LEGISLATIVE FISCAL ESTIMATE
[Second Reprint]
ASSEMBLY, No. 4261
STATE OF NEW JERSEY
218th LEGISLATURE
DATED: SEPTEMBER 13, 2018
SUMMARY
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Synopsis: |
Provides for collection sales tax from certain remote sellers. |
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Type of Impact: |
Recurring net revenue gain to State General Fund and Property Tax Relief Fund of an indeterminate magnitude. |
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Agencies Affected: |
Department of the Treasury. |
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Office of Legislative Services Estimate |
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Fiscal Impact |
FY 2019 and thereafter |
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Recurring Net State Revenue Gain |
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Indeterminate |
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· The Office of Legislative Services (OLS) cannot independently quantify the bill’s net impact on State revenue collections; however, the bill should produce a recurring net revenue gain to the State General Fund and Property Tax Relief Fund. The recurring net revenue gain is attributable to the State having the authority to impose and collect sales tax from certain sellers with no physical presence in this State, less any additional resources required to carry out the provisions of the bill.
· Some of the bill’s provisions may be redundant with current law, in the context of recent United States Supreme Court jurisprudence. Thus, fiscal impacts that are attributed to the bill in this analysis may appear in the bill’s absence.
BILL DESCRIPTION
This bill provides for the collection of sales tax by a seller with no physical presence in this State on the purchase of tangible property if the sellers meets either of the following criteria: 1) the seller’s gross revenue from delivery of tangible personal property, a specified digital product, or services into the State in the calendar year in which a sale of tangible personal property occurred or the prior calendar year exceeds $100,000; or 2) the seller sold tangible personal property, a specified digital product, or services for delivery into the State in 200 or more separate transactions during the calendar year in which a sale of tangible personal property occurred or the prior calendar year.
The bill requires a marketplace facilitator (e.g. eBay, Etsy, and Amazon Marketplace) to collect and pay the sales tax imposed upon a retail sale on the platform. However, if the marketplace seller has a certificate of registration from the Division of Taxation to collect sales tax, then the marketplace seller must collect and pay tax. The effective date of the bill is October 1, 2018.
The bill reflects the recent decision of the U.S. Supreme Court in South Dakota v. Wayfair. The decision changes the federal law context in which current State law operates. The OLS has no specific knowledge of how the Executive might change its tax enforcement processes in the absence of the bill.
FISCAL ANALYSIS
EXECUTIVE BRANCH
The Executive has not provided a formal fiscal note for the bill. However, informal information provided by the Executive indicates that they anticipate an increase in sales tax revenue of $212 million as a result of the U.S. Supreme Court’s 2018 Wayfair decision.
OFFICE OF LEGISLATIVE SERVICES
The OLS cannot independently quantify the bill’s net impact on State revenue collections; however, the bill should produce a recurring net revenue gain to the State General Fund and Property Tax Relief Fund. The recurring net revenue gain is attributable to the State having the authority to impose and collect sales tax from certain sellers with no physical presence in this State, less any additional resources required to carry out the provisions of the bill.
From September 2016 to November 2017, the United States Government Accountability Office (GAO) conducted and published a report[1] at the request of members of Congress to “review the effects on businesses and state revenue agencies of legislation that would grant states the authority to require businesses to collect and remit taxes on all remote sales.” The GAO estimates that, under current law, state and local governments can require remote sellers to collect about 75 percent to 80 percent of taxes owed. The report includes estimates for the amount of revenue each state and its local governments could expect from collecting taxes on sales made by all remote sellers, noting that high and low scenarios were utilized to illustrate the effect of underlying uncertainties. For New Jersey, the GAO, based on its methodology, calculated that the State could realize additional revenues of approximately $216 million to $351 million in calendar year 2017.
New Jersey has enacted laws or entered into agreements that have allowed the State to collect sales tax from certain remote sellers. Specifically, the State is a full member of and is in compliance with the Streamlined Sales and Use Tax Agreement, which encourages remote sellers to collect tax on the sales to customers living in the participating states and remit the taxes collected to the state where taxes are owed. Additionally, P.L.2014, c.13 requires sellers using commissioned physically present independent contractors to market in-State sales, online or otherwise, invoke the duty to collect sales tax if cumulative sales through those contractors exceed $10,000 for the prior four calendar quarters.
Given the State’s proactive measures to collect sales tax from remote sellers, New Jersey currently collects sales tax from many of the identified retailers in the GAO report. However, the marketplaces targeted by the bill, such as eBay, Etsy, and Amazon Marketplace, which allow third-party remote sellers to sell directly to a consumer, have a lower seller collection rate (roughly 14 percent to 33 percent of their sales). Thus, the State stands to benefit considerably from collecting sales tax from third-party remote sellers that participate in those marketplaces.
The bill’s effective date of October 1, 2018 will reduce the amount of revenue the State could potentially realize in FY 2019 since the bill’s provision will not be fully implemented before the fiscal year starts. However, in FY 2020 and each year thereafter, revenues could reach the range estimated by the GAO.
The OLS notes that provisions of the bill may require additional resources for the Division of Taxation in the Department of the Treasury to cover additional administrative costs. Specifically, the division would be tasked with registering new businesses, processing additional returns and refunds, conducting audits, and enforcing compliance. The OLS cannot conclude that the current operating budget for the division is sufficient enough to implement and administer the provisions of the bill, and additional expenditures catalyzed by the bill would reduce the total amount of revenue the State could realize.
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Section: |
Revenue, Finance and Appropriations |
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Analyst: |
Associate Fiscal Analyst |
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Approved: |
Frank W. Haines III Legislative Budget and Finance Officer |
This fiscal estimate has been prepared pursuant to P.L.1980, c.67 (C.52:13B-6 et seq.).
[1] “State Taxes: States Could Gain Revenue from Expanded Authority, but Businesses are Likely to Experience Compliance Costs,” – Available at: https://www.gao.gov/assets/690/688437.pdf