Transportation Trust Fund Addressed Through Tax Changes
by Greg Debski, Esq., Holman Frenia Allison, P.C. –
September 12, 2017
Last fall, the New Jersey legislature passed and Gov. Chris Christie signed into law a bill that funded New Jersey’s tapped-out Transportation Trust Fund (TTF). The legislation combined a 23-cent-per-gallon hike in the state’s gas tax with a reduction of various taxes.
The bill gradually eliminates the New Jersey estate tax; increases the amount of retirement income that is free from state income taxes; provides a new tax cut for veterans; and increases the New Jersey Earned Income Tax Credit (EITC) to 35 percent of the federal benefit amount.
The increase in the gas tax will go toward funding an eight-year, $16 billion TTF that will include another $16 billion in matching federal dollars. “Over the next eight years, a record $32 billion in state and federal funds will be invested in infrastructure improvements and modernizations in New Jersey. This compromise legislation locks in what I called for from the beginning: tax fairness for all residents, leading to a more affordable state and an improved economy,” Gov. Christie said in a statement at the time of the law’s passing.
State Sens. Paul Sarlo (D-Wood-Ridge) and Steven Oroho (R-Sparta), who together sponsored similar legislation earlier last year, were optimistic about this passed legislation. “This is one of the most significant investments in New Jersey’s infrastructure and economy in recent history,” said Sarlo.
The New Jersey Office of Legislative Services (OLS) analyzed the legislation and estimated the gains and losses for the taxes affected, which are shown in Table 1. The following taxes are affected:
The gas tax rose 23 cents per gallon on November 1, 2016, as a result of the new law, while the diesel fuel tax rose by 27 cents per gallon. Should anticipated revenues fall short of projected revenue, the state treasurer has statutory authority to raise the tax in the future without seeking voter or legislative approval.
Sales and Use Tax Reductions
On January 1, 2017, the sales tax decreased from 7 percent to 6.875 percent. Beginning January 1, 2018, it will decrease further to 6.625 percent.
The estates of deceased New Jersey residents are subject to both an inheritance tax and an estate tax in addition to any federal tax owed. While the new legislation didn’t change the inheritance tax laws, it did change the estate tax. Prior to this bill, the first $675,000 of an estate was exempt from tax. Under the new law, the first $2,000,000 of an estate will not be taxed for any resident who dies in 2017. On January 1, 2018, the estate tax will be completely eliminated. A driving force behind this portion of the bill is that many residents were moving to states like Florida which have no estate or inheritance tax, so it will be interesting to see if taxpayer outflow changes as a result of the elimination of the estate tax.
In a 2015 survey of NJCPA members, 74 percent of respondents indicated that they had “advised a client to consider relocation due to New Jersey’s estate and inheritance taxes.” In a follow-up poll conducted they the NJCPA in December 2016, more than one third of the respondents indicated that they will be changing their advice to clients now that the estate tax is being phased out.
Retirement Income Exclusions
Retired taxpayers over the age of 62 who have gross income of $100,000 or less will have more retirement income excluded from tax as shown in Table 2.
Earned Income Tax Credit
New Jersey’s Earned Income Tax Credit increased from 30 percent to 35 percent of the federal Earned Income Tax Credit in 2017 for low- and moderate-income working people if they qualify based upon a number of factors that include income, marital status and number of children.
Exemption for Veterans
Veterans who are honorably discharged or released from service under honorable circumstances will be eligible for an additional annual tax exemption of $3,000, starting in 2017. The average benefit for each of the state’s estimated 220,000 veterans with an income-tax liability will be worth about $105, the OLS said.
The tax decreases are a welcome and needed approach for New Jersey residents who are among the most heavily taxed in the country, whether alive or dead.
Gregory J. Debski
Greg Debski, Esq., CPA, LL.M.-Tax, serves as manager of the tax division at Holman Frenia Allison, P.C. He has 20 years of experience in tax preparation, planning and compliance for complex business and individual clients. Greg can be reached at firstname.lastname@example.org.
This article appeared in the September/October 2017 issue of New Jersey CPA magazine. Read the full issue.