Tax Increases Coming
It’s decision time for our state lawmakers, as New Jersey must sign into law a balanced budget by the end of the day on Monday, June 30th. This year they are putting college students to shame with their delays. It looks like the final vote will be just hours before a shutdown, and the all-important Senate and Assembly Budget Committee hearings, which were targeted for earlier this week, will be meeting today, or today and tomorrow, or maybe Saturday, depending on when they finish their work.
In times like these there are a lot of rumors floating around about what may be shoved into the overall package in the final days. Back in late February, Governor Murphy proposed a budget with about 20 different tax increases. Legislators pushed back, but ultimately they felt they needed some of them in order to afford the spending they want to do, especially in a year when all 80 Assemblymembers are on the ballot for reelection.
There are three taxes that affect our industries that look like they will be in the final package. One is an increase in the tax on cigarettes from $2.70 to $3.00 a pack. Another is an increase in the tax on vaping cartridges, from 10ยข per milliliter to 30ยข (which will increase the cost of a cartridge by between 14ยข and 50ยข depending on the exact product).
While we have steadfastly opposed these increases since they were first proposed, ultimately legislative leadership insisted they needed the increase. Cigarette taxes have not increased since 2009. There was a proposal introduced to increase the tax by $1.30 per pack, but we were successful in keeping the rate of increase to just 30ยข. NJ will be 40ยข higher than Pennsylvania per pack, which is hopefully close enough to limit the loss of sales.
In the last few days, we also had to fight off a last minute proposal to dramatically increase the tax on the new nicotine pouch products, of which Zyn is the most popular brand. Currently, those products are taxed 30% of the wholesale price, a tax which is paid by the distributor and passed on to retailers. This proposal suggested replacing that tax with one that would be 30ยข per pouch, which means a can of Zyn would have a $4.50 tax. This would increase the retail cost of the product by about 40%. Thankfully, we were able to prevent any change in the tax rate.
These tax increases would go into effect August 1st. Retailers of cigarettes and vapes will have to pay a “floor stocks tax”, which means taking an inventory of all of these products they have in their store at midnight August 1, and then paying the additional tax due by September 1. We will have more details on that process soon. It does mean there is no incentive for anyone, including big chains with big warehouses, to stockpile product to avoid the tax, if they do they will just be creating more headaches for themselves.
The other of the taxes we are concerned with is a plan to increase the tax on the purchasers of property (residential and commercial) over $1 million. The Governor’s plan was to double the tax to 2% for property between $1 million and $2 million, and triple it to 3% for property over $2 million. The Legislature’s proposal is not as bad, leaving property between $1 million and $2 million at 1%, then increasing to 2% for property $2 million-$2.5 million, 2.5% for property between $2.5 million and $3 million, 3% for property between $3 million and $3.5 million ,and 3.5% for property over $3.5 million.
Still, it’sover the a sharp increase for businesses like service stations, which because of their location and the massive increase in property values the last five years, sell on average for over $2 million and reach as high as $4 million. Selling off their location is the retirement plan for many small business owners, and the fact that the purchaser has to pay $25,000-$50,000 more in taxes will affect what they can pay for the location.
You can read the statements we submitted on the cigarette tax HERE, on the vaping tax HERE, and on the real estate tax HERE.