied on each purchase of a cosmetic service. However, regardless of the "luxury" nature of cosmetic services, governments should not use the tax code to influence what individuals want to purchase. By eliminating the tax, New Jersey reduces market distortions and promotes the principle of neutrality. Moreover, taxpayers save money in reduced compliance and administrative burdens. The bill's sponsors Sen. Joseph Kyrillos (R-Monmouth) and Sen. Paul Sarlo (D-Bergen), say the "eight-year-old tax is not only a burden to patients, but to the medical offices that must collect the tax and state agencies that enforce it."
The tax brought in $10.8 million annually in state revenue, however, in fiscal year 2011 New Jersey's total revenue was $28.3 billion. This means that the tax yielded only .038% of total revenue. Compliance costs make the meager revenue gain hard to justify, as cosmetic businesses must file quarterly reports which then are processed by Department of Revenue administrators. If the $10 million dollars is necessary to fund necessary government services, using broad based taxes to collect that revenue is a far less distortionary method of collection.
New Jersey has moved in the right direction by abolishing an unnecessary tax that picks winners and losers in the market, collects little revenue, raises prices for consumers, and increases compliance burdens.
More on New Jersey here.
Get Email Updates from the Tax Foundation
We will never sell or share your information with third parties.
Join the Tax Foundation's fight for sound tax policy Go
About the Tax Policy Blog
The Tax Policy Blog is the official blog of the Tax Foundation, a non-partisan, non-profit research organization that has monitored tax policy at the federal, state and local levels since 1937. Our economists welcome your feedback. If you would like to send an e-mail to the author of a blog post, please click on that person's name to locate his or her e-mail address or visit our staff page here.