Gov. Phil Murphy vetoed a bill that would have stripped his administration of the authority to end reciprocal tax agreements with other states. The law was pushed through the Legislature following former Gov. Chris Christie's efforts to end the deal with Pennsylvania.
Under the agreement, Pennsylvania residents who commute to New Jersey need only pay income taxes in their home state. The same goes for New Jersey residents who commute to Pennsylvania, and Delaware and New York.
In Nov. 2016, Christie backed off from his efforts to end the agreement, saying he found over $200 million in savings from public worker union-backed health care contracts, which he said made up for the funds missed out on by the agreement with Pennsylvania.
South Jersey lawmakers such as Senate President Stephen Sweeney, D-3rd District, said they were particularly concerned residents there would be among the hardest hit, especially low and middle income residents who commute to Philadelphia.
Senate Bill 878, which Murphy vetoed on Monday, would have required the Legislature to approve any effort by New Jersey Division of Taxation to enter or leave a reciprocal tax agreement, which Murphy said would establish a "peculiar scheme."
“Observers have noted that the current tax structure enshrined in the 1977 agreement creates a disparity in treatment between New Jerseyans who commute to Pennsylvania, who only pay New Jersey’s income tax, and New Jerseyans who commute to New York or Delaware, who have to file taxes in both states,” Murphy said.
Sweeney, a sponsor of S878, said he was “deeply offended that the governor called this needed protection a ‘peculiar scheme,’ as if there as if there was something nefarious about the Legislature trying to make New Jersey more competitive and create real job opportunities for our residents."
Since his administration hasn’t yet tried to end the agreement, Murphy added, S878 wouldn’t be necessary, which Sweeney argued was missing the point.
“He ignores the very reason for the legislation: to remove politics now and in the future from this process,” Sweeney responded. “It is not about any one executive.”
The state misses out on $180 million annually by not taxing Pennsylvania residents, since they’re taxed at Pennsylvania’s 3.07 flat income tax rate rather than New Jersey’s top marginal rate of up to 10.75 percent, according to Murphy.
Since the executive branch has better access to the state’s tax records, the governor added, it’d be in a better position to decide whether leaving or entering a reciprocal tax agreement would be in the state’s best interest during “challenging fiscal times.”