The $1.2 billion in new or expanded taxes in Gov. Phil Murphy’s proposed FY26 budget – if they make it to the finish line – will hit just about all New Jerseyans in some way.
Among them are so-called “sin taxes” on online gaming, cannabis and alcohol, expanded sales tax rate on a litany of previously tax-exempt activities, real estate transfer taxes and even taxes on any deliveries that go through a New Jersey warehouse.
But between now and then, two essential questions remain:
- Will Democrats in the Legislature allow for such tax hits in an election year, to appease an outgoing governor that will cumulatively strike at affordability and claim big portions of wealth and prosperity earned over years or decades from taxpayers and key industries?
- And what happens to the budget if those proposed revenue raisers are rebuffed by the Legislature?
“The answer to the latter question may be easier to predict, but it’s still not a great end result,” said NJBIA President and CEO Michele Siekerka. “If the overspending is the same and there’s still a structural deficit that grows larger because taxes are rightfully pushed back, there will likely be a heavy draw from the state’s current surplus.”
“And then it’s a bigger mess for the next governor to figure out,” added NJBIA Chief Government Affairs Officer Christopher Emigholz. “But until then, these are just bad tax proposals that will hurt businesses and make it less affordable for most New Jersey residents.”
A RANGE OF PAIN
While new taxes are generally only appreciated by progressive groups, the types of taxes proposed in Gov. Murphy’s final budget figure to be even less popular with businesses and the general public because they factor into many life experiences.
The budget calls for $277.1 million by expanding the sales tax base to include the following services and transactions:
- Participatory sports
- Interior design
- Vehicle trade-ins
- Digital services
- Second-hand airplane sales
- Certain complimentary meals, rooms, and tickets
- Horse training
- Removing the partial sales tax exemption and $20,000 sales tax cap on boats or other vessels.
“When you add 6.625% to any of these items, it leads to higher costs for consumers and businesses,” Emigholz said. “And, these additions really add more credibility to New Jersey’s pro-tax, anti-affordability reputation.
“For instance, some states tax digital products like an e-book or a stock photo. But most do not tax digital services because they’re not tangible, end products. We will wait on specifics for what digital services mean, but it may be that New Jersey is setting itself up for outlier status on the expansion of sales tax for this.”
Also requiring more detail is a sales tax on participatory sports.
Currently, New Jersey Treasury documents show that admissions to facilities such as bowling alleys, swimming pools, golf courses, baseball batting cages, billiard parlors, and others, where the patron actively participates in a sporting activity, qualify for exemption from a state sales tax.
Perhaps the biggest hit on the expansion of the sales tax would come from vehicle trade-ins.
“If your vehicle trade-in value is assessed at $30,000, just as an example, then nearly $2,000 of that would now go from your wallet to the state,” Siekerka said. “That’s a big affordability hit on the purchase of your next vehicle.”
VICE PRINCIPLES
Governor Murphy is also proposing a series of “vice” or “sin” taxes as part of the FY26 package, including:
- $402.4 million from a significant increase in internet gaming and online sports wagering tax rates from 15% and 13% to 25%
- $70 million from increasing cannabis taxes by 500%
- $41 million from 30 cent per pack increase in the Cigarette Tax rate from $2.70 per pack to $3 per pack
- $18.5 million from a 10% increase in Alcoholic Beverage Tax rates
- $7.8 million from higher firearm and ammunition fees
The online sports betting tax is already getting the most attention.
Soon after Murphy’s budget-in-brief document was released on Tuesday, Senators John Burzichelli (D-3) and Mike Testa (R-1) released a rare bipartisan statement condemning the proposal.
“Simply put, doubling the tax on online sports betting and iGaming is putting a New Jersey success story at significant risk,” they said. “Any effort to increase this tax on New Jerseyans threatens all of the progress New Jersey has made, especially at levels that would make New Jersey’s customers too heavily taxed.
“A tax increase would negatively impact jobs, industry investment, and our New Jersey customers, and it could affect future revenue growth for the state.”
HOUSE MONEY
Another proposed new tax burden is a major $317 million increase in the realty transfer fee.
Specifically, it proposes a doubling of the fee on purchases between $1 million and $2 million from 1% to 2%, and to triple the rate to 3% for property sales over $2 million.
“Housing costs are definitely part of New Jersey’s affordability issues, and a housing tax increase is certainly not going to help with that,” Emigholz said. “New Jersey needs to build and sell more housing to improve the housing market, lower prices and help the state economy, and this tax goes in the opposite direction on all of those things.”
“There’s also a compression impact here for folks whose homes won’t sell for $1 million,” Siekerka added. “If it’s harder to move the $1 million home, it’s foreseeable that houses in the $600,000 to $900,000 range will be slower to move for people looking to buy up to their dream home.
“You’re looking at possibly slowing the market.”
The big mystery about this tax, not yet defined in budget documents, is if the tax would impact the commercial real estate market.
“That would have a further chilling effect on an already depressed commercial real estate market,” Emigholz said.
TWO DOLLAR PILL
A year ago, the FY25 State Budget proposal included a $10 million warehouse tax that would charge $1 per truck using a New Jersey warehouse.
It had few details in the budget proposal. It was roundly and firmly opposed by business groups, legislators and the general public. And it went nowhere.
This year? Governor Murphy is going double or nothing by proposing a $20 million or $2 per truck charge instead.
“The proposal is uniquely anti-industry and anti-consumer at the same time,” Siekerka said. “It’s not really known who would pay the tax – truckers, retailers, manufacturers, or warehouse facilities. But what we do know is that charge will likely filter right now to the consumers who are ordering their products online.”
“New Jersey is a logistics state, and this additive tax would just impede the growth of the industry,” Emigholz added. “This industry also supports manufacturing and the innovation economy. It’s still not a great idea.”
