2008.20 SUBJECT: eto Gerseg State Lgilatare OFFICE OF LEGISLATIVE SERVICES STATE HOUSE ANNEX PO BOX ost TRENTON NI 08625-0968 ALBERT PORKONE ‘Bxecie Director (os) 292-4005, MEMORANDUM TO: James Harkness Executive Director, Senate Republican Office FROM: DavidJ. Rosen D) 3 (2. Legislative Budget and Finance Officer DATE: March 4, 2011 dimes one ssh er POTENTIAL NEW JERSEY REVENUE FROM EXPIRATION OF NEW YORK STATE INCOME TAX PROVISION You asked us to provide an early look at the potential revenue gain that would be experienced by New Jersey if the temporary three-year New York state income tax rates that were adopted in 2009 are permitted to expire. These rates (which primarily effect high income taxpayers) apply to tax years 2009, 2010 and 2011. Governor Cuomo has proposed to allow the rates to expire as provided by current law, although some leaders in the New York State Legislature have proposed extending them. The New York income tax rates are of interest to us because New Jersey residents with income eamed in other states are required to pay income taxes to those states and then are able to take a credit against their New Jersey income tax liability for all or part of the ‘taxes paid. For tax year 2008, the most recent year for which the data are published, New Jersey lost $2.3 billion from credits allowed for taxes paid to other jurisdictions. OLS does have access to tax return data that would allow us to calculate the magnitude of the additional loss New Jersey experienced for tax year 2009 as a result of the change in the New York rates. Early last Spring the Treasurer estimated that the loss was about $300 million, but there were later suggestions that the amount might have been somewhat greater than that.James Harkness Page 2 March 4, 2011 If the New York rates return to their prior levels for tax year 2012, we would expect the gain to New Jersey to be in excess of $350 million. Taxable income (especially for high income taxpayers) in tax year 2012 will likely exceed that in 2009, although the volatility of income for these taxpayers makes prediction difficult. A small portion of New Jers revenue gain might appear the later part of Fiscal Year 2012, but most of the gain would likely appear in Fiscal Year 2013. Last Spring we had extensive conversations with the Treasurer and his staff about this ‘matter and I would anticipate as we go forward we will work cooperatively to provide the best information for policymakers. When we are in a position to provide a clearer answer to your question, be assured that we will do so.