LEGISLATIVE FISCAL ESTIMATE

SENATE, No. 515

STATE OF NEW JERSEY

218th LEGISLATURE

 

DATED: JUNE 6, 2018

 

 

SUMMARY

 

Synopsis:

Exempts sales of certain materials used in industrial sand casting processes from sales and use tax.

Type of Impact:

Annual State revenue loss to the General Fund and the Property Tax Relief Fund.

Agencies Affected:

Department of the Treasury

 

Office of Legislative Services Estimate

Fiscal Impact

FY 2019 and Thereafter 

 

State Revenue

Indeterminate Annual Loss

 

 

 

 

·         The Office of Legislative Services (OLS) expects the bill to produce an annual decrease in State sales and use tax revenues deposited in the General Fund and the Property Tax Relief Fund.  However, the OLS lacks sufficient data to quantify the magnitude of the loss in the fiscal years following enactment. 

 

·         At least four other states provide a sales tax exemption for sand-handling equipment or equipment used in the sand casting process.  Estimates of the value of this tax expenditure range from less than $100,000 to $1.2 million.

 

·         Data available through the 2012 Economic Census indicates that there are 4 iron foundries and 8 nonferrous metal die-casting foundries in New Jersey.  Information on the total value of capital expenditures made by these businesses, which would include purchases of sand-handling equipment or equipment used in the sand casting process, is not publicly available.

 

 

BILL DESCRIPTION

 

      The bill provides an exemption from the sales and use tax for sales of certain materials used in industrial sand casting processes to provide tax relief to foundries and other metal working businesses in this State that rely on sands, binders, washes, and other similar materials to create molds and cores in the production of saleable metal castings.  In general, sand casting is a metal casting process in which molten metal is poured into a mold and allowed to solidify into a tangible object, typically called a casting.  As part of this process, different types of sands, binders, washes, and other similar materials are used in various proportions to define the cavity inside a mold and to make any cores contained in the mold until the metal returns to a solid state and the materials are separated from the finished casting.

      Currently, these sands, binders, washes, and other similar materials used to create a mold or core in an industrial sand casting process are subject to the sales and use tax as tangible personal property.  The Division of Taxation in the Department of the Treasury has previously determined that the materials are not eligible for the sale or resale exemption because the materials do not become a component part of the product produced for sale by the purchaser, and are not eligible for any other exemption allowed under current law.  The bill provides a stand-alone exemption for these materials when used in an industrial sand casting process if they are an integral or essential part of the processing operation.

 

 

FISCAL ANALYSIS

 

EXECUTIVE BRANCH

 

      None received.

 

OFFICE OF LEGISLATIVE SERVICES

 

      The OLS expects the bill to produce an annual decrease in State sales and use tax revenues deposited in the General Fund and the Property Tax Relief Fund.  However, the OLS lacks sufficient data to quantify the magnitude of the loss in the fiscal years following enactment.  OLS research indicates that at least four other states (Connecticut, Iowa, New York, and Ohio) provide a sales tax exemption for sand-handling equipment or equipment used in the sand casting process, but there is limited information available on the value of these tax expenditures. 

      Connecticut exempts the purchase and sale by metal casting foundries of molds, dies, patterns, and sand handling equipment from its sales and use tax.  The Connecticut Tax Expenditure Report, revised by the Connecticut General Assembly Office of Fiscal Analysis in February 2018, estimates the value of this expenditure at less than $100,000 per year in Fiscal Years 2018 and 2019.  Iowa exempts the sale or rental of core-making, mold-making and sand-handling equipment, including replacement parts, directly and primarily used in the mold-making process by a foundry, from the sales and use tax.  The furnishing of the design and installation, including electrical and electronic installation, of core-making, mold-making, and sand-handling equipment used directly and primarily in the mold-making process by a foundry is also exempt from the sales and use tax.  The 2015 Iowa Tax Expenditure Report, released in February 2017, estimates the value of this tax expenditure at $1.2 million.  The tax expenditure reports published by Ohio and New York did not provide detailed data on the value of the sales and use tax exemption for sand-handling equipment or equipment used in the sand casting process.

      Information available through the 2012 Economic Census indicates that there are 4 iron foundries and 8 nonferrous metal die-casting foundries in New Jersey.  The total value of capital expenditures made by these businesses, which includes the value of new and used machinery and equipment used for replaced and additions to plant capacity (e.g. equipment used in industrial sand casting processes), was not included in the Census data available to the public.  According to the U.S. Census Bureau, these data were withheld to avoid disclosing data for individual companies.

Section:

Revenue, Finance, and Appropriations

Analyst:

Scott A. Brodsky

Lead Fiscal Analyst

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.).