NJ Increases Gas Tax for First Time Since 1988

On October 7, the New Jersey Senate—by a vote of 24-14—and the Assembly—by a vote of 45-27—voted to increase New Jersey’s gasoline tax from 14.5 to 37.5 cents. The 23 cent jump, the state’s first in 28 years, will take the state’s gas tax from second lowest to sixth highest in the nation. Governor Chris Christie signed the legislation on October 14.

The increase is expected to generate $2 billion annually over the next 8 years for the state’s Transportation Trust Fund (TTF), which pays for roads, bridges and other infrastructure projects. The TTF ran out of money in July, which led to the halting of hundreds of non-essential construction projects.

Both Republicans and Democrats have been working on a compromise plan for months. Governor Christie indicated he would not sign any TTF legislation unless it included tax reduction representing “tax fairness” for NJ residents. The legislation included a slew of tax cuts:

  • As of January 1, 2017, the sales tax rate will go down from 7% to 6.875%. On January 1, 2018, the sales tax rate will go down from 6.875% to 6.625%.
  • The Earned Income Tax Credit will increase from 30% to 35% of the federal benefit beginning in tax year 2016.
  • An increase in the New Jersey gross income tax exclusion on pension and retirement income over 4 years to $100,000 for joint filers; $75,000 for individuals; and $50,000 for married filing separately taxpayers.
  • A phase-out of the estate tax by replacing the current $675,000 threshold with a $2 million exclusion after January 1, 2017.  The estate tax will then be eliminated as of January 1, 2018.
  • Military and National Guard veterans will receive a personal exemption on NJ state income taxes.

These cuts are expected to cost the state $1.4 billion in revenue annually. There is concern that the gas tax increase is dedicated to the TTF and is not part of the general fund, and NJ pension obligations are expected to increase $711 million each year through 2023.

The gas tax increase goes into effect on November 1, 2016. It is estimated this increase will cost the average NJ driver between $184 and $276 per year.

With 20 years of experience, Gary Bingel's expertise focuses on state and local income taxation, and also includes sales and use tax consulting. Gary is Partner-in-Charge of EisnerAmper's State & Local Tax Group.

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