Credit: (AP Photo/Matt Rourke)

New Jersey’s total tax collections sagged below last year’s totals through the first quarter of the current fiscal year, with several important revenue sources among those seeing declines. 

A drop in revenues was not unexpected after the 2024 fiscal year began this summer amid a period of general economic uncertainty. Department of Treasury officials noted Tuesday they’ve forecast major taxes will be in decline through the midway point of the state’s July-to-June fiscal year before experiencing a second-half rally.

But it remains to be seen just how significant the decline could be over the first half of the fiscal year, and whether the predicted upswing can generate enough revenue to keep on track a record-high, $54.3 billion spending plan enacted by Gov. Phil Murphy and lawmakers in late June.

In all, the state’s tax collections through July, August and September dropped by $517 million, or about 6%, compared to the same three months last year, Treasury reported Tuesday.   

Receipts for the income tax, the largest single source of revenue for the state budget, were off by about 7% year over year through the end of September, according to Treasury. Receipts from the corporation-business tax, another major revenue generator, were off by nearly 15% year over year.     

Any revenue shortfalls that develop over the course of a fiscal year would have to be made up for by drawing down reserves or making other budget adjustments since New Jersey’s Constitution generally prohibits the state from operating with a deficit.  

However, the state would be able to pad its reserves or generate new resources for other budget priorities if there is a strong rally that ends up producing enough revenue to exceed the initial forecast for the current fiscal year, which ends June 30, 2024. 

Off 5% in September 

The month of September is an important one on the state’s revenue calendar because it includes several estimated payment dates, including for the gross income tax, the corporation-business tax and the pass-through business alternative income tax.  

The revenue drop-off for September alone was nearly $260 million, or about 5%, compared to the same month last year, according to Treasury. That included a 10% decline in income-tax receipts compared to the same month last year.  

Despite strong monthly employer withholdings, there were declines recorded in estimated and final income-tax payments, as well as higher refunds, that combined to more than offset gains on the withholding side, Treasury officials said.  

In late June, Democrats who currently control both houses of the Legislature added roughly $1.5 billion in new spending to Gov. Murphy’s final version of the fiscal year 2024 budget.

The income tax is not only the largest source of revenue for the state budget, but its receipts flow directly into the state’s Property Tax Relief Fund, which is dedicated to funding popular property-tax relief programs like “Anchor” and “Senior Freeze.” 

Meanwhile, state sales-tax collections — another key source of funding for the state — also dropped slightly in September compared to the same month last year. But they were still slightly ahead of last year’s pace through the first quarter of the 2024 fiscal year, according to Treasury. The state reports sales-tax revenue with a one-month lag, so the quarterly figures represent economic activity through the end of August. 

For the corporation-business tax, or CBT, the monthly decline for September totaled about 6% compared to the same month last year. In all, corporation-business tax revenues were off by about $200 million year over year through the first quarter of the 2024 fiscal year, Treasury said.  

Dispute over a business tax 

For much of the last year, the CBT has been the subject of a long-running policy debate because current law calls for a 2.5%, temporary surcharge on the incomes of businesses with $1 million or more in annual profits to expire at the end of this calendar year. That tax-policy change will cost the state an estimated more than $320 million in revenue during the second half of the 2024 fiscal year, according to Treasury forecasts.  

Progressive activists have been among those calling for the surcharge to be left in place, arguing big corporations right now are in line to receive a major tax break at a time when funding for key state services such as mass transit remains uncertain.  

But business-lobbying groups have argued the extra surcharge has made the state a national outlier when it comes to business taxes, sending the wrong message to companies that could be considering making a move to New Jersey.  

Among other tax sources, the quarterly receipts from the state’s realty-transfer tax were off by nearly 31% year over year, according to Treasury. 

Meanwhile, quarterly collections from the alcoholic beverage excise and tobacco products wholesale taxes were both up year over year, by 17.7% and 7.8%, respectively.  

In late June, Democrats who currently control both houses of the Legislature added roughly $1.5 billion in new spending to Murphy’s final version of the fiscal year 2024 budget as they drafted the annual appropriations bill. That pushed total projected spending above the projected revenues for the full fiscal year, creating a structural gap of more than $1 billion. 

However, the final spending bill enacted by Murphy, a second-term Democrat, also maintained more than $8 billion in reserves, providing a cushion for any unforeseen revenue losses or spending needs that may arise before the fiscal year closes on June 30, 2024.