As previously discussed, the 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.
The Governor’s previous budget proposals have included various tax increases. Additionally, the enacted legislation includes the Millionaires Tax. This revenue measure increases the state’s gross income tax rate on income between $1 million and $5 million, from 8.97% to 10.75%. Individuals with income over $5 million currently pay that top marginal tax rate. In addition, the surtax has been extended, which subjects corporations to a 2.5% surtax through 2023 for those earning at least $1 million in income. These tax increases are retroactive to January 1, 2020.
Many Wall Street businesses will be pleased to learn that the proposed Financial Transaction Tax was nixed from the budget proposal. However, the Governor has been unclear in public if he would consider it down the road in a future budget bill.
"With this budget, Governor Murphy might as well be signing a letter addressed to every New Jersey taxpayer that reads move to Florida or Pennsylvania, I don't care. In the middle of an economic crunch made worse by his decisions, Phil Murphy's lack of understanding for struggling New Jersey businesses and families were never more evident." Doug Steinhardt New Jersey Republican State Committee Chairman
As its been reported time after time, those in the Northeast have been already fleeing to lower taxed states. Since residency audits continue to rise in New Jersey, New York, and the surrounding region; a tax increase during the middle of a pandemic only accelerates relocation decisions for high-income earners. As people are working remotely, business owners and employees are considering their options with state tax planning. One of these planning opportunities that business owners may need to consider is the New Jersey “BAIT” SALT Deduction Limitation Workaround.
As states and localities continue to face significant budget shortfalls due to COVID-19, it is expected legislatures will continue putting forth new tax measures in order to balance budgets.