Some retailers fear customers will be scared off by a higher state sales tax.
Following a state budget dispute that temporarily shut down the government, New Jersey businesses are now bracing for a tax increase that some say will disrupt their operations and cut into the bottom line.
Under the budget deal, the Garden State's sales and use tax rate will increase from 6% to 7% on July 15. The new legislation also raised the Atlantic City luxury tax from 12% to 13%, as well as the Cape May County tourism sales tax. Businesses in the Wildwood area will now collect a 2% tourism tax combined with the 7% sales tax, for a combined rate of 9% tax on tourism-related sales.
"This is going to make a lot of people unhappy," said Lisa Rossi, owner of the Flying Carp Gallery, an Ocean City, N.J., gift shop. "Tourists come from over the world, and many come from states with lower taxes than ours, and that will affect their shopping."
Businesses across the state are expected to feel a crunch, as many had not anticipated such a quick enactment to the sales-tax increase. Initially, the hike was scheduled for Oct. 15, but the date was moved up during budget negotiations.
"That was a surprise," Rossi said. "I just got the letter from the government today -- Friday -- and we have to have someone reprogram our cash registers. It's tough because this is our busiest season."
Business owners are now forced to choose between keeping prices at their current levels, which would result in higher overall prices for customers, or lowering prices to compensate for the added tax, according to Brenda Hopper, director of the New Jersey Small Business Development Center, a Newark-based organization that helps businesses expand operations, manage growth, and launch new ventures.
"To remain competitive, some smaller businesses may absorb the costs," Hopper said. "The biggest impact will be on larger ticket items like automobiles. Sales tax on a $30,000 car at 6% was $1,800, with this increase the total tax comes to $2,100. That's a lot of money."
Although many areas in New Jersey are slated for the 1% sales tax hike, areas within the Urban Enterprise Zones -- which have been designated by the state to encourage the redevelopment of urban areas -- will only see a 0.5% increase.
"There is still a break in those zones, but it depends on which city you are in," Hopper said, noting that certain cities impose a city tax which makes total tax paid virtually the same as other non-UEZ areas in New Jersey.
For her part, Rossi said she understands the tax hike may be better than the previous alternative -- shutting down the government. "I do think it's a necessary measure to fix the problems in the state, and it's a way that will get things solved."