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Statements from Senate President Sweeney, Senator Madden on Governor’s Veto of a Bill to Protect Interstate Tax Agreements

TRENTON – Legislation sponsored by Senate President Steve Sweeney and Senator Fred H. Madden that would impose restrictions on the Director of the Division of Taxation’s authority to terminate reciprocal personal income tax agreements with other states without the approval of the Legislature was vetoed by the governor today.

“The governor’s decision to veto this legislation is another gut punch to South Jersey residents already reeling from NJ Transit’s decision to shut down all rail service between Atlantic City and Philadelphia,” said Senator Sweeney (D-Gloucester/Salem/Cumberland).

“This legislation would have ensured that the Legislature would be engaged in any decision to terminate a bi-state tax agreement – an agreement that provides middle-class families with financial savings. The governor says the bi-state tax agreement helps upper-income Pennsylvanians. That’s not a flaw in the agreement but the difference between the tax codes of our respective states. The agreement helps middle-class New Jerseyans. It is absurd to suggest that we should not help the middle class of South Jersey because an agreement also benefits Pennsylvanians.

“The previous administration put this agreement in jeopardy and we cannot attract businesses to South Jersey if we cannot have stability in our reciprocal tax agreement with Pennsylvania. The governor states in his veto that his administration has not taken any action to end the agreement so this law is unnecessary. But he ignores the very reason for the legislation: to remove politics now and in the future from this process. It is not about any one executive. And speaking as Senate President, I am deeply offended that the governor called this needed protection a “peculiar scheme,” as if there was something nefarious about the Legislature trying to make New Jersey more competitive and create real job opportunities for our residents. That competitiveness must include the residents and businesses of South Jersey,” said Senator Sweeney.

“The reciprocal income tax agreement between New Jersey and Pennsylvania helps residents from both states, and there is no reason it should ever be threatened,” said Senator Madden (D-Camden/Gloucester).  “It is important to South Jersey residents, and this bill would have made sure what happened in 2016 won’t happen again. The bill was designed to remove politics from the process and the governor’s veto leaves that open possibility in the future. The people of South Jersey deserve better.”

The bill, S-878, would have helped preserve the bi-state agreement with Pennsylvania that allows taxpayers to pay income taxes in the state where they live by preventing the unilateral termination of these pacts by the New Jersey Division of Taxation without legislative approval.

In 2016, then Governor Chris Christie announced he would terminate the agreement between New Jersey and Pennsylvania because he needed to fill a deficit in that year’s state budget.  Christie later reversed his decision and decided to stay in the agreement. Under current law, the Director of the Division of Taxation has broad powers to enter into and terminate reciprocal personal income tax agreements with other states without the input of the Legislature.

This bill would have modified the existing powers of the director to restrict its authority to terminate such agreements without the authorization, through enactment of a law, of the Legislature and the governor guiding the director to terminate the agreement.

Approximately 125,000 New Jersey residents commute to Pennsylvania and another 125,000 make the reverse trip, according to Census Bureau estimates. Pennsylvania has a flat 3.07 percent income-tax rate while New Jersey has a more progressive tax structure with rates from 1.4 percent to 8.97 percent.

New Jersey and Pennsylvania established the Reciprocal Personal Income Tax Agreement in 1977, allowing residents from both states who work across state lines to pay income taxes where they live rather than where they work.  This means that Pennsylvania residents who are employed in New Jersey are not subject to the New Jersey gross income tax, and New Jersey residents who are employed in Pennsylvania are not subject to the Pennsylvania income tax.  Instead, employers in each state are required to withhold the corresponding states gross income tax on compensation paid to employees.