What Marijuana and Airbnb Have to Do With New Jersey’s Tax Debate

(Bloomberg) -- New Jersey Democrats, now in control of both the governor’s office and the legislature, are considering a range of tax increases that may hit people in usual and unexpected places. Steeper prices for Airbnb Inc. stays and Uber Technologies Inc. rides are all but guaranteed. Higher tax rates on millionaires (favored by Governor Phil Murphy) and corporations (preferred by leaders of the state Senate and Assembly) also are on the table. The state government could shut down if an agreement isn’t reached within days. Here’s a look at the options.

More From Millionaires

Murphy, a former U.S. ambassador and retired Goldman Sachs Group Inc. senior director, says he wants to tackle income disparity in New Jersey, which has one of the highest living costs in the U.S. To support a $37.4 billion spending plan, he’d raise the income-tax rate to 10.75 percent from 8.9 percent for those with incomes in excess of $1 million. That would bring $765 million, according to the administration. Murphy’s predecessor, Republican Chris Christie, vetoed earlier attempts repeatedly during his eight years in office. The Senate president, Steve Sweeney, was a leading advocate of the tax but changed his view after the federal government, under President Donald Trump, enacted limits on deductions for state and local income tax when calculating federal taxes due. That particularly hit New Jersey, where the highest property taxes in the nation averaged $8,690 in 2017. Sweeney now says a millionaire’s tax would add to reasons for the wealthy to leave New Jersey and bring their businesses with them.

Two-Year Corporate Surcharge

Legislation proposed by Sweeney would levy a two-year surcharge on corporations netting more than $1 million annually. That’s unacceptable, says Murphy, who calls it a gimmick that would leave a budget gap when it expired in 2021. For the biggest corporations, the surcharge would bump the overall tax rate to 13 percent -- higher than any other state and a turn-off to employers that otherwise could be lured to New Jersey, Murphy says. Sweeney says the surcharge would raise $805 million each of the two years; Murphy’s administration puts the figure at $600 million.

Restoring 7 Percent Sales Tax

Under Christie, New Jersey’s 7 percent retail sales tax was cut twice, first to 6.875 percent, then to 6.625 percent. That’s still eighth-highest in the U.S., according to the Tax Foundation, a Washington-based research group. Murphy says returning the rate to 7 percent is a “a no-brainer” that would bring in $581 million. Neither Sweeney nor the Assembly speaker, Craig Coughlin, favors a higher sales tax. Raising it to 7 percent would tie New Jersey for second place with Indiana, Mississippi, Rhode Island and Tennessee. (California has the highest state sales tax, 7.25 percent; New Jersey neighbors New York and Pennsylvania have 4 percent and 6 percent, respectively.)

Making Pot Pay

Murphy has pitched a 25 percent excise tax and a 7 percent sales tax on recreational marijuana, for $49 million. One hitch: New Jersey has yet to make marijuana use legal. Murphy, who took office in January, had expected to have a policy in place within his first 100 days. But lawmakers are still wrestling with the details of legalization, including how to handle criminal-record expungements and commercial regulations. Six states collected taxes on recreational marijuana as of January, according to the Tax Foundation, and New Jersey’s levy would be on the steep end: Washington is the top-taxing state, at 37 percent.

A Tax on Sharing

Murphy’s budget called for extending sales taxes to the sharing economy, including ride services from Uber and "transient accommodations" by Airbnb. Both houses of the Legislature have approved a 30-cent charge per ride (with exceptions for some rural areas), which a non-partisan legislative office estimates will generate $5.4 million to $12 million. Legislation is pending on a rentals tax. Both bills would need Murphy’s signature to become law.

More Internet Sales

New Jersey already taxes transactions by Amazon Inc., Macy’s Inc., Home Depot Inc., Staples Inc. and other major retailers that have a physical presence in the state. A June 21 U.S. Supreme Court decision now permits states to charge on all online-store sales. New Jersey lawmakers want to start those collections immediately. It’s not clear how much revenue that would generate. Though the U.S. Government Accountability Office has estimated New Jersey’s share as high as $351 million, Murphy’s projection is about $125 million.

Fee for Bags

Lawmakers have approved a 5-cent fee on paper and plastic shopping bags, for an estimated $23 million. Though the fee nominally is for lead abatement, Jeff Tittel, director of the New Jersey chapter of the Sierra Club, a pro-environment research and lobbying group, noted that the revenue is already being counted in the general fund. Murphy says he’ll consider the bill.

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