Hefty Sales-Tax Increase for Businesses, Shoppers in Five New Jersey Cities

John Reitmeyer | January 3, 2017 | Politics
A number of urban communities must deal with a substantial sales-tax increase because governor would not agree to extend the Urban Enterprise Zone program

Urban Enterprise Zone UEZ
Most businesses in New Jersey are now charging a reduced state sales-tax rate thanks to a slight tax cut that just went into effect at the start of 2017. But businesses — and shoppers — in five urban communities in the state are instead dealing with a hefty sales-tax increase.

The tax increase affects businesses in Bridgeton, Camden, Newark, Plainfield, and Trenton, and it comes after Gov. Chris Christie decided not to take action on legislation that he received from lawmakers last month that sought to prevent it from taking effect.

Christie also remains at odds with legislative leaders over the bigger question of what to do about the state’s Urban Enterprise Zone program, which has for decades attempted to attract business to struggling urban communities by offering a series of tax incentives, including a 50 percent sales-tax discount.

Unless Christie and lawmakers can strike a deal on the future of the program, it means that businesses in dozens of other communities across the state will also be facing a sales-tax rate increase over the next decade. The New Jersey League of Municipalities recently led a feverish, last-minute effort to rally support for a two-year extension pitched by lawmakers before the December 31 deadline impacting the UEZ status of Bridgeton, Camden, Newark, Plainfield, and Trenton.

But after the deadline passed with no action from the governor, the sales tax rate instead increased in the five communities from 3.5 percent to 6.875 percent.

It’s unclear what will happen next since Christie, a Republican, has yet to issue an official veto of the two-year extension bill, and his office also declined comment when asked about the UEZ issue last week.

Started in the 1980s as a way to give a boost to New Jersey’s struggling urban communities, the UEZ program has allowed businesses in the specially designated economic-development districts to charge half the state sales tax, which just dropped from 7 percent to 6.875 percent on January 1 under a deal struck last year between Christie and Democratic legislative leaders.

The UEZ program, which is administered by the state Department of Community Affairs, has also provided several other tax incentives in addition to the sales-tax discount. They include a break on energy taxes, a business-to-business tax exemption, a subsidy for unemployment insurance, and corporate-tax credits for hiring and investing.

Bridgeton, Camden, Newark, Plainfield, and Trenton were the first cities to offer the sales-tax break after the UEZ program debuted in 1986. But since then, several communities were added to the program, boosting enrollment to 32 designated enterprise zones in 37 municipalities, with approximately 6,800 private businesses.

Under the original terms of the UEZ program, the special designation was to sunset after 20 years. But lawmakers voted in 2001 to allow a one-time extension of the program for another 16 years. That extension expired at midnight on December 31 for the UEZ program’s first five communities. And under current law, all of the remaining UEZs across the state will see their designations run out between 2019 and 2026, according to DCA records.

Last year, lawmakers asked Christie to approve a 10-year UEZ extension, but he rejected their effort in a conditional veto, saying the program was only meant to provide a temporary boost to the urban communities. His conditional veto projected the state could collect $2.33 billion in additional revenue over the next decade as businesses in all of the UEZ communities begin charging the full state sales tax, and it also asked lawmakers to authorize the executive branch to study the issue to determine whether a different program should be put in place to help the UEZ communities.

In response, legislative leaders refused to post Christie’s conditional veto for a vote. Instead, they backed legislation seeking the temporary, two-year renewal for the five original UEZ communities. The measure, which was billed as a compromise, also called for the executive-branch study that was requested in Christie’s conditional veto to be completed during the two-year extension period.

After making several amendments, lawmakers approved the two-year extension by wide margins in both the Assembly and the Senate on December 19, thus sending the measure to Christie for consideration. A fiscal note prepared by the nonpartisan state Office of Legislative Services projected the state could lose between $35 million and $39 million in sales-tax revenue over the two-year period by preserving the 50 percent discount in the five communities. Still, the New Jersey League of Municipalities has urged its members to reach out to the governor to encourage him to enact the two-year extension, arguing the sales-tax discount and other UEZ incentives have become crucial economic-development instruments for the state’s urban communities.

“UEZ designation is a vital tool in the tool kit of local leaders, working to bring their communities back from decades of decline, caused by housing and transportation policy decisions over which they had no control,” the league said in a recent notice.

“In addition to creating employment opportunities for residents of these municipalities, participating businesses represent an important component of the tax base,” the notice said. “The closing or the relocation of these businesses would result in increased burdens on the remaining taxpayers.”

Christie for months has avoided taking questions from the State House press corps, so it’s unclear right now whether he could still be considering the two-year UEZ extension if the issue were to be studied more closely as he recommended in the earlier conditional veto. When asked last week if his office is still reviewing the UEZ legislation, Brian Murray, Christie’s press secretary, cited general office policy to not comment on pending legislation.

“We don’t discuss pending legislation until we have received a final bill and have had all the necessary time to properly review it,” Murray said.