New Jersey is starting to get a boost from recently enacted tax increases even as the ongoing coronavirus pandemic continues to strain the state budget.
A millionaires tax and a nearly 10-cent increase in New Jersey’s per-gallon gas tax helped raise overall monthly revenues by nearly 6% in November compared to the same month last year, according to figures released by the Department of Treasury on Tuesday.
The year-over-year uptick was also fueled in part by a more than 5% increase in monthly sales-tax collections. That marked the fourth straight month of year-over-year improvement for the sales tax despite the ongoing health crisis. And the new income-tax rate is adding to the higher monthly collections because it is retroactive to income earned since January.
However, Treasury officials noted overall tax collections for the first five months of a traditional state fiscal year remained off last year’s pace by roughly 5% as several major tax sources continued to trail last year’s totals through the end of November. Treasury officials are also projecting a sustained revenue rebound is still likely to be several months away.
“While November saw a pause in the recent decline of state revenue due to tax changes, Treasury still expects overall (fiscal year) 2021 collections to remain weak into the winter months followed by a return to sustainable collections growth next spring and summer,” the officials said.
New Jersey has already been hit hard by the pandemic, and the latest public-health statistics suggest the state appears now to be in a worsening second wave of infections. The health crisis has brought on a series of restrictions that diminished economic activity across the state and depressed the tax collections that support New Jersey’s budget.
Still, though the pandemic has shown no signs of weakening, there have been glimmers of economic hope in recent months. Leading the way has been the sales tax, one of the primary sources of revenue for the annual budget.
The tax-collection report released by Treasury on Tuesday indicated monthly sales-tax collections in November surged ahead of last year’s monthly total by 5.5%. Moreover, sales-tax collections were up by more than 4% over the last five months compared to the same period last year. Since the state reports sales-tax revenues with a one-month lag, last month’s figures represent economic activity that occurred through the end of October.
Also besting last year’s monthly totals for November was the income tax, the largest single source of revenue for the budget. Monthly income-tax collections were up by more than 7% year-over-year in November, according to the Treasury report.
But the uptick came at the same time Treasury instituted a much higher income-tax withholding rate for the state’s highest earners. That change came after Gov. Phil Murphy and lawmakers agreed in late September to hike the marginal rate on earnings over $1 million and up to $5 million to help offset revenue losses triggered by the pandemic.
What millionaires contributed
The new millionaires tax hiked the marginal rate for earnings over $1 million and up to $5 million from 8.97% to 10.75%. The tax went into effect immediately for the 2020 tax year, making the policy change retroactive to January. As a result, the withholding rate for high earners that’s in place for the last several months of the tax year has been set at 21.3% to help taxpayers “catch up” on their increased obligation for the year, Treasury officials said.
“That factor is estimated to have enhanced November’s collections by between $70 million to $100 million, and is likely to have a similar impact in December,” they said.
The November revenue report also reflected a boost in gas-tax collections that was triggered by a nearly 10-cent increase in the state’s per-gallon gas tax that went into effect on Oct. 1.
The gas-tax increase was required under a 2016 law that was passed as part of a broader renewal of the state Transportation Trust Fund, which uses dedicated revenue from the gas tax to finance road, bridge and rail network improvements across the state. The law requires the gas-tax rate to be changed whenever state gas-tax collections miss what’s known as the “Highway Fuels Revenue Target,” and they did so during the 2020 fiscal year as the economic restrictions enacted in response to the pandemic resulted in reduced traffic across the state.
After the increase in the tax, monthly collections for the state’s petroleum products gross receipts tax were up year-over-year by 14% compared to last November, according to Treasury’s report.
Downward trend overall
However, the trend for overall state tax collections continued in November and the year-to-date revenue figures for the traditional state fiscal year remain off the pace from the prior fiscal year.
The state’s typical budget cycle was changed earlier this year after Murphy and lawmakers decided to delay the start of the 2021 fiscal year, from July 1 until Oct. 1. That came as they also took action to delay the final payment deadline for state income taxes, from April 15 to July 15.
A stopgap spending bill was enacted in late June to cover the months of July, August and September, and a nine-month fiscal “year” 2021 budget was approved in late September to cover spending through the end of June 2021.
Nearly $10.4 billion in revenue was collected between July and November, which would be the first five months of the fiscal year using the typical budget cycle. That’s about $550 million below the total for the same five months of the prior fiscal year, according to Treasury.