January Revenue Collections Up 5.9% Despite Income Tax Uncertainty

(TRENTON) – The Department of the Treasury reported that January revenue collections for the major taxes totaled $4.042 billion, up $225 million, or 5.9 percent above last January. Year-to-date, total collections of $16.942 billion are up $493.8 million, or 3.0 percent above the same period last year.

Gross Income Tax (GIT) receipts of $2.207 billion, which are constitutionally dedicated to the Property Tax Relief Fund, are down 4.8 percent compared to last January. Year-to-date collections of $7.874 billion are down 6.0 percent, or $503.4 million.

A two-month dip in GIT collections, a pattern that is being reported in a number of states, is believed to be attributed primarily to tax law changes under the federal Tax Cut and Jobs Act that induced a shift in tax planning behavior. Historically, high-income taxpayers had an incentive to accelerate significant tax payments into December each year to take advantage of the unlimited federal SALT (State and Local Tax) deduction, the value of which could equal six figures for certain taxpayers. With the SALT deduction now capped at $10,000, the incentive to accelerate payments has evaporated. Accordingly, it is believed taxpayers are more likely to wait until April to fully reconcile their annual tax liabilities, rather than accelerate some payments into December for federal tax planning purposes.

The state’s Tax Amnesty program, which concluded on Jan. 15, has generated approximately $282 million in payments distributed among the major tax revenues, compared to the certified program target of $200 million. The Division of Taxation is still reviewing the program and final amounts and allocations will be provided when the review is complete.

Excluding amnesty, year-to-date major tax revenues grew by $211.8 million through January, or 1.3 percent.

The Sales and Use Tax, the largest General Fund revenue source, reported $1.134 billion in January, up 10.8 percent. Year-to-date, sales tax collections of $5.116 billion are up 3.0 percent from the same period last year. The second step of the sales tax rate reduction that began on January 1, 2018 is now complete. Adjusting for the rate reduction, underlying growth in the sales tax through January is 4.8 percent.

The Corporation Business Tax (CBT), the second largest General Fund revenue, generated $273.9 million, 234.4 percent above last January. Year-to-date, the CBT has collected $1.810 billion, or 74.5 percent above last year. The CBT for banks and financial institutions is up 264.3 percent so far in FY 2019, spurred in part by strong bank profits. In FY 2019, corporate tax revenues are expected to grow significantly due to substantial state and federal tax policy changes that influence the tax base and the timing of certain payments.

Casino Revenues of $142.5 million are running 20.6 percent ahead of last year through the end of January. Sports betting has contributed $5.7 million to the Casino Revenue Fund and another $4.4 million to the General Fund through January.

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