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Gas Tax Increase, Transportation Trust Fund Authorization Should Benefit NJ Construction Projects


For years, we have heard the call for investment in New Jersey’s infrastructure. But the funding to improve roads, tunnels, and bridges has been slow to come despite the best efforts of many construction trade organizations.
 
With today’s 23-cent gas tax increase, which paves the way for significant infrastructure investment through the Transportation Trust Fund, we finally have some clear evidence that these organizations are being heard after a number of governors and their administrations failed to take necessary action.
 
Synopsis
 
New Jersey Governor Chris Christie recently signed a $16 billion infrastructure bill that will increase taxes on gasoline, diesel, and non-motor fuels while cutting a number of other taxes. Both the New Jersey Senate and Assembly passed Assembly Bill 10 (A10) authorizing the Transportation Trust Fund to spend $2 billion per year over eight years on infrastructure projects. Assembly Bill 12 (A12) includes tax increases as well as a decrease for certain personal income taxes and the New Jersey sales tax, and a phase-out of the estate tax, among other significant changes.
 
Gasoline Tax
 
As of November 1, 2016, the new legislation increases the gas tax by 23 cents to 37.5 cents per gallon. New Jersey’s gas tax was 14.5 cents per gallon. This is the first time New Jersey has raised the gas tax since 1988.
 
Diesel Fuel Tax
 
As of January 1, 2017, the 17.5-cent diesel tax rate is expected to be doubled to about 36.5 cents. The remaining increase will be imposed on July 1, 2017, with the tax rising to 44.5 cents per gallon.
 
Sales Tax
 
Beginning on or after January 1, 2017, the New Jersey sales tax will be reduced from 7% to 6.875% with a further reduction occurring as of January 1, 2018 from 6.875% to 6.625%. The total sales tax reduction is 0.375%. 
 
Estate Tax
 
Beginning in January 1, 2017, the exempt amount will be $2,000,000 versus the current threshold of $675,000. The new legislation would permanently eliminate the estate tax imposed under N.J. Rev. Stat. §54:38-1 as of January 1, 2018. The legislation does not impact the inheritance tax. 
 
Earned Income Tax Credit
 
Beginning on or after January 1, 2016, the New Jersey Earned Income Tax Credit for the working poor would be increased to 35% from 30% of the federal benefit amount. 
 
Personal Exemption for Veterans
 
Beginning on or after January 1, 2017, an additional personal exemption of $3,000 will be available to veterans who have been honorably discharged or released under honorable circumstances from active duty in the Armed Forces of the United States. 
 
Pension and Retirement Income Exclusion
 
Beginning with the 2017 tax year and the next three tax years, the maximum pension and retirement income exclusion for married couples filing separately would increase from $10,000 to $50,000 by 2020.  For single taxpayers, the maximum pension and retirement income exclusion would increase from $15,000 to $75,000 by 2020. For married couples filing jointly, the maximum amount of pension and retirement income exclusion would increase from $20,000 to $100,000 by 2020.
 
What Does CohnReznick Think?
 
This is a big win for the New Jersey construction community. At the same time, it is a major victory for the taxpayers of New Jersey who will no longer need to move out of state to avoid onerous estate and retirement benefit taxation. If people are incentivized to maintain their primary New Jersey residence, the state’s economy will undoubtedly benefit.
 
To offset the burden of the gas and diesel fuel tax increase, the governor and state legislators have enacted several important tax cuts that should have significant long-term advantages to the taxpayers in New Jersey and also benefit the New Jersey economy.
 
The New Jersey construction community trade organizations and unions have been proponents of this gas tax increase and its impact on the Transportation Trust Fund. But taxpayers still need to vote for these funds to be dedicated to transportation. If they do so, there will be committed funds for the future - a far cry from where we have been with an unfunded Trust Fund for several years.
 
While the hope is that New Jersey contractors will have a more predictable stream of work, we encourage our clients to exercise caution. Since the state shutdown, public projects have been put on hold for months and new projects have been limited in what has been put out to bid. 
 
Be careful of overly aggressive bidding. Take some time to see where the market is and bid responsibly. The New York/New Jersey construction market should be poised for an extended period of growth as several major public and private projects are in various stages of execution and planning. If these projects fit your target market, make sure that you are positioned for an opportunity to bid on this work and, at the same time, have a long-term plan in place that will address your company’s growth objectives.
 
Contact
 
For more information, please contact Jack A. Callahan, Partner and CohnReznick Construction Industry Practice Leader, jack.callahan@cohnreznick.com or 732-380-8685.
 
Learn more about our Construction Industry Practice.
 
Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. 
 
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