New Jersey’s budget received another big boost from the sales tax despite the pandemic that has lingered for nearly a year.
The latest revenue figures released Tuesday by the Department of Treasury indicate sales-tax collections grew last month by 5% compared to the same month last year. Since the state reports sales-tax revenue with a one-month lag, the new figures reflect economic activity that occurred in December. That means the 2020 holiday shopping season produced more revenue for the state than the previous year’s, despite the lingering presence of the coronavirus.
The sales tax is the second-largest source of revenue for the state budget, behind the income tax, and total collections from the sales tax are now up by more than $220 million year-over-year, according to Treasury’s figures.
The sales tax is one of several revenue sources that have been steadily outperforming projections during the ongoing health crisis.
However, some major sources of state revenue remained off last year’s pace in January, according to Treasury’s figures. They include the income tax and the corporate business tax.
Way better than early 2020
Monthly sales-tax collections fell off pace by nearly 30% during the worst months of the pandemic last year. The significant drop-off came after a series of stay-at-home orders issued by Gov. Phil Murphy to help slow the rate of new COVID-19 infections.
But sales-tax collections have since rebounded, and the latest monthly report from Treasury is the sixth straight to show year-over-year sales-tax growth despite the pandemic.
In all, the sales tax was up by more than 4% through the first seven months of the state’s July to June fiscal year, nearly doubling the rate of growth that’s currently projected through the end of June.
Meanwhile, Treasury reported total revenues were up for the month of January, by less than 1%, and they were up by more than 4% through the first seven months of the fiscal year.
Word of caution
But Treasury officials continued to caution that actual collections would likely be off last year’s pace were it not for the creation of a new entity-level tax that is now serving as a workaround to help owners of so-called pass-through businesses receive a full federal deduction for state and local taxes.
The establishment of the workaround for the owners of many small businesses and other pass-through entities has changed how and when tax revenue can be collected by the state compared to previous years, all to help them avoid a $10,000 limit on the write-off for state and local taxes that was enacted at the federal level in 2017. The new state tax policy is expected to be revenue neutral, Treasury officials said.
“In future years, the (pass-through) collections will largely represent a shift in the timing of revenue collections that normally would come in during the spring, rather than a new State revenue stream,” the officials said. “Were it not for this timing shift, both January and year-to-date total collections would fall below last year’s levels,” the officials said.
The income tax, the largest source of revenue for the budget, remained off last year’s pace by 4.1% through the first seven months of the fiscal year. The corporation-business tax, another major source of revenue, was off by 2.2% year-over-year, according to Treasury.
Other revenue performers
Still, several sources of revenue continue to perform well ahead of projections, reflecting some of the ways the pandemic has affected the state economy.
Leading the way have been state Lottery revenues, with nearly $640 million collected through the first seven months of the fiscal year, according to Treasury’s figures. Moreover, Lottery revenues in January were up by $50 million year-over-year as huge jackpots for games like Mega Millions and Powerball helped drive ticket sales.
Thanks to a law passed in 2017, the Lottery revenues now flow directly into New Jersey’s grossly underfunded public-worker pension system, providing some welcome help for one of the state’s toughest fiscal challenges.
Meanwhile, more than $300 million in revenue has now been collected through the inheritance tax, marking a nearly 40% year-over-year increase. The alcoholic beverage and realty transfer taxes also remain up year-over-year, by 21.8% and 17%, respectively.
Last year, Murphy, a first-term Democrat, was predicting that historic revenue losses would be triggered by the pandemic, and he convinced lawmakers to authorize emergency borrowing without voter approval to help sustain the budget.
Murphy also secured the approval of several tax hikes in late September that have helped to offset revenue losses. They include a true millionaires tax that went into effect retroactively to cover income earned during all of 2020.
Murphy is scheduled to put forward his next state budget plan in less than a week unless lawmakers decide to change the current legislative schedule. Any delay would give the governor and lawmakers more time to determine how much additional aid New Jersey could expect to receive from the latest coronavirus relief bill under consideration in Washington, D.C.