New Jersey Sales Tax Revenue Analyzed

Sales tax accounts for approximately a third of all collections in New Jersey. It is the most important levy after income tax. That's why people sat up and took notice when, during the second quarter of 2012, New Jersey sales tax revenue fell by 8% compared to the second quarter of 2011. The Wall Street Journal reports it to be "among the largest second-quarter fall-offs in the country when measured in dollars."

Economists consider sales tax revenue to be a beacon of overall economic health. When sales tax revenue increases, it means people have money to spend. When sales tax revenue decreases, it means people are holding tight to their purses, either because they don't have money to spend or they lack confidence in the economy. Since New Jersey sales tax does not apply to food or clothing, a fall in sales tax revenue reflects a drop in discretionary spending.

The decline in sales tax revenue poses a problem for the state of New Jersey. Governor Chris Christie's $31.7 billion budget depends on an increase in sales tax revenue by the end of July 2013, not a decrease. Mr. Christie has promised to reduce property taxes, but his property-tax credit is unlikely to pass with depressed sales tax revenues.

Fortunately, not all news is grim. While New Jersey sales-tax collections are down 0.3% for the whole third quarter compared with 2011 numbers, recently released September sales tax numbers indicate a 5% increase over September 2011. In addition, Amazon. com will collect and remit New Jersey sales tax beginning in July, 2013, and "upward of $30 million a year in new revenue" is anticipated.