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August 9, 2018

State & Local Government Tax Structure

The Economic and Fiscal Policy Working Group was established to develop policy responses to a federal tax plan that limited the SALT deduction. The new federal policy has compounded residents’ concerns regarding property taxes which rank at the top of most polls. The $28.8 billion in property taxes collected in FY2017 were twice the $14.4 billion in State income taxes and three times the State’s $9.4 billion in sales taxes. To address the serious burden of property taxes, the Work Group recommends the following:

Recommendations:

  • Enable Subchapter S-Corporations, Limited Liability Corporations (LLCs) and Partnerships to pay State taxes equivalent to the Gross Income Tax obligations of their owners and partners, thus making the State tax payments deductible on their federal taxes.
  • Split revenue from Payments in Lieu of Taxes (PILOTs) among municipalities, school districts and counties based on current property tax ratios, and revisit the law establishing the formula for calculating the “annual service charge” that is the PILOT. Require governing body approval and spending justification for levy cap increases based on added assessments and new PILOT revenue.
  • Undertake a comprehensive analysis of New Jersey sales tax exemptions to simplify the tax code.
  • Revise New Jersey’s property tax relief programs to ensure that property tax relief is provided equitably and is allocated to reduce property tax payments for New Jersey owner-occupied homeowners to the greatest extent possible.
  • Establish a permanent Economic and Fiscal Policy Review Commission made up of economists, academics and tax experts to provide an ongoing review of taxation best practices and report back to the Governor and the Legislature on an ongoing basis.
  • Permit a Gross Income Tax deduction for charitable donations to New Jersey-based charitable organizations.
  • Focus additional tax incentives towards small businesses to support more entrepreneurs with facilities located in New Jersey.
  • Permit a revenue-neutral county or multi-county/regional 1% Sales Tax option paid partly by out-of-staters to be used to potentially cut property taxes by more than $1 billion if all counties participate.
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