Budget Bill On Verge of Passage
The big question going into this year's state budget was what taxes to increase. Cutting any of our numerous tax rates, most of which are among the nation's highest, was not on the table. Inflation is hitting State expenses too, and free money from the federal government provided because of covid-19 has been spent. The State has a $4 billion structural deficit heading into this budget, and legislative leadership (all Democrats like the Governor) decided to move forward with the Governor's proposed surtax on c-corp net profits earned in the state of over $10 million per year, a 2.5% tax on top of the 9% tax that already exists. This means NJ will go from the 4th highest corporate tax to the first.
While none of our members are making those kinds of profits, there is a real risk that those companies which do (there are about 600 companies total) will simply pass those costs on to consumers, which can include small business owners making purchases for the business and/or their families. It's also bad for the overall economy, as this terrible climate for businesses to invest in the state will ultimately continue to suffocate our overall economy, which will hurt overall state tax revenues, which will continue to increase the pressure on legislators to keep taxes high and if anything raise them further. On the other hand, it is possible that some of this tax burden will fall on some of our competitors, like Costco and Wawa, which could be helpful. The surcharge is scheduled to expire after 5 years, but twice already it has been scheduled to expire and extended by the Legislature. Still, this tax will only collect about $1 billion per year.
There had been much behind the scenes discussion about the possibility of raising the state sales tax from 6.625% back to 7%, which would also raise a similar amount of money. Ultimately, legislative leaders have opted not to increase that tax. I expect we will see more discussion of this potential increase next year, when the State will likely again be in a deficit. Our sales tax is basically the only major tax rate in which NJ is not in the highest tier, which makes it a target for further increase in the eyes of those Democratic members of the government who write and approve the budget.
Also dropped from the budget was a proposal from the Governor to create a new tax of $1 every time a truck leaves a warehouse anywhere in the State. This would have increased the cost of doing business every time you get products delivered, whether they be auto parts or soda bottles. Once the taxation system was set up, we also expected it would not be long before that $1 tax became $10. Thankfully it is not moving forward this year.
The rest of the structural deficit is being filled by spending down the State's surplus 'rainy day' fund (to the tune of $2 billion out of the current $8 billion in reserves), redirecting $400 million from a fund that had been dedicated to paying off old debts, and most of the rest is filled with one shot revenue increases.
In total it spends $56.6 billion in the coming year, an increase of $2.3 billion over last year's. Lawmakers added in about $700 million in spending on top of the Governor's February proposal, some of which is restoring proposed funding cuts and other spending is special projects (often located in the districts of influential legislators).
The budget also will require sales tax be charged on new EVs again, starting October 1st at a partial rate, and then the full tax July 1 of next year. That will be on top of the $250 a year registration fee passed a few weeks ago as part of the reauthorization of the Transportation Trust Fund. Since registration fees on new cars are paid for the first four years at the time of purchase, a new EV will cost about $2,300 more in three months, and $3,600 more next year.
You may also remember the last two years there was a temporary “back to school” sales tax holiday, in which certain items had to be exempted from sales tax for those ten days. That program has been repealed and will not occur this year, or going forward.
Assuming the Legislature does pass the budget on Friday and the Governor signs it before July 1st, there will no be a government shutdown, which means no disruption to lottery ticket sales. As a reminder, if there is a state shutdown, even if just for a few hours, it would prevent the sale of draw games and prevent the Lottery Commission from restocking scratch-off tickets (though tickets still in stock can be sold until the store runs out). Vehicle Inspections would continue at PIFs in the event of a shutdown, but not at CIFs, and there would be no one to call if there were any problems and no way to get more stickers until the shutdown was over. The last time the State had a shutdown was in 2017.
There were serious rumors in the Statehouse that the heat stress standards bill we've discussed before would be thrown into the mix for a quick hearing and final passage as part of the budget deal. Apparently the Governor very much wanted it passed. Thankfully, we and others were able to push back long enough to hold it off. You can read more of the details of this extreme re-write of our entire employment economy HERE. As an example of the (many) terrible provisions of this bill, if any employee is exposed to heat of over 80 degrees (whether working in the shop or attending the pumps), they would need to be given 32 ounces of water chilled to at least 59 degrees, if not then they would be able to sue their employer. Expect it to come up again in the fall when the Legislature starts up Committee hearings again.
.jpg)
