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NJ Spotlight: Pandemic tax windfall for NJ: Receipts from house sales and liquor boost state revenues
By John Reitmeyer
At first the coronavirus pandemic slowed New Jersey’s real estate market, but a huge rebound followed, even as many other industries struggled.
“It’s COVID-19, that’s probably one of the main reasons,” said Robert White, a Monmouth County realtor who noted buyers fleeing New York City have driven demand in his region.
The surge in home sales means a boost for New Jersey’s bottom line since it generates more revenue from a tax on real-estate transactions.
And real estate is not the only industry seeing a rise in sales during the pandemic and with it a corresponding lift in state revenues.
Taxes from alcohol sales have been surging in New Jersey during the pandemic, as have state Lottery revenues.
State tax data shows that transfer-inheritance tax receipts have also increased significantly amid the health crisis. But there may be more to that than just the grim reflection of the deadly pandemic.
Without a doubt, New Jersey’s monthly tax collection reports reveal the financial damage caused by the health crisis, but they also show that, while some tax sources have expectedly lagged last year’s pace, others have sprinted ahead.
Some tax sources perform way better than predicted
The strong performance of many tax sources has helped to somewhat brighten a revenue outlook that, at times last year, was predicted to be historically bad. The latest revenue collections could also point to an improving long-term forecast that would provide a good base for the next state budget, which Gov. Phil Murphy is due to present to lawmakers on Feb. 23.
Murphy, a first-term Democrat, predicted significant revenue losses last year after the pandemic took hold in New Jersey.
That bleak financial forecast prompted Murphy and fellow Democrats who hold majorities the Legislature to authorize emergency borrowing without voter approval to help sustain a year-over-year increase in state spending.
But through the end of December, state tax collections were up by more than 5% compared to the same period in the previous fiscal year. Department of Treasury officials have attributed the increase to several new wrinkles in tax policy and, at least for now, they are holding to a prediction that overall revenues still will fall short of last year’s totals through the end of June.
Income tax receipts way down
Moreover, some important tax sources have remained off last year’s pace through the end of December. These includes the income tax, which is the largest single source of revenue for the state budget. That poor performance is not surprising given New Jersey’s unemployment rate has risen dramatically during the pandemic.
But several tax sources have been outperforming Treasury’s projections through the first half of the fiscal year, despite the ongoing pandemic.
A good example is the realty transfer tax, which likely has been influenced by the booming market reported by White and other realtors.
Treasury initially projected less than 1% year-over-year growth in the realty transfer tax for the 2021 fiscal year. But receipts were already up by more than 11% through the end of December, according to the latest figures.
That mirrors year-end sales figures tracked by the NJ Realtors organization, which reported a more than 10% year-over-year increase in the median price of sold homes. The number of pending sales and closed sales also increased year-over-year, the group said.
Among other factors, Treasury officials note that interest rates have fallen to historic lows amid the pandemic, which is likely helping to fuel the uptick in homebuying in New Jersey.
“We believe this is driven by some combination of pent-up demand, historically low interest rates, and economic recovery among middle and higher-income households,” Treasury spokeswoman Jennifer Sciortino said.
“There may also be some shift of households from urban and/or rental housing to suburban home-buying due to the pandemic, but we do not have statistical proof of this at this time,” she said.
Read the full report here.