SENATE BUDGET AND APPROPRIATIONS COMMITTEE

STATEMENT TO

SENATE, No. 2628

with committee amendments

STATE OF NEW JERSEY

DATED: JUNE 20, 2005

      The Senate Budget and Appropriations Committee reports favorably Senate Bill No. 2628, with committee amendments.

      This bill extends the sales and use tax base, encompassing product categories that have come into being with new technologies, limiting some exclusions from taxation, and extending the tax to new services.

      The bill establishes the new taxable category of "digital good." A digital good means access to, receipt of, subscription to, or the right or license to use digital data or information that are delivered electronically. This means that downloaded movies, downloaded music and downloaded software will be subject to tax in the same way that movies, records and software purchased in a store are taxed now. Information access purchases or subscriptions will also be subject to tax.

      The bill eliminates the exemption for vendor shipping and handling charges that are separately stated from the purchase price of an item. Currently, separately stated handling is nontaxable while "included" handling is taxable. Some vendors might be stating part of the price of an item as shipping and handling. This bill treats the cost of all items, including shipping and handling, as the taxable cost of the items whether separately stated or not. The bill provides for the taxation of shipping on taxable items and the exemption of shipping on nontaxable items like food and clothing.

      The bill specifically limits the sales tax exemptions for laundering, dry cleaning, tailoring, weaving, and pressing to clothing. An old administrative decision currently allows the exemption to apply to other items, like drapery and carpets.

      The bill also limits the exemption for the building contractor services of landscaping and the installation of carpeting and other flooring. Current law provides an exemption for property installation services that constitute a "capital improvement." This bill limits that exemption for a capital improvement to the first 12 months after the initial issuance of a certificate of occupancy for landscaping and until the issuance of the certificate of occupancy for the installation of flooring.

      The bill extends the sales tax to charges for the following services:

∙    furnishing of space for storage, such as charges for self-storage rentals;

∙    courier and messenger services;

∙    tanning services;

∙    massage services, exempting medically prescribed services;

∙    tattooing and permanent body art;

∙    initiation fees, membership fees or dues for access to or use of the property or facilities of a health and fitness, athletic or sporting club or organization, except for membership in a club or organization whose members are predominantly age 18 or under;

∙    air commerce or air transportation which originates and terminates in this State;

∙    limousine services originating in this State, except as provided in connection with funeral services; and

∙    the issuance of a surety bond for the purpose of bail.

      The bill also includes a provision that clarifies the sales and use tax collection responsibility of a corporation that does not maintain a place of business in New Jersey but, through another corporation that is related through common ownership, conducts business activity in New Jersey through the actions of the related New Jersey agent corporation in furtherance of common marketing, promotion, selling or service activity.

COMMITTEE AMENDMENTS:

      The committee amendments to the bill remove private investigative services from the list of services to which the sales tax is being extended under the bill.

FISCAL IMPACT:

      The Office of Legislative Services (OLS) has reviewed the fiscal estimate submitted by the Executive for this bill and has not found sufficient evidence to disagree with the Executive's projected $167.4 million revenue increase for fiscal year 2006. Specific New Jersey tax data do not exist to generate a precise fiscal estimate. However, national data from the 2002 Economic Census prepared by the United States Census Bureau suggest that the Executive's estimate falls into a reasonable range of probability. The OLS notes that, given the speculative nature of the underlying sales data, actual revenue collections may vary from the estimates by a measurable amount. Only after the actual revenues are collected will the scope of the expanded tax base be known.

      The Executive provides the following projections for the individual sales and use tax components:

∙    membership fees: $43 million;

∙    separately stated shipping and handling: $28 million;

∙    landscaping services: $24 million;

∙    limousine services: $17 million

∙    tanning, massages, and tattoos: $15 million;

∙    accessing data through electronic means: $11 million;

∙    downloaded movies, videos, music, and software: $8 million;

∙    flooring and carpeting installation: $8 million;

∙    courier services: $5 million;

∙    carpet and upholstery cleaning services: $4 million;

∙    self storage: $2 million;

∙    bail bond fees: $2 million; and

∙    air charter services: $400,000, if anything.