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.