Kal Barson, CPA, The Barson Group, November 2016
The State legislature passed, and Governor Christie (between denials of culpability involving some bridgework he had done), signed legislation that makes changes in various tax matters that will affect everyone in New Jersey. Some of these changes have gotten a lot of press play, and are effectively common knowledge. However, I have heard that there is a great demand for my take and explanation of these changes.
- Gas Tax – this is the one that has gotten all the press play, because it indeed is the one that affects everyone in New Jersey who has a car. Effective just about now, tax on gasoline will increase 23 cents a gallon – New Jersey will go from having about the 2nd to lowest tax on gasoline (truly a stunner when you consider our state’s reputation) to having something like the 7th highest tax. If you are the so-called average driver, using about 600 gallons of gasoline per year, it will cost you an extra $140. The intent is that these extra tax funds will be spent on improving and maintaining our roads. We know our legislators habits of violating every logical and sane financial discipline known to man – so it is suggested that come this Election Day, among the things you vote for is a proposal that would mandate these funds be spent as they are intended to be spent. In other words, telling our legislators to keep their hands off the money.
- Estate Tax – New Jersey’s estate tax has been repealed – in a relatively short phaseout process. Currently (and still in effect through the end of this year), any estate with over $675,000 (there are a whole bunch of exemptions & exclusions we won’t talk about) gets taxed. That makes New Jersey an outlier among our surrounding states – surprise, surprise! Effective January 1, 2017, that exclusion jumps to 2 million dollars; and, populists among you, hold onto your seats, if you can hold off dying until 2018, the New Jersey estate tax disappears completely.
- Inheritance Tax – we always knew there was something special about New Jersey, and among those things special is that New Jersey not only had (has) an estate tax, we also have an inheritance tax. Thus, dying in New Jersey starting in 2018 won’t necessarily be tax-free. This tax does not apply to inheritances left to a spouse, parent, child, grandchild, or great-grandchild – what are typically referred to as “Class A” beneficiaries. Other than those, the inheritance tax remains in effect.
- Sales Tax – our geniuses in Trenton, as some kind of a political quid-pro-quo for increasing the gas tax, have reduced the sales tax to 6.875% as of January 1, 2017 and to 6.625% as of January 1, 2018. Since I know the demand you will place on me to explain this a bit more, let’s put this into a wallet numerical perspective. In 2017, you can look forward to saving 1/8th of a percent. For every $1,000 you spend subject to sales tax, you will save $1.25. But that’s only door #1 – it gets even better. In the following year, the sales tax decreases an additional ¼ of a percent to 6.625%. The real hurt is that for those of us who very easily were able to calculate sales tax in our heads, that’s going to be a lost art.
- Other Tax Issues – in addition to those headline-grabbing items above, the New Jersey exclusion on retirement income for senior citizens will gradually increase – from $15,000 to $75,000 for single taxpayers; and from $20,000 to $100,000 for couples filing jointly. This becomes fully implemented in the year 2020. Also, the earned income tax credit to assist low income residents increases from 30% to 35%; and honorably discharged veterans get a $3,000 personal exemption, the equivalent of an additional deduction.
One can only hope that one day, something intelligent will actually be done at both the national and the state levels to make our tax system a bit more logical and fathomable to all. I would add fair – but that’s one of those safety trigger words so in disrepute nowadays.