NJ tax collections soar in March; SALT cap workaround big factor

New Jersey tax revenue between March 2020 and March 2021 soared 49.4%, according to data released April 16 by the New Jersey Treasury Department.

That marks welcome relief for state lawmakers and public officials who were anxious last year about an economic collapse and cratering state revenue amid the COVID-19 recession.

In March 2020, the state brought in $1.2 billion from tax revenue, compared to nearly $1.7 billion last month. New Jersey draws its money from three main sources: sales, income and corporate business taxes.

Proceeds soared year over year. Sales tax revenue grew 11.9% from $636.4 million in March 2020 to nearly $712 million this past March. Income tax revenue grew 74%, from nearly $591 million in March 2020 to more than $1 billion this past March.

But state officials noted that the extended income tax deadline from April 15 to May 17 will “delay the reporting of significant [gross income tax] collections into June.”

Corporate business tax money grew 22.2%, from $$300 million in March last year to nearly $367 million last month.

State financial officials noted that a tax law Gov. Phil Murphy signed last year to soften the blow of the $10,000 cap on state and local property tax deductions has shifted the timing on when many businesses file their taxes.

That in turn may have artificially driven up the numbers on the state’s accounting books, Treasury officials suggested.

Data released Friday show the state bringing in an extra $1.9 billion between January and March this year, compared to those same four months last year. This special tax filing mechanism, known as the Pass-Through Business Alternative Income Tax, accounted for $1.4 billion of that growth.

Tax credits issued by the state mean this new tax-filing method for businesses will by itself have no impact on state finances, for better or for worse.

But the financial picture that analysts from the executive and legislative branch have painted over the past two months shows a state expected to completely defy expectations of an economic meltdown.

Moody’s Investors Services this week upgraded the state’s financial outlook, while Fitch Ratings opted to keep New Jersey’s rating and outlook the same.

Last year, the state suffered two credit downgrades amid uncertainty surrounding the COVID-19 pandemic, business restrictions and the ensuing recession, as well as the infusion of $4 billion in debt to make up for anticipated monetary losses.

Instead, the exact opposite of a financial squeeze has occurred, and the state is expected to bring $3 billion more by June 30 than what the state’s financial analysts predicted last fall. That’s thanks to the added bond revenue, $7.9 billion in direct or indirect federal relief, and spikes in spending driven by pent-up consumer demand.

Murphy said the state is expected to sock away roughly $6.3 billion into its surplus over the next year.

The non-partisan Office of Legislative Services, in fact, projected that by the end of the next budget year – meaning June 30, 2022 – the state will end up with $550 million more than what Treasury officials are expecting.

Now lawmakers are questioning whether the state needed the $4 billion of debt in the first place, but Murphy defended the borrowing, saying on April 7 that “we make the decisions at the time we make them based on the best information we have.”

And want the state to enact some kind of longer-term budget planning for when money from the bonds and federal aid from the Biden administration dries up and expenses still mount, something Murphy has supported.