Credit: (AP Photo/Matt Rourke)

State tax collections were running ahead of last year’s totals heading into September, according to the latest revenue data released by Gov. Phil Murphy’s administration.

While that suggests the current fiscal year is off to a promising start, it’s still too early to draw any firm conclusions about a forecast that calls for more than $54 billion to be collected by the state by the time the 2025 fiscal year ends next summer.

For starters, it’s not until September that quarterly estimated payments for several major sources of revenue, including the income and corporation business taxes, come due and are recorded by officials from the Department of the Treasury.

While Treasury officials reported earlier this week an increase of more than $250 million year-over-year in tax receipts, they also noted the first two months of the state’s fiscal year are typically “less significant than most other months.”

“The first meaningful tax revenue collections will occur in September,” the report went on to say.

Outside factors: Election result, interest rates

Meanwhile, the Federal Reserve this week is expected to make a key decision on a potential interest-rate cut that could influence the trajectory of the broader economy in the coming months.

The outcome of the presidential election in the fall could also become an important factor, with major-party candidates debating everything from tariffs to middle-class tax cuts in recent weeks.

In all, state tax receipts totaled nearly $3.3 billion during July and August, according to the revenue report released by Treasury officials on Monday. That represents an increase of a little over 8% compared to the total collections recorded last year over the same two months, the officials said.

The fiscal year-to-date collections for the income tax were up about $30 million, or roughly 2%, through the end of August, according to Treasury.

Income tax — the big one

The income tax is the largest single source of revenue for the annual budget, with proceeds constitutionally dedicated to funding items that include K-12 public-school aid and direct property-tax relief programs like Anchor.

Meanwhile, sales tax collections recorded during August outpaced last year’s monthly totals by nearly $23 million, or roughly 2%.

The sales tax is the largest source of revenue for the budget’s general fund. But a one-month lag in the reporting and payment of sales tax revenue means the August collections reflect consumer activity that occurred in July, officials said.

If revenues fail to live up to expectations during the 2025 fiscal year, Murphy and lawmakers could be forced to draw down more of the surplus or enact a series of midyear spending cuts.

Likewise, realty transfer tax revenues, which were up by more than 9% year-over-year through the end of August, also reflect housing market activity that occurred in July, Treasury officials said. They also noted in the report issued Monday that the realty transfer tax has generated growth in three of the last four months.

“Statewide median sales prices remain elevated, but mortgage rates have declined as of late, and may continue to fall in tracking with expected federal interest rate cuts,” Treasury officials said.

The finish line

Overall collections across all tax sources will have to grow by more than 4% through the end of June 2025 to keep the $56.7 billion annual budget signed into law by Murphy earlier this summer in balance.

And unlike the federal government, the state is generally prohibited by the state Constitution from running up a deficit.

But even with the projected modest annual revenue growth, Murphy and fellow Democrats, who control the Legislature, baked into the latest state budget a more than $2 billion gap between projected revenues and expenditures. That’s something Murphy has said was done deliberately as part of efforts to jump-start the state’s post-COVID-19 economy.

To help bridge the structural gap, an opening surplus of $8.25 billion will be reduced to $6.125 billion by the end of the 2025 fiscal year, according to an updated budget sheet obtained by NJ Spotlight News through an open public records law request.

However, if revenues fail to live up to expectations during the 2025 fiscal year, Murphy and lawmakers could be forced to draw down more of the surplus or enact a series of midyear spending cuts, to maintain the balance required by the state Constitution.