After a six-day government shutdown, contentious New Jersey leaders emerged on July 6 with a state budget agreement in hand.
Now the pain begins -- and few will escape it, says Debra P. DiLorenzo, president and CEO of the Chamber of Commerce Southern New Jersey.
"There's pain across the board," DiLorenzo said of the budget signed into law July 8. "There's pain for the average Joe and there's pain for the business community."
On Saturday, the state sales tax will increase from 6 percent to 7 percent, half of which will go toward property tax relief. Renting a car, buying cigarettes, furs and luxury vehicles will cost more; so will gas-guzzlers.
Beginning Oct. 1, New Jersey residents will pay taxes to download music, ring tones, movies and partake of various other services that escaped the state's sales taxes in the past, such as limousines, health club memberships, landscaping services and renting storage space.
Few people were spared by the state, which had to close a $4.5 billion budget gap and was forced to close down after missing a July 1 constitutional deadline to enact a balanced budget. But, the changes are particularly hard on the state's small businesses who are already struggling, business groups and businesses said.
"Small businesses really feel the increases more than big businesses because it's not as easily absorbed. They have a small profit margin," said Laurie Ehlbeck, state director of the National Federation of Independent Businesses, New Jersey office.
Customers look at bottom lines, Bill Buff, president of Park Lane Limousine in Woodbury, said. An additional sales tax on limousine rides will not be appealing, he said.
"I think it's really going to hurt us greatly," Buff said. "Now we are just a another tax collector for the state. We hold the money and get nothing out of it. It's going to be complicated for every limousine company."
Mark Gordon, manager of Albert's Transportation in Mount Laurel, expects corporate business to remain unchanged. But, limousine drivers could be hurt by passengers who begin tipping less to make up for the additional sales tax cost. The tax would add almost $40 onto the $550 tab of someone who rented a limousine for 10 hours to go to New York, Gordon said.
A 4 percent surcharge on corporate business tax liability and a new 1 percent tax on the sale of commercial property in excess of $1 million will also be widely felt by the state's businesses, Joan Verplanck, president of the New Jersey Chamber of Commerce, said.
"You're really hard-pressed to find a commercial property in New Jersey that would be under $1 million," Verplanck said. "There is not going to be many that escape that."
A large majority of new car buyers will also suffer under the new budget, said James B. Appleton, president of the New Jersey Coalition of Automotive Retailers.
Those who purchase a luxury vehicle (those that cost $45,000 or more) or vehicles that get less than 19 miles per gallon will have to pay a 0.4 percent one-time surcharge, determined by multiplying the sales or lease price of the vehicle by 0.4 percent. About 7 percent of the 500,000 new cars and trucks sold each year in the state fall into that category, and 40 percent of all vehicles are minivans, light trucks and sport utility vehicles, most of which won't get 19 mpg, Appleton said.
Among the bright spots for businesses was the full restoration of the net operating loss carryforward and sunsetting of some $100 million in other taxes, which alleviates some of the burden on businesses and makes the state more appealing, Philip Kirschner, president of the New Jersey Business & Industry Association, said.
"Now we look better than Pennsylvania in our ability to deduct those losses," Kirschner said. "And we eliminated hundreds of millions of dollars in taxes from [former Gov. James McGreevey] era that left a real stain on the business community in New Jersey."
NJ Budget
Sales and use tax: Will increase from 6 percent to 7 percent on July 15 and its base will expand on Oct. 1, 2006 to include services, such as downloading music, movies and books, tanning, massages, tattooing, investigation and security services, information services, landscaping, limousines (funeral services are excluded) and membership fees, such as health and fitness clubs.
Fiscal impact: $1.2 billion annually projected as a result of the 1 cent increase.
Corporate Business Tax: 4 percent surcharge on corporate business tax liability for tax years ending in state fiscal years 2007, 2008 and 2009 and increase in corporate business tax minimum payment for taxpayers with state gross receipts of $100,000 or more.
Fiscal impact: About $96 million in state fiscal year 2006-2007 projected from surcharge and $25.5 million projected from increase in the minimum tax.
Commercial Property: A 1 percent fee or 1 percent tax will be imposed on the purchase of Class 4A commercial properties for more than $1 million. Class 4A includes any kind of income-producing real property other than property classified as vacant land, residential, farm or industrial properties and apartments.
Fiscal impact: $17 million projected for state fiscal year 2006-2007.
Cigarettes: Tax will increase by 17.5 cents per pack.
Fiscal impact: $35 million annually projected ($30 million from rate increase in cigarettes and $5 million from weight-based taxed on moist snuff)
Automobiles: A 0.4 percent one-time surcharge will be imposed on newly purchased luxury vehicles (those with a sale or lease price of $45,000 or more) and fuel inefficient vehicles (those with an EPA rating of less than 19 miles per gallon).
Fiscal impact: About $25 million in state fiscal year 2006-2007 projected.
HMOS: Increases the annual assessment on net written premiums received by HMO organizations from 1 percent to 2 percent to support charity care.
Fiscal impact: About $50 million projected.
Car rentals: Increases car rental surcharge from $2 per day to $5 per day. Fiscal impact: $58.75 million.
Furs: 6 percent gross receipts tax will be imposed on the retail sale of fur clothing.
Fiscal impact: $5 million annually.