Category Archives: sales tax

>AS a Matter Of Fact…Busting the myth: The real numbers show N.J. is not the most overtaxed state in the nation

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By Mary E. Forsberg and Deborah Howlett
June 26th, 2011

Perhaps you’ve heard a politician or two, in an accusatory tone, declare New Jersey has the highest taxes in the nation. It’s become a rallying cry for the current administration. It is repeated as an indisputable fact by the media. But mostly it just sounds right to people, perhaps because it so neatly fits the cynical narrative of government waste, fraud and abuse.
The thing is, it’s not true.

Consider this from a recent press release by the Connecticut House Republican Party:
“Connecticut residents already pay the highest taxes in America.”
Or this from the Buffalo News editorial page: “New York is the most overtaxed state in the nation.”
Nope. According to the Orange County chapter of the Lambda Alpha economics society, “California is the most overtaxed state in the nation,”
And from a conservative pundit in Chicago: “I live in Illinois … the most overtaxed state in the union.”
But wait. There’s another. The vice chair of the Maine Republican Party has said, “Maine is currently the most overtaxed state in America.”
They can’t all be right.
For the record, New Jersey ranks eighth among all states when state and local tax revenues are compared as a percentage of taxpayer’s personal income, according to an analysis using data from the U.S. Census and the U.S. Department of Commerce, Bureau of Economic Analysis. It’s the cleanest comparison of the tax “burden” in all 50 states. New Jersey’s ranking drops considerably once you get past property taxes and look only at state tax collections.
Simply comparing total revenue collected from taxes in each state would produce a wholly inaccurate comparison because poorer, less-populated states would always appear to tax less. Measuring as a percentage of personal income, or on a per capita basis, provides necessary
context and a more accurate comparison among states.
Consider the big three state revenue sources in New Jersey — income, corporate and sales taxes — and then size up property taxes.

Income tax


On a per capita basis, New Jersey ranks seventh among states for income tax revenues, according to U.S. Census data. As a percentage of personal income, New Jersey ranks 19th among states.
It’s important to understand New Jersey is consistently at the top of lists that rank states in terms of median income and millionaires (those with at least $1 million in investable or liquid assets) as a percentage of households.
With all that wealth, the state also has a progressive income tax that collects significant amounts of its revenue from the wealthiest in the state and virtually none from the poorest, such as married couples whose incomes are less than $20,000 ($10,000 for a single person).
The progressive aspect of New Jersey’s income tax has evolved since the state’s first 2 percent flat tax was enacted in 1976. Public opinion polls show a vast majority approve of raising rates levied on income that exceeds $1 million a year.
Other states also have local income taxes. Philadelphia, for example, levies a 3.928 percent wage tax on residents and a 3.4985 percent wage tax on nonresidents on top of the state’s 3.07 percent flat income tax. Cities in New Jersey are barred from imposing income taxes on workers.
Corporate Tax

Corporate taxes in New Jersey rank ninth as a percentage of personal income and sixth when measured per capita.
New Jersey took in a little more than $2 billion in fiscal year 2010 from corporations, or 7.5 percent of all revenue collected by the state. However, 93 percent of the 252,000 corporations subject to New Jersey’s corporate business tax paid the state less than $2,000 each. Corporate revenues for the year surpassed $24.6 billion.
Sales Tax

Comparing revenue from the sales tax puts New Jersey 19th on a per capita basis and 36th when measured as a percent of personal income.
The state sales tax is often cited as one of the highest in the nation because of its 7 percent rate. However, it is applied more narrowly than sales taxes are in many other states.
Food, clothing and gas are exempt, for example. Depending how one looks at it, that is a loss to the state or a savings to taxpayers of about $2.6 billion.
Nor does New Jersey allow cities or counties to collect local sales taxes, which many other states allow.
Montgomery, Ala., levies a 10 percent sales tax (4 percent state; 6 percent local) on everything sold, including food.
In Georgia, a 12 percent combined state and local sales tax is the norm in some areas of the state.
Property Taxes

What’s abundantly clear, however you slice the data, is that New Jersey ranks among the top one or two states in the nation when it comes to property taxes, which are the only real source of revenue for local government in the Garden State. Last year, property taxes produced $25 billion in revenues, exceeding revenue from the state’s three major taxes.
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In total, as a percentage of personal income, taxes in New Jersey rank about eighth among all the states. Considering it ranks near the top for median income and wealth, that designation hardly seems out of line.
But those are not the numbers pushed by anti-tax zealots. Groups such as the conservative Tax Foundation have cited New Jersey as having the highest tax burden in the nation, using a convoluted formula that doesn’t quite parse the intricacies of local tax laws.
For example, the Tax Foundation charges back to New Jersey the $2.6 billion in income taxes paid to New York by New Jersey residents who work in New York and must abide by New York tax laws, over which New Jersey has no control.
By the way, that $2.6 billion is not just a blip in the data. It is more than New Jersey collects from its corporation business tax, the state’s third-largest revenue source, and it is one of the largest income transfers from one state to another in the country.
All of this just points to the need to be careful when citing state rankings.
Some, such as the Tax Foundation’s, only obscure real facts because they allow politicians to cherry-pick data and use them to justify their political philosophy.
So the next time you hear someone say New Jersey is the most overtaxed state in the nation, look past the rhetoric and consider the real numbers behind the statement.

Check out the tax data tables here.

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Filed under corporate taxes, Debrorah Howlett, income taxes, New Jersey, New Jersey Policy Perspective, property taxes, sales tax, tax burden

Scharfy Tries To Deflect Blame For 41.9% 5 Year Tax Increase Away From Himself By Blaming School System


As I was surfing around the web, I stopped by the website for the RedBankGreen.com and found the latest article posted by Dustin Racioppi titled MAKE ALL PAY FOR SCHOOL, MAYOR SAYS

It seems as though Middletown’s appointed mayor Gerry Scharfenberger, has this rather novel but highly unoriginal idea to help unburden tax payers by having the Township Attorney draft a meaningless resolution asking his buddy the Governor, to increase the sales tax by 1% and use the money to offset property taxes by using the revenue to pay for school funding.
He is qouted as saying that “Everybody sort of commiserates, (and thinks) this could be a great thing…It’s something that’s got to come, because we can’t just keep burdening taxpayers.”
Wow, Scharfy has become quit the Progressive hasn’t he?
If Scharfenberger had proposed this idea earlier in the year, before he jumped onto the governor’s bandwagon by attacking teachers and the Middletown school system and blaming them as the reason for driving the local tax rate up through the stratosphere, I very well may have given him kudos for think outside the box, even though he has no idea how the money would be dispersed once it was gathered by the State.
Unfortunately that is not the case.
This latest headline grabbing scheme seems to be more intended to deflect criticism away from his personal record of raising local taxes by 41.9% over the 5 years that he has served on the Township Committee (3 of those years as Mayor) if the currently proposed Township budget, which includes a 14% spending increase, that is also 8 months late, is adopted at the next Township meeting on August 16th.
I guess he figures that if he can raise the evil spectre of the Middletown Board of Education, by pointing out that ~60% of local tax bills go to support the education system, people will forget his tax and spend record on the municipal portion of those tax bill.
Scharfy seems to thinks that it would be OK to continue raising the municipal tax rate, if only somehow, those in Trenton could take care of educating Middletown’s kids.
That sounds unrealistic, instead how about focusing on the proposed 14% tax increase that he supports, by trying to cut spending rather than writing resolutions that fall within the jurisdiction of the State Legislature.

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Filed under Gerry Scharfenberger, Gov. Chris Christie, Middletown Board of Education, RedBankGreen.com, sales tax, tax increase, Trenton

NJPP Monday Minute 3/8/10 New Jersey Sales Taxes: Number 2 in New Jersey; Below Average Nationally


This is one more set of facts showing that New Jersey is not a high tax state as assumed by many:

  • New Jersey’s sales tax is the state’s second largest revenue source, raising over $8 billion a year.
  • New Jersey is 32nd nationwide for sales tax collections per capita.
  • New Jersey’s 7 percent state sales tax rate is 31st in the nation. New Jersey’s local governments are not allowed by law to levy local sales taxes.
  • New Jersey is 42nd in sales tax collections as a percent of personal income.

COLLECTION AND USES
While income tax revenues are dedicated to property tax relief, most of the $8 billion collected in sales taxes are available for general state purposes with three exceptions-all written into the state constitution. These voter-approved amendments dedicate approximately $1 billion of the $8 billon collected to open space preservation, transportation and property tax relief. The 1998 and 2000 amendments annually dedicate $98 million for open space preservation and $200 million for the state’s transportation system from existing tax revenues. In 2006, New Jersey raised its sales tax rate to 7 percent from 6 percent and now requires that approximately $650 million (1/2 of the 1 percent increase) in sales tax revenues be used for property tax relief.

SALES TAX COLLECTIONS PER CAPITA
The average New Jersey resident each year buys approximately $10,800 in goods and services that are subject to the sales tax and pays just over $750 in sales taxes on those items. While some might view that as a lot of money, the residents of 31 states pay more-either because the state where they live allows local governments to levy their own sales taxes, their state has a higher tax rate or it taxes a broader range of goods and services.

TAX RATES-STATE AND LOCAL
Forty six states (all but Alaska, Delaware, Montana and Oregon) and the District of Columbia have state-level sales taxes with rates ranging from 2.9 percent in Colorado to 7.25 percent in California. Thirty eight of those states (not including New Jersey) allow local governments to levy local sales taxes at rates ranging from .125 percent in New Mexico to 8 percent in Alabama. Total state and local sales tax rates range from 4.5 percent in Hawaii to 12 percent in Alabama. According to the Sales Tax Institute, 31 states have combined sales tax rates greater than New Jersey’s 7 percent rate; 12 have tax rates lower than New Jersey’s; and 2 are equal to New Jersey’s. Most of the states with lower tax rates do not allow local governments to collect their own sales taxes.

LOCAL SALES TAXES
In the 38 states where local sales taxes are allowed, state and local governments collect nearly $300 billion in sales taxes – approximately 80 percent of that is collected by states; 20 percent by local governments. As a share of total sales taxes collected in the state, New York, Louisiana and Colorado collect more than 50 percent of the sales tax revenue from local sales taxes. In 2007, California local sales taxes brought in over $9 billion; New York collected just over $11 billion in local sales taxes.

New York City and all 57 counties in New York State levy local sales taxes. The majority of them have some form of tax sharing arrangement with other local governments (including school districts and the Metropolitan Transportation Authority) within their boundaries. Sales tax revenues are a significant component of revenues for local governments in New York State. In 2004 they were 8.6 percent of local revenues. In part, this is how New York State reduces property taxes paid by homeowners.

EXPANDING THE BASE – TAXING SERVICES
Knowing the sales tax rate is not enough to compare the amount of tax people pay from place to place because wide variations exist in what good and services states tax. For example, New Jersey does not tax clothes (42 states do) or food purchased in a grocery store (20 states do). A state that taxes a broader range of goods and services can have a lower tax rate and still collect the same amount of revenue.

In 2006, New Jersey Policy Perspective analyzed possible expansions to the sales tax base including many services not taxed by most states. It found that if the state chose to enact every base-broadening suggestion, New Jersey would expand its sales tax base by 85 percent, and, by doing so, could raise an additional $5.6 billion. Alternatively, by broadening the tax base it could lower the tax rate from the 6 percent rate at that time to 3.2 percent and still collect the same amount of revenue. The analysis includes some unlikely scenarios-for instance it is unlikely that New Jersey will ever consider taxing food sold in grocery stores. It also includes things the state should consider-such as imposing a sales tax on motor fuel sales which would raise approximately $900 million. The point of the analysis is to show the impact of change and begin a discussion.

The sales tax is an important source of revenue to all states and many local governments in the U.S. For more information about it, please see NJPP’s 2006 report You’re 40; Now Get to Work, Making the State Sales Tax Pull its Weight.

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Filed under Monday Minute, New Jersey, New Jersey Policy Perspective, sales tax