Tax Increase Deal Struck Between Murphy, Top Lawmakers: Report

NEW JERSEY - Gov. Phil Murphy and top lawmakers have reached an agreement to raise taxes on New Jersey’s most profitable businesses to help fund the state’s mass transit system, according to a POLITICO report.

The governor isn't expected to pursue raising the state sales tax, according to the report, despite it being floated as an alternate solution by the chairman of the New Jersey Senate Budget Committee earlier this year. That hike would’ve reversed then-Gov. Chris Christie’s 2016 deal with state Democrat leaders (which also raised the gas tax for infrastructure repairs and nixed the estate tax).

Murphy has previously expressed support for a raised sales tax, even proposing an increase back to 7 percent in 2018 during budget negotiations (the plan later proved unpopular in the Legislature).

News of the deal comes less than two weeks before the state budget for the new fiscal year, starting July 1, is due (other details on the $56 billion state budget are still being ironed out, per POLITICO). It also comes during a hellish week for commuters, with NJ Transit trains between New Jersey and New York suspended on two occasions.

The reported deal to aid NJ Transit, teased as a “corporate transit fee” in Murphy’s budget address this year, will require that the 600 companies in the state that profit at least $10 million annually must shell out a 2.5 percent tax on earnings for five years (retroactive to Jan. 1).

According to Murphy’s budget address, a corporate transit fee would create a "dedicated funding stream" for the transit system "in a way that is consistent with our vision for a stronger and fairer New Jersey, Murphy said in February.

Spokespeople for Murphy did not immediately respond to Patch’s request for comment Friday.

Sen. Paul Sarlo (D-36), the chairman of the New Jersey Senate Budget Committee and a construction industry executive, first raised the idea of increasing the sales tax to 7 percent in lieu of Gov. Phil Murphy’s proposed billion-dollar tax hike for the 600 businesses during a budget hearing in Trenton last month.

The increase from the Garden State’s current 6.625 percent rate would be "more stable than the corporation business tax on the higher earning income companies, which could vary from year to year,” Sarlo said at the time.

Analysts from the Office of Legislative Services separately noted that the proposed tax hike on businesses could be an unstable source of revenue for the transit system, according to NJ Spotlight.

New Jerseyans already dole out about 1.85 percent of their personal income on sales tax, according to figures from the Tax Foundation. The total state tax revenue for New Jersey in 2021, the year for which the latest data is available, is nearly $43.7 million.

Representatives from New Jersey's top business lobbying groups — who have been petitioning Murphy’s proposed tax hike since its inclusion the proposed state budget earlier this year — were unsurprisingly on board with Sarlo's plan. Michele Siekerka, president and chief executive officer of the New Jersey Business and Industry Association, floated a similar version of the sales tax hike plan last month alongside members of the New Jersey Business Coalition.

Nevertheless, several advocacy groups in New Jersey called instead for the state to extend a business tax they say could be used to bridge NJ Transit’s funding gap and keep more money in residents' pockets. That tax – the corporate business tax – expired on Dec. 31, despite last-gasp efforts to pass a law to keep it intact. Related: Controversial NJ Business Tax May Survive If New Bill Becomes Law

NJ Transit’s current budget woes are fueled by low pandemic-related ridership that has cost NJ Transit $2 billion in revenue to date, Patch previously reported. The end of its COVID-19 relief funding in 2025 marks additional budgetary concerns after a $119 million budget deficit identified last year.

But despite $44 million in cost reductions by offsetting "mandatory, non-discretionary cost escalations," a $106.6 million budget gap remains.

In order to ease NJ Transit’s budget woes, the board approved a 15 percent fare hike beginning July 1 and a subsequent 3 percent increase annually.

The increase would raise some commuting costs by more than $3 for a one-way ticket. For example, a one-way bus ticket from Toms River to New York City will increase from $21.25 to $24.40 under the hikes; from Princeton to New York City via train, the increase will go from $16 to $18.40.

The new rates would also impact light rail and river LINE modes of travel. You can view a table of the new fares here.