On August 25, 2020, New Jersey Governor Phil Murphy released his revised budget proposal for FY 2021.
The spending plan could affect everyone, as it is underpinned by borrowing and tax increases. The budget calls for approximately $4 billion coming from borrowed amounts, with another $1 billion from new tax initiatives. In addition to borrowings and revenue increases, the budget also hinges on tightening state spending.
Next, the Legislature will start drafting its own budget, which ultimately must be passed by September 30, 2020. The new budget cycle will cover nine months with the previous cycle covering 15 months. This is as the state previously delayed the start of the fiscal year which typically begins July 1, postponing the start to October 1 as a result of COVID-19. Facing the unprecedented crisis of COVID-19, the Governor’s office has reported that decreased revenue collections left the state facing a $5.7 billion shortfall over what was initially projected.
With the Governor asking taxpayers to pay more in taxes, Senate President Steve Sweeney (D-Gloucester) said that there would be “a very healthy discussion of all of this”, without committing, saying “it’s the beginning of the conversation now.”
The Governor’s proposal outlines a number of tax initiatives, including:
- Imposing the millionaire’s tax on all income above $1 million (this has been previously blocked by Senate President Steve Sweeney);
- Making the 2.5% corporate surtax permanent;
- Imposing a surcharge to taxpayers benefiting from the QBI deduction (Qualified Business Income deduction – was a new deduction as part of the 2017 tax reform, benefiting owners/partners of pass-through entities);
- An increase to cigarette-tax; and
- And a higher rates on limousine services, yacht and boat sales and firearm and ammunition taxes.
contact a member of Withum’s State and Local Tax Team.
In addition to some of the tax initiatives set out by the budget proposal, Gov. Phil Murphy has said he is “very seriously” considering a tax on high-volume electronic trading in the state. A bill was originally introduced on July 16, with an identical version that was put forth after and is sponsored by Senate President Steve Sweeney. The bills have not had a committee hearing. It remains to be seen how serious the state leaders are in enacting legislation similar to this, as it was not included as part of the budget proposal.
As states and localities continue to face significant budget shortfalls due to COVID-19, it is expected in order to balance budgets, state and local governments will continue putting forth new tax measures. Withum’s State and Local Tax Group can help businesses navigate through these uncertain times.
Authors: Jason Rosenberg, CPA, CGMA, EA, MST | [email protected] and Zhoudi Tang, CPA | [email protected]
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