Proposed $1B In NJ Tax Hikes Draw Criticism From Lawmakers, Businesses

NEW JERSEY — Possible tax hikes on alcohol, cigarettes, online gambling, and other items took center stage as New Jersey legislators began hearings on Gov. Phil Murphy's proposed state budget for the next fiscal year.

Murphy, who is in his final year in office, put forward the $58.1 billion state budget proposal on Feb. 25. The plan includes $1.2 billion in new or increased sales taxes and fees — such as increased levies on marijuana, a fee on warehouse truck traffic, and higher taxes for sports betting and online gaming.

Mary Ellen Peppard, vice-president of the New Jersey Food Council, said a tax on warehouse truck traffic could have a cascading effect, as farms and food banks also use warehouses.

"This tax would increase the operating costs of transporting food during a time of high inflation, ongoing labor and supply chain challenges, and truck driver shortages, ultimately resulting in higher costs of food and other necessities," she told the state Assembly Budget Committee.

State senators were critical of the proposed hikes during their first legislative hearings, which began on Tuesday, April 1.

Sen. Paul Sarlo (D-Bergen), the Budget Committee chairman, said he was "quite confident" he would not be supporting the hikes, and indicated that fellow lawmakers in the Democratic-controlled legislature may oppose them, as well.

The proposal also anticipates collecting $277 million by taxing go-cart racing, laser tag, bowling, interior design services, horse training, vehicle trade-ins, some comped meals, tickets, hotel rooms, digital services and second-hand airplane sales, according to a NJ Advance Media report.

Sen. Mike Testa (R-Cumberland) said many of these particular proposed hikes were "perplexing" to him during an exchange with Office of Legislative Services representative Thomas Koenig.

"We're pretty much taxing almost everything you can have fun doing while in the state of New Jersey," he said.

Immediately after, Sarlo said he expects most, if not all, of these proposed hikes would be eliminated in the final budget.

"I want to make it clear to everybody who’s listening to this, there’s no desire from this legislature to tax those services,” Sarlo said.

What New Hikes Are Proposed?

Cigarettes: Murphy's budget includes a $0.30 per pack increase in the cigarette tax rate from $2.70 per pack to $3.00 per pack. This increase is expected to generate an additional $41 million in revenue for FY2026.

Tobacco and Vapor Products: Beginning in FY2026, Murphy is proposing an increase in the liquid nicotine tax rate from $0.10 per mL to $0.30 per mL and the container e-liquid rate from 10 percent to 30 percent. These increases are expected to generate an additional $10 million.

Alcoholic Beverage Tax: Beginning in FY2026, Murphy is proposing a 10 percent increase in the alcoholic beverage tax rates, which is expected to generate an additional $18.5 million. Tax would be imposed on quantity sold (per gallon) rather than the sales price and varies depending on the type of alcohol.

Online Gaming and Sports Betting: Murphy's administration is proposing an increase in the internet gaming and online sports wagering tax rates from 15 percent and 13 percent, respectively, to 25 percent. This proposal is expected to generate an additional $322.6 million.

Truck Excise Fee: As a way to mitigate the impact of new warehouse development on traffic and road quality, Murphy is proposing a $2 truck traffic excise fee that would be imposed on warehouses throughout New Jersey based on the number of truck trips. This would generate $20 million in new revenue.

Drones: The FY2026 budget also includes a new excise tax on the purchase of certain unmanned aircraft systems — or drones — expected to raise $5 million.

Marijuana: The tax rate on cannabis sold by a Class 1 license holder would increase from $2.50 per ounce to $15 per ounce and also includes a new $30 per ounce tax on intoxicating hemp products, both of which are expected to generate an additional $70 million in revenue.

Firearms and Ammunition: The budget proposal includes increases in firearm fees and new excise taxes on both firearms and ammunition, which is projected to generate $7.8 million of additional revenue.

Luxury Homes: The proposal also calls for homes and property valued between $1 million and $2 million to be assessed a 2 percent tax, up from 1 percent, and a 3 percent percent tax on property that sells above $2 million. These increases are expected to generate $317 million in revenue.

Mind The Gap

Republican lawmakers and state policy analysts have warned that New Jersey is headed for a "fiscal cliff" as annual budgets have swelled, and tax revenue has slowed.

This current budget calls for spending $1.2 billion more than the state is predicted to take in — the same dollar amount as these newly-proposed taxes are projected to generate.

And, the state could be losing money from proposed federal cuts to Medicaid and education funding over the next few years.

State Treasurer Elizabeth Maher Muoio said that increasing taxes is "never an easy decision," adding that the changes should help ensure that state revenues keep up with spending.

“This has been a challenging budget to craft,” she said. "As you’ve seen in the news, troubling proposed funding cuts at the federal level could have a dramatic impact on our budget here at home.”

The Fiscal Year 2026 budget does have a projected $6.3 billion surplus, but analysts with the Office of Legislative Services have warned that this money could run out by 2028 at current spending levels.

Murphy and the Legislature must come to an agreement on the final budget by June 30.