Yesterday, the sales tax in New Jersey rose from 6% to 7%. This is due to the new budget that was signed after the statewide shut down last week – I’m sure you heard about this.
If you live in the area and read the newspaper or watch the local news, you’ve seen a number of stories on this. The media has been talking about how this is going to change consumers spending habits and they’ve basically made it seem that the New Jersey economy is about to collapse, because of the 1% increase.
Let me tell you a secret – the impact of the rising sales tax on New Jersey’s economy isn’t as dire as the media is making it seem.
Although sales tax is lower in Pennsylvania (6%) and Delaware (none!), New Jersey’s 7% sales tax is equal to the sales tax in Philadelphia and still lower than the sales tax in most of New York state.
Like Pennsylvania, apparel is still completely exempt from sales tax. As of right now, only 11 counties and 5 cities exempt apparel purchases up to $110. On April 1, 2006, New York state took away their statewide 4% on apparel purchases up to $110, however the counties/cities not listed above, local taxes (in the area of 4%) still apply.
The Route 17 corridor in Bergen County benefits greatly from the New York sales tax on clothing. The area boasts a number of retailers, including Kohl’s, Marshalls, TJ Maxx, and Lane Bryant. Travel down 17 more and you have Garden State Plaza and Paramus Park Mall. The entire area capitalizes on the affluence of Bergen County and the sales tax in New York. I’ve known more than a few people who live in the Suffern, NY area who would travel down 17 to do all of their shopping.
The major effect on the tax changes is going to be on car dealerships, who, in addition to the 1% increase, now face a surchage on vehicles costing over $45,000 and vehicles that get less than 19 mpg. But how noticable will this be, in the scheme of things? With the rise in gas prices, more and more people have long been making the switch to fuel-efficient vehicles. This surcharge is just another variable for a purchaser to consider.
And, maybe I’m off base because I don’t know the extent of the over $45,000 surcharge, but I don’t think it will hurt auto retailers all that much. In today’s economy, the person who is purchasing a car with that sticker price, probably isn’t going to be effected as much by a surcharge or fuel prices.
One article, from northjersey.com ["Shoppers sigh, dig a little deeper as sales tax hike boosts their bills"], seems to agree with me by pointing out that first day sales weren’t effected much:
At Maroon Auto Group’s KIA dealership on Hamburg Turnpike owner Ray Maroon said business is booming.
Customers, he said, are less concerned about a 1 percent tax hike than they are about fuel efficiency and savings.
“We delivered 10 cars last night and today,” he said, adding that three were sold on Saturday morning. “People aren’t complaining too much about the 1 percent … Since this thing has flared up in the Middle East, we’ve seen tremendous reaction, because they’re trading in very, very large vehicles, and it’s amazing.”
Economists estimate that the rise will cost the average New Jersey family $276 over the course of a year. The larger issue is that $276 is going to effect a family in Cumberland or Salem counties much more than a family in Somerset or Morris counties [see: New Jersey locations by per capita income].
I believe there will be localized fluctuations in consumer spending, but the state economy will be fine. Consumers have a way of reacting and adapting to all of the variables that the economy throws at them. I don’t think retailers in New Jersey should be, or are, as concerned about the rise in the sales tax as they are concerned about the rise of the price of oil, the conflict in the Middle East or interest rate levels.
A 1% rise in the sales tax is just a blip in the grand scheme of things that drive consumer spending habits.
With all of this said, can I just point out how ridiculous the local media has been? All week I’ve watched news reports showing luxury car dealerships, boat dealerships, and other very high-ticket items. One report on NBC said that the price of a new boat would rise over $2,000! But of course the sticker price on that particular boat was over $200,0000. I don’t think that the person buying that boat is going to be too concerned with 1%.
Also let me leave you with this gem of a quote, from the previously linked to article from northjersey.com:
The new tax would add another $1,035 to the $103,500 price of a concert grand piano, said John E. Weiss, a salesman at Steinway & Sons in Paramus.
I’ll just leave that one alone for now.
More local coverage from the Asbury Park Press: New car buyers feel brunt of newly imposed higher state taxes and New Jersey more expensive place now.
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