N.J. – 13 of 20 Most Taxed Counties in Nation

New Jersey has 13 of the 20 most taxed counties in the Nation according to a new study by the Tax Foundation for owner-occupied homes located in counties that have populations of over 20,000. According to the study, the ranking of the counties with the highest property tax burden is as follows:

Westchester County, New York ($7,908)
Nassau County, New York ($7,726)
Hunterdon County, New Jersey ($7,708)
Bergen County, New Jersey ($7,370)
Somerset County, New Jersey ($7,201)
Essex County, New Jersey ($7, 149)
Rockland County, New York ($7,066)
Morris County, New Jersey ($6,977)
Union County, New Jersey ($6,727)
Passaic County, New Jersey ($6,673)
Putnam County, New York ($6,553)
Suffolk County, New York ($6,502)
Monmouth County, New Jersey ($6,360)
Hudson County, New Jersey ($5,865)
Lake County, Illinois ($5,790)
Fairfield County, Connecticut ($5,694)
Sussex County, New Jersey ($5,677)
Middlesex County, New Jersey ($5,575)
Mercer County, New Jersey ($5,457)
Warren County, New Jersey ($5,228)

Source: The Tax Foundation

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N.J. is # 1 for Highest State-Local Taxes

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Taxing Amazon.com Complicated by Tangled Forest of Tax Laws

Should states be able to collect state sales tax on internet purchases and catalogue sales that cross state lines? That’s the issue that’s currently confronting state governments around the country desperate for revenues in these poor economic times. In theory, it is grossly unfair for a purchase that is made online to be taxed less than an identical item purchased at a “bricks and mortar” store (individuals are technically subject to use tax on their internet purchases but it is almost impossible to enforce). But in practice, taxation of remote sales falls victim to legal barriers as well as decentralized tax policies.

To this day, a company in question must be benefiting from the services which the state provides in order to be subject to sales tax levies. The Due Process clause has been interpreted for tax liability purposes as meaning the state must “give something for which it can ask return.” The Supreme Court has ruled that taxation of remote retailers is unconstitutional unless they have nexus or a physical presence within the state’s boundaries. But in the era of widespread e-commerce, the lines between a physical and virtual presence are blurring. Companies that buy and sell goods within a state are making use of that state’s infrastructure whether or not they physically own operations in the state.

The most recent Supreme Court decision to address this issue, Quill Corp. v. North Dakota in 1992, upheld previous limitations to the circumstances under which the state may collect taxes from a remote retailer. According to the Court, the Dormant Commerce Clause prevents states from placing undue burdens on interstate sales which was violated by North Dakota’s sales tax of Quill Corporation. Tax laws are so complicated and widely divergent between the 7,400 tax jurisdictions in the U.S. that the Court ruled it unreasonable for retailers to have to account for all the technicalities. It’s important to mention, however, that many observers including the chief executive of Netflix note the improvements in tax software in recent years have dramatically reduced the practical complexity of accounting for different tax policies.

Legal realities haven’t kept states from trying to tap this potentially large revenue source, upwards of $18 billion per year according to an estimate from the University of Tennessee. An organization of more than 20 states known as the Streamlined Sales Tax Project (SSTP) created in 2000 has been trying to streamline their tax codes enough so that determining tax liability is less burdensome. This will help convince Congress to change the law and allow states to tax internet sales, bypassing the Court decision. It’s probably fair to say they’ve only had limited success so far. This is due both to the difficulty of adopting a commonly accepted definition of taxable goods and services that doesn’t benefit some states while disadvantaging others and the difficulty of getting such a bill through Congress.

Thus presents the Amazon.com dilemma. Its “wholly owned subsidiaries” own thousands of square feet of distribution facilities in several states according to the Wall Street Journal. Although they are legally separate, there is a debate as to whether they constitute a nexus. It’s fairly common practice for companies to establish “shell companies” to take advantage of tax loopholes that allow them to expand operations without expanding tax liability. Several states, including Texas, are reviewing whether Amazon’s in-state operations should really be exempt from taxation.

Unfortunately, the prospect for expanding the tax base has dimmed as the State Board of Equalization in California has ruled that entities that refer customers by links to Amazon do not trigger nexus under California law. This is true even though the sites benefit financially from their relationship with Amazon, garnering a percentage of the sales made from the sponsored links.

New York has already passed a law requiring remote retailers to collect sales tax on purchases made in the state which Amazon has challenged, saying it unfairly targets Amazon. Amazon has a number of affiliates and advertisers that benefit financially from Amazon sales within the state (other companies such as Overstock.com cut ties to its New York affiliates rather than have to face sales tax liability). New York law states that companies that enter into financial arrangements with Amazon are considered Amazon vendors for sales tax purposes. The question is whether they are acting as agents of Amazon or whether they are primarily out for their own financial interests. It will be up to the courts to decide whether affiliates trigger nexus in New York or whether it’s back to the drawing board for advocates of equal tax treatment of e-commerce.

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New York’s "Soda Pop" Tax Proposal

New York Governor David Paterson unveiled his budget proposal this week, and one proposed tax hike is drawing a lot of attention: a plan to introduce a new tax on sales of soda pop. The 18 percent tax– which would be on top of the existing state/local sales tax, generally about 8 percent– would also apply to sugary juice drinks.

Paterson clearly thinks this is a good idea because it’s supposed to raise half a billion dollars a year. Nicholas Kristof thinks it’s a fantastic idea, but for an entirely different reason: he thinks it will get people to stop drinking so much soda. Kristof goes so far as to call it “a landmark effort that, if other states follow, could help make us healthier.”

With no apparent irony, the New York Times reports that

State officials projected that the tax would raise $404 million in the fiscal year that starts in April, and $539 million in the following fiscal year, but said the proposal was primarily a public health measure.

Of course, if the yield of the tax goes up, that means that people are drinking more sugary sodas, not less. So this thing is either going to be a budgetary savior for the state, or it’s going to make people healthier by encouraging them to spend less on soda pop. You can’t have it both ways.

So what’s the real answer? The Times‘ Clyde Haberman has a clear-eyed view:

Make no mistake, the last thing that government wants is for everyone, right this minute, to stop smoking, boozing, gambling and downing those nutritionally empty supersweet sodas. Too much money is at stake. By absolutely no coincidence, the New Yorkers who pay these particular taxes tend to be those who can afford them the least. Poor people spend disproportionately on smokes, booze and unhealthy soft drinks, not to mention on the prayer that God will drop everything else and shower lottery millions on them.
These are “habits that are more common among those who have the least amount of political power,” said Andrea Batista Schlesinger, executive director of the Drum Major Institute for Public Policy, a liberal but nonpartisan research center in New York. “To do something in the most politically efficient way is to tax or hike the fees of those who have the least power,” she said.

Folks like Kristof aren’t wrong to want to discourage people from doing self-destructive things. But they’re absolutely wrong to think that lawmakers’ motive in proposing things like the soft drink tax is to improve public health. They’re doing it because it’s politically easier than the true tax reforms that could help keep New York’s budget balanced years down the road.

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