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

2 min readBy: Liz Emanuel

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 taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. increases.

The package of budget bills that originally landed on Christie’s desk included a millionaires’ tax that would have raised the marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. 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 taxA direct tax is levied on individuals and organizations and cannot be shifted to another payer. Often with a direct tax, such as the personal income tax, tax rates increase as the taxpayer’s ability to pay increases, resulting in what’s called a progressive 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 taxA sales tax is levied on retail sales of goods and services and, ideally, should apply to all final consumption with few exemptions. Many governments exempt goods like groceries; base broadening, such as including groceries, could keep rates lower. A sales tax should exempt business-to-business transactions which, when taxed, cause tax pyramiding. (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.