Since a 1992 U.S. Supreme Court ruling (Quill v North Dakota) online sales have largely been exempt for state sales taxes. In Quill, SCOTUS ruled that sellers did not have to collect sales taxes unless they had a physical presence in the home state of the buyer.
Consumers in many states, including New Jersey, are required to pay the sales taxes on online purchases themselves. Few do and few states do anything to enforce the tax.
In 1992 online sales were not such a big deal. However 20 years later, America makes $200 billion per year in online retail purchases and states are losing out on $23 billion in sales tax revenue, according to a Washington Post report.
Large “brick and motar” retailers complain that the online exemption creates a pricing disadvantage for them and a cost, as consumers shop for items in their show rooms but then purchase items online at the lower price, often from smart phones while still in the retail show room.
Local retailer Vic Scudiery, owner Hazlet electronics seller IEI and the former Chairman of the Monmouth County Democratic Party, has long held that the state is losing out by not taxing online sales. Scudiery told MMM that IEI’s monthly sales tax paid to New Jersey was over $20 thousand before the majority of its sales shifted from store visits to the Internet. Now, Scudiery says his store generates less than $8000 per month in sales tax for New Jersey while overall revenues continue to grow.
Mega online retailer Amazon had long been opposed to collecting sales taxes, in part because the process of collecting and reporting sales taxes for thousand of jurisdictions is too cumbersome and confusing. But Amazon has abandoned that argument as it has changed its business model. As the company aggressively opening new distribution centers in many states, including New Jersey, to reduce the time and cost of its shipping of consumer products, it is cutting deals with states that would allow it avoid collecting sales tax for a year or two and get state income tax credits if they build and hire. In New Jersey, Amazon will build two huge distribution centers, create 1500 jobs. The company will start collecting New Jersey’s 7% sales tax from Jersey residents in July of next year under a voluntary agreement with the Christie administration.
NetChoice, a trade association lobbyist, who’s members clients include eBay, facebook, Overstock.com and Internet wine sellers, are continuing to fight sales taxes based on the complicated and cumbersome argument.
Bi-partisan federal legislation, The Marketplace Equality Act, would authorize states to collect sales tax from online retailers shipping products into their jurisdictions and require, that if the states choice to impose that tax collection on retailers, that they simplify the process and, in some circumstances, provide software to the sellers that would calculate the appropriate tax.
Republican governors, lead by Gov. Chris Christie, have dropped their long term opposition to taxing online sales and endorsed the Marketplace Equality Act, according to the Wall Street Journal.
Good afternoon, Lt. Governor Guadagno, Senate President Sweeney, Speaker Oliver, and all the members of the Legislature. I take my constitutional powers and responsibilities seriously, as I know you do. When there are pressing matters that I believe must be addressed, it is my responsibility to call our Legislature into special session.
Giving the certainty of tax relief to our citizens and making our state more competitive with our neighbors in job creation—today—will allow us to put more New Jerseyans back to work this summer. What could be more important for us to do today?
I know it’s been a long year and I know over the last few weeks each of you have been working hard to bring this legislative session to a successful conclusion. We did many great things together. But there is one greater thing left to do—lock in tax relief today that will help to create new jobs tomorrow.
Trenton, NJ – Determined to reverse the path chosen by Democrats in the legislature to impose an $800 million tax hike on New Jersey residents, while holding middle-class tax relief hostage, Governor Chris Christie today called for a special session of the state legislature Monday.
In a letter to Senate President Stephen Sweeney and Assembly Speaker Sheila Oliver, Governor Christie noted the fundamental choice confronting Democrats in the legislature:
“Continue to move forward by letting people, and not government, enjoy more of the earnings produced by their own labor, or take a step back to repeat the days where taxes are the answer to each and every challenge,” said Governor Christie.
Yesterday, for the third year in a row, Governor Christie signed into law a constitutionally balanced budget that delivers on key priorities for the people of New Jersey without raising taxes – despite attempts to inflate spending and raise taxes.
“That budget, which contained billions of dollars in spending, failed to address the single issue that strikes at the heart of our shared interests, and our continued prosperity. Lowering the tax burden imposed on every New Jersey resident is a matter of unique and critical public interest that demands our immediate and full attention,” the Governor wrote to the legislative leaders.
Beginning with his budget address in February, Governor Christie sought to reach agreement on tax relief and, for a time, received numerous commitments from legislative Democrats to not raise taxes – only to have those commitments pulled back in favor of a massive tax increase. The Governor said in his letter today that he seeks to address both houses of the legislature to communicate his objections to bills which together betray those promises.
The Governor closed his letter to Senate President Sweeney and Speaker Oliver by noting the impending celebration Wednesday of Independence Day. It was 236 years ago that the forefathers recorded in the Declaration of Independence that they had united against the “history of repeated injuries and usurpations” imposed by government, including the imposition of taxes “without our consent.”
“Today, our citizens deserve the same opportunity to decide whether a new direction, embodied in the recommendations I will share, is needed to end the cycle of tax increases that has paralyzed our State’s growth, and stunted our citizens’ progress,” the Governor said.
“When you convene this Monday at 11:00 a.m., I will ask for the opportunity to address your members on the two paths that face all who are fortunate enough to serve as elected representatives.”
What do Florida, New Hampshire and Washington state have in common?
They’re among nine states that not only weathered the worst economic recession of our generation, but found ways to make their economies stronger, attract new people and create jobs when the rest of the nation floundered.
From 2001 to 2010, these nine states saw employment increase by 5.4 percent when the rest of the country remained stagnant.
What do these states have in common that allows them to grow jobs during horrific economic times?
No income tax.
In New Jersey, we’re on our way to replicating the job-creating economic successes of these “prime nine” states, even though we’re still among the “maligned nine” states with the highest income taxes.
The tax-free states grew employment by 5.4 percent, while tax-heavy states saw jobs decline by 1.7 percent.
That’s why Gov. Christie is proposing to cut income taxes for everyone. It will keep money in people’s pockets and help bring back the jobs that disappeared last decade as Trenton taxed and spent the state into economic ruin.
The Wall Street Journal recently called legislative proposals in other states to cut the income tax good “long-term growth” and attempts to use additional income tax revenue to relieve property taxes “short-term politics.”
It’s not even good short-term politics. Remember what happened to Jon Corzine in 2009 when he raised income taxes? He was one of nearly 120,000 New Jerseyans who lost a job that year.
Franklin D. Roosevelt, who knew something about emerging from horrific economic times, once said: “Do something. If it works, do more of it. If it doesn’t, do something else.”
New Jersey has repeatedly tried raising taxes to relieve property taxes. It has never worked. In fact, the income tax itself began as a way to reduce property taxes. Do you know anyone whose property taxes went down since 1976?
New Jersey lost an entire decade (and 156,000 jobs) proving you can’t lower one tax by raising another. Taxes increased by $11 billion from 2002 to 2009, and nearly every time they increased a tax, Trenton politicians promised it would relieve property taxes, yet the property tax burden increased 6 percent per year and 60 percent cumulatively from 2002 to 2010.
Remember when Trenton politicians shut down the state to raise the sales tax in 2006 to offer “historic” levels of property tax relief? It didn’t work. The higher sales tax remains, but the property tax relief was history after just one year.
We need to stop doing what doesn’t work. That’s why we ended those failed tactics and launched the most aggressive and effective assault on property taxes in New Jersey history.
We put a tight cap on property taxes, saved property taxpayers $120 billion over the next 30 years through pension and health care reform, and we are working to do more, such as ending the payout for workers’ unused sick and vacation time and allowing towns to save money by opting out of Civil Service.
Our comprehensive approach to tax reform has businesses and homeowners optimistic about our state’s future for the first time in several years.
If we continue to do what has been working, we will continue to create more private-sector jobs in addition to the 60,000 that have been added in the past two years.
Adding jobs won’t just improve our unemployment rate, but likely will achieve precisely what short-sighted critics of Gov. Chris Christie’s income tax cut say it won’t: property tax relief.
Raising other taxes has not lowered property taxes, but reducing the income tax may because it will keep forcing government to spend within its means while encouraging businesses to create jobs in New Jersey.
More businesses and jobs in our economy means a greater share of the tax burden is shifted away from property taxpayers.
Many other states have seen the wisdom of low income tax rates. They know that reducing the income tax burden creates jobs and builds a strong economic foundation. I’m eager to see New Jersey follow suit.
In the last two years, New Jersey has added more than 62,000 private-sector jobs. And our Economic Outlook Rank has improved from 48th to 45th this year, according to the American Legislative Exchange Council.
Our plan to make New Jersey affordable and create jobs is working. We can’t stop doing what is working. We need to do more.
New Jersey’s Supreme Court ruled last week that the cash-strapped state must send another $500 million in aid to urban school districts — the latest in a long series of decisions disconnected from economic reality and wise public policy.
Over the last 40 years, Jersey’s high court has commandeered tens of billions of dollars of state tax money that has largely been wasted on schools, forced taxes higher and undermined the tax base of whole communities — in the process, driving the state to the verge of insolvency.
Basing its original decision on a vague clause in the state Constitution that says the state must ensure “a thorough and efficient system of free public schools,” the court made the state responsible for funding urban school districts — regardless of whether the money was well spent.
Courts in other states, including New York, have interpreted similar language to mean that states should provide more aid to urban districts. But Jersey’s high court essentially ruled that schools in 31 poor “Abbott districts” should be funded at a level equal to the states’ wealth iest school districts — making Jersey’s among the most expensive urban school districts in America.
Newark spends $23,000 per pupil; Camden, $22,000; Asbury Park, $27,000. Most of that money comes from the state — 82 percent of Newark’s school budget, for instance.
So residents in many suburban towns essentially pay for two school systems: their own, through local property taxes, and urban schools, through their state taxes — costing state residents a staggering $37 billion since 1998, according to estimates in The New York Times.
Even if this spending produced stellar results, it would be hard to justify this system: The steep property taxes it requires have helped make homeownership unaffordable even to many middle-class residents. But the results have been the opposite of stellar. As the education reform group E3 observes in a study of Newark, “Money For Nothing”: “Given the extraordinary expenditure on schooling, students are not receiving a meaningful education.”
Despite claims that it wanted to ensure “thorough and efficient” schools, the court has done nothing but feed dollars to a patronage-laden Jersey political culture.
For example, when the court ruled that Jersey had to spend heavily to build schools in urban districts, the state floated billions of dollars of debt through a construction authority it created to get around the requirement that voters must approve all borrowing. The court not only allowed the scheme — but when the construction authority proved so corrupt and inefficient that it only finished half the job with the money it got, the court forced the state to spend billions more.
The court has also reshaped the state’s map with decisions known as the Mount Laurel cases, by taking local zoning powers away from towns and cities and requiring municipalities to build affordable housing, often at great cost.
In one infamous case, it ordered the tiny township of Greenwich, with only 520 housing units, to add 810 homes, sending property taxes soaring. The burden fell especially hard on middle-income residents; later court rulings gave big property-tax breaks to the lower-income units.
The latest ruling has spurred Gov. Chris Christie in his pledge to remake the Supreme Court. Last year, he outraged the state’s political establishment by refusing to renominate Justice John Wallace, breaking with a tradition in which Supreme Court justices are automatically reappointed. The Democratic-controlled Senate refused to consider Christie’s nominee for the job, allowing Chief Justice Stuart Rabner to appoint a temporary replacement judge, who was the key swing vote in the decision to spend $500 million more in school aid.
That’s money the state doesn’t have — Jersey can’t even afford to contribute to its severely underfunded state pension system.
New Yorkers, beware. In 2007, the Empire State agreed to boost state education spending by an unrealistic $7 billion over four years in response to a lawsuit brought by the Campaign for Fiscal Equity. But facing a $10 billion budget hole, Gov. Cuomo has cut education aid by $1.5 billion, prompting threats of another CFE lawsuit — even though New York still leads the nation in per-pupil spending.
The courts shouldn’t become a permanent substitute for our elected officials in managing state spending. As Jersey has taught us, when judges seize that power, taxpayers wind up big losers.
Steve Malanga is a senior fellow at the Manhattan Institute; his new book is “Shakedown: The Continuing Conspiracy Against the American Taxpayer.”
State Sen. Shirley Turner’s recent proposal to hit the state’s top taxpayers with a new “millionaires tax” is dangerous nonsense straight out of the soak-the-rich economic playbook. “It’s really about fairness,” said Turner (D-Mercer). “This governor has coddled the wealthy, but they need to pay their fair share.”
Leaving aside the fundamental question of why her proposed 10.75 percent top tax rate is the “fair” level, there is a more glaring problem with Turner’s proposal: It will make fiscal problems in New Jersey far worse.
New Jersey is in a deep financial hole because our politicians have spent money without ever evaluating whether the funding source is competitive and sustainable. The resulting debate about how to resolve these structural imbalances has become a spirited fight, as it deserves to be.
But regardless of one’s philosophical leanings or party affiliation, we should all be able to agree on one thing: We must do everything possible to encourage work and investment in New Jersey in order to fuel the economic furnace that generates government’s desperately needed tax revenues.
Politicians love the notion that they can merely increase your tax rate and generate a proportionally equivalent increase in tax revenues. But this is not the way the world really works.
Taxes change behavior. Drivers will cross state lines to save on gasoline tax. Taxpayers move to Florida to save on their income tax. When a special tax on millionaires a few years ago in Maryland failed to deliver its expected revenue boost, Democratic Gov. Martin O’Malley decided against bringing it back, focusing instead on spending cuts to balance his state’s budget.
Closer to home, New York state enacted a surtax on its top earners in 2009 as an emergency measure to help manage through the recession. Today, despite a recovering economy, New York’s underlying fiscal problems are worse than ever.
Recognizing that tax surcharges don’t solve problems, only prolong them, Gov. Andrew Cuomo has decided against extending the surtax.
New Jersey, which has an identical tax rate to New York’s on its top incomes, will have a top rate that is 57 percent higher than our neighbor in 2012 if Turner has her way.
The lesson across states wrestling with revenue shortfalls is clear: Raising taxes is no panacea because wealth is mobile.
New Jersey’s residents are the most highly taxed in the nation, and employers are steering clear of the state as a result. New Jersey lost more than 10,000 jobs per month in 2009, and job erosion continued into 2010 despite an economic recovery that added 1 million jobs nationally.
New Jersey currently generates a startling 41 percent of its income tax receipts from the top 1 percent of its taxpayers, a precarious reliance that the rating agency Standard & Poor’s said could contribute to “revenue volatility,” as it downgraded the state’s credit rating.
Turner needs to confront the hard truth: There is a limit to how much businesses and high-income residents can be taxed before they simply move away, taking our best hope for new investment, jobs and economic growth with them.
Turner says let the voters decide on the millionaires tax, punting tax policy to a ballot referendum. She might be surprised by the result.
Last November, one state did put a referendum on its ballot to implement a special tax of 9 percent on incomes greater than $500,000. It happened in Washington state, one of eight states with no income tax at all. That state has also been a relative stalwart economically. Washington voters rejected the special tax by a nearly 2-to-1 margin.
As a result of the recent U.S. Census, Washington will gain a seat in the House of Representatives, owing to its large population growth over the past decade, while New Jersey will lose a seat after a population gain below the national average.
Citizens vote with their pocketbooks and also with their feet.
When will New Jersey politicians learn that lesson?
Scott Sipprelle is president of the Lincoln Club of New Jersey and was the 2010 Republican candidate for Congress in the state’s 12th Congressional District
