With a critical deadline fast approaching, state leaders have tentatively agreed on a plan to temporarily hike taxes on New Jersey’s most profitable companies to help fund mass transit and will not pursue increasing the state’s sales tax, NJ Advance Media has confirmed.
Gov. Phil Murphy reached the preliminary deal with top state lawmakers on his proposal for a corporate transit fee as they try to nail down a new state budget for the fiscal year that begins July 1, according to two sources familiar with the negotiations who spoke on the condition of anonymity.
Under the plan, about 600 corporations in the state that make at least $10 million a year in profits would pay a 2.5% tax on all earnings for five years, retroactive to Jan. 1, 2024, to provide funding for cash-strapped NJ Transit.
Meanwhile, sources said, the Democratic governor and leaders of the Democratic-controlled state Legislature are expected to forgo a proposal to raise the state’s sales tax back to 7% — an idea that had been floated during budget talks in recent months as a potential way to increase revenue as the state faces a tough fiscal outlook.
Politico New Jersey was the first to report the developments, less than two weeks before the June 30 deadline for a new budget to be in place.
News of the transit tax comes as NJ Transit, the state’s rail and bus agency, has been beset by a series of cancellations amid a heat wave. Murphy this week called the issues “unacceptable” and “we’re trying to get to the bottom” of what happened.
Sources stressed that despite hammering out these parameters Thursday, Murphy, state Senate President Nick Scutari, D-Union, and state Assembly Speaker Craig Coughlin, D-Middlesex — the three leaders who negotiate state spending — have not yet agreed to a final state budget bill. It’s possible talks could still sour.
Plus, both the transit tax and a budget would still need to be approved by the Legislature next week.
The transit and sales taxes, though, had been sticking points in discussions so far, and getting all three leaders on board with including it in the budget clears a big hurdle.
The sales tax, currently, 6.625%, was reduced as part of a deal in 2018 between then-Gov. Chris Christie and lawmakers to raise the state’s gas tax instead. Murphy has dismissed the cut as a gimmick.
but Coughlin told NJ Advance Media earlier this month that while he was leaning toward supporting the transit tax, he was against hiking the sales tax.
“I don’t think this is the time,” the speaker said. “I think we need to improve the structural nature of the budget and spending so we’re in a better place for the future.”
This budget and those that follow are especially tight because leaders are expecting drops in tax revenue and high inflation after a few budgets with record spending.
Spokespeople for Murphy, Scutari, and Coughlin all declined to comment Friday.
NJ Transit faces a fiscal cliff, as well as a 15% fare hike set to take effect next month. Murphy proposed the transit tax in February — albeit without a time limit — as a way to provide a continued funding source to the agency, but it needed support from the Legislature.
The Murphy administration anticipates collecting about $1 billion a year for NJ Transit through the tax, though officials acknowledge the amount would vary each year.
Progressive advocates have championed the plan, but business groups have been steadfastly opposed. They note Murphy agreed to let a previous 2.5% corporate business tax — on a larger number of companies — expire at the end of last year and this would simply replace it.
Under this plan, the new corporate transit tax would go exclusively toward funding NJ Transit and sunset after five years, sources said.
Michele Siekerka, president and CEO of the New Jersey Business and Industry Association, said Friday her group is in “wait-and-see mode.”
“Obviously, a temporary tax is better than a permanent one. But including that retroactivity of the tax going back to Jan. 1, after the governor’s year-long promise to sunset the temporary CBT, is a major and impactful hit that borders on punitive,” Siekerka said in a statement. “Especially when you consider these impacted businesses will have to restate their financials for the first half of the year for taxes they’ve already paid.
“If this is what it’s going to be, with no other meaningful concessions or structural spending reforms to make our budget more affordable, then it will be taken as a blatant disregard for the consequences and impacts that we have been sharing for months,” she added. “
Supporters of the tax noted Friday it would affect corporations such as Amazon and Walmart in the name of helping commuters.
“We commend the governor and legislative leadership for dedicating a revenue source for NJ Transit for the first time in its 45-year history, and ensuring that funding comes from the corporations who have soaked up the lion’s share of economic activity since the pandemic,” said Peter Chen, senior policy analyst at the left-leaning think tank New Jersey Policy Perspective.
Maura Collinsgru, director of policy and advocacy at New Jersey Citizen Action, said the transit issues in recent weeks have shown “the consequences of decades of disinvestment in the state and country’s transit infrastructure” and the hope is “this announcement serves as a turning point for the state in recognizing that big investments require wealthy corporations to pay their fair share.”
There had been talks about using some of the transit tax’s money for other programs. Coughlin had mentioned dedicating part of it for his Stay NJ property tax relief program — which is designed to cut property taxes in half for most New Jersey seniors but has faced questions of whether there will be enough money to pay for it in the future.
One source said there are still discussions about providing a secure funding source for Stay NJ.
A fight over Stay NJ could be the “only wrinkle” to finalizing a new state budget over the next few days, the source said.
Next week is a critical time for the budget, which determines how state government spends taxpayer money. Though Murphy introduced a proposed $55.9 billion spending plan in February, it’s up to the Legislature to pass a final version by the start of the fiscal year July 1.
June is usually a time of frenzied negotiations over what to include and how to fund it, with talks usually going down to the wire. If the sides don’t come to a deal in time, the state government could shut down.
Lawmakers have to introduce and vote on a final budget next week and Murphy has to then sign it into law. Critics often complain the the process is rushed and not transparent.
One source said leaders are “moving as quickly as possible.”
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Brent Johnson may be reached at [email protected]. Follow him on X at @johnsb01.
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