We’ve talked the last few times about the different ways the state will be spending more than $37 billion during the 2019 fiscal year on things like education and transportation, but today we’re going to focus on exactly where all of this money comes from, and how some recent tax policy changes that were passed along with the new budget will be influencing revenue collections.
One those new changes is impacting the income tax, which is the budget’s largest single source of revenue, topping out at $16 billion — which is almost half of all revenues the state will take in during the fiscal year. The big change was the establishment of a new marginal income-tax rate for New Jersey residents who earn over $5 million annually, which is known as a pentamillionaires tax. There are about 2,000 people in New Jersey with incomes that high, and the new rate of 10.75 percent is expected to bring about $280 million in new revenue.
But, one thing that will limit how much the state collects from the higher rate is how the income tax itself is structured in New Jersey. It’s a progressive tax, which means one rate isn’t applied against someone’s full income; instead the rates increase as their earnings increase, topping out at the new high of 10.75 percent but just on earnings over $5 million.
Turning to the sales tax, this tax is generally levied as a uniform rate, whether someone spends $1 on an item that is subject to the tax or $1 million. The current rate is 6.625 percent, and that’s after Gov. Phil Murphy lost his attempt to convince lawmakers to increase the rate to bring in more revenue for the budget’s general fund. But New Jersey will benefit from a recent court ruling that expanded its ability to tax online sales, and the sales tax will still generate roughly $10 billion for the budget, making it the state’s second largest source of revenue.
The third largest source of revenue is the state’s corporate-business tax, which will bring in $3.25 billion after the top-end rate was increased from 9 percent to 11.5 percent for businesses with profits that total more than $1 million.
But, in addition to changing some of the tax rates, the new budget is also benefitting from revenue that will come in from a modernizing of the tax code itself. One of those modernization changes was the establishment of a tax on ridesharing services like Uber and Lyft. The surcharge of 50 cents on each ride is expected to generate $12 million in new revenue.
A new tax on the liquid nicotine that is used for those who smoke electronic cigarettes is also expected to bring in another $17 million in new revenue. That tax is 10 cents on every millileter of fluid. Another $15 million in revenue will come in from applying the sales tax and hotel taxes to home-sharing services like AirBnB.
The new budget also counts on the state collecting $25 million from legalized sports betting after a new law was passed in the wake of major U.S. Supreme Court ruling that is now allowing the state to take wagers on sporting events at casinos and racetracks.
But, one source of tax revenue that’s still a little bit hazy is what the state could ultimately collect from the sale of legalized recreational marijuana. Murphy wants it to be legalized, and at one point revenue projections ranged as high as $300 million. Then they were revised down to $80 million, and now it’s uncertain if there’s any new tax revenue to be had from marijuana as lawmakers continue to delay legalization. No matter happens, medical marijuana remains legal in New Jersey and is expected to bring $20 million in tax revenue for the state budget.