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New Jersey's New Taxes

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Sometimes Fate dumps a dropping in your lap and you just can’t ignore it. As it happened, this week I received a missive in the mail from the great state of New Jersey. Two missives, actually. One is a notice to all retail sellers and purchasers of fur clothing. The other outlined changes to NJ’s sales and use tax act. Why did I receive these? Apparently because my Pennsylvania financial services company employs a NJ resident. That’s the only connection. We don’t buy or sell fur – or perform any services in NJ. So NJ must have sent these out in “shotgun” fashion, to everyone in its database. An inefficient waste of postage, if nothing else.

However, there is a bit more to Fate’s little love-notes. As I wrote in a previous article, NJ has so many tax and other revenue streams that it could make your eyes glaze over. Now, it seems, the Garden State has legislated a few new ways to steal its residents’ money.

The Fur Clothing Retail Gross Receipts Tax (FCRGRT) went into effect on July 15th, and applies if a customer buys and picks up fur clothing in NJ, or the item is delivered to a NJ address. This new 6% tax isn’t quite as onerous as the recently increased 7% sales tax, and can technically be borne by the seller or charged to the customer; either way, of course, the customer will foot the bill. One wonders why they didn’t just make this particular type of clothing subject to sales tax, since in practice there is no real difference between the two types of tax. Any tax on a “bad” commodity (e.g., alcohol, tobacco, firearms) is completely arbitrary, so why not be arbitrary in a simpler way, and make fur the one type of clothing subject to sales tax? Why spend time creating an entirely new law? Alas, I fear the NJ state legislators are positively inscrutable.

Don’t worry, the legislators have made sure that you aren’t charged if you just buy a hat with a bit of fur trim, as the fur must be a “chief component” of an item’s value. (I suppose a judge will have to rule in borderline cases; e.g., a fur/leather jacket.) Oh, and fake fur doesn’t count. Apparently this is some kind of “politically correct” tax, which will surely please vocal PETA, to the dismay of a smaller, less noisy group of furriers and fur wearers.

If you think you can avoid the fur tax by buying such items in another state, you can do so – illegally, of course. Why? Because unless you pay at least 6% in sales or other tax on your out-of-state purchase, you are required to pay the difference to NJ in “use” tax. In case you are unfamiliar with this term, it means the sales tax you so cleverly avoided must be paid to the state in which you live, since you are “making use” of the item in your home state. So, it’s either sales tax or use tax, one or the other. (Use tax seems like a violation of the Constitution’s Full Faith and Credit clause to me. Why has no one challenged it?)

Naturally, countless thousands of people become criminals every year, when they drive to a nearby no-sales-tax state, return home with appliances and other goodies, and never pay the use tax. In the case of a pricey item like a fur coat, I predict that many shoppers will prefer to save a few hundred bucks on tax and choose not to fill out NJ’s “fur use tax return,” a form which is, quite absurdly, designated FUR-18. Clearly, the use tax results in the unintended consequence of promoting disrespect for the law.

No explanation or rationale for the new tax is provided in the statute. It states merely that “There is imposed on a person making retail sales of fur clothing a tax at the rate of 6% of the gross receipts from retail sales of fur clothing in this State.” There is no preamble stating that “we need more money to balance our budget,” (let alone something more honest like “we spend more money than we take from you and our budget is in crisis”). In other words, the tax is nothing more or less than an imperial decree. It is simply a case of “we say you need to pay.” That’s it. Period.

After pondering just this one specific tax, I don’t understand how any semi-intelligent individual can think that he is even remotely represented by his elected officials – or does anyone seriously believe that a majority of the population would vote for increased taxes of any kind? I’m sorry, but I find it impossible to avoid the reality that we are indeed living in a nanny state, where our putative representatives simply take it upon themselves, without any real accountability or regard to their constituents’ wishes, to decide what’s best for everyone else.

Of course, the well-publicized increase in NJ sales tax from 6 to 7% will cost taxpayers dearly – an estimated $1.4 billion over the next year. NJ has also eliminated some exemptions, including those for tanning, massage and tattooing services. You can still avoid sales tax when having clothing laundered or dry cleaned, but the exemption no longer applies to carpets, blankets, comforters, tablecloths or napkins. Additionally, if you park in a lot that already charges you, you’ll now pay an additional 7% in tax. If you pay membership fees at a health club, you’ll now pay an extra 7% on top of that. New Jersey also wants you to fill out a form and pay the use tax on any downloaded software not used in a business. (I’m sure everyone, including teenaged computer gamers, will happily comply.) These changes, decreed by the government of New Jersey, for the good of all New Jersey residents (whether they like it or not), go into effect on October 1st. It almost feels good to be in Pennsylvania.

September 9, 2006

Andrew S. Fischer has worked in various fields.

Andrew S. Fischer