New York and New Jersey have recently entered into a sales tax agreement that could have a significant impact on the economies of both states. The agreement, which was announced in June 2021, allows New York to collect sales tax on New Jersey residents who work in New York but live in New Jersey.
Under the agreement, New Jersey residents who work in New York will no longer get a credit for New York state income tax on their New Jersey tax returns. Instead, they will receive a credit for the New York sales tax they pay on purchases made in New York. This means that New York will collect sales tax on items purchased by New Jersey residents who work in New York, even if they live in New Jersey.
The agreement comes as a result of a long-standing dispute between the two states over how to allocate taxes for commuters who work in one state but live in another. The previous agreement allowed New Jersey residents who work in New York to receive a credit for the New York state income tax they paid, which reduced their overall tax liability.
However, New York argued that this arrangement was unfair, as it meant that New York was losing out on sales tax revenue from New Jersey residents who work in the state. Under the new agreement, New York will be able to collect sales tax on purchases made by these commuters, which is expected to generate millions of dollars in additional revenue for the state.
The impact of the agreement on New Jersey residents who work in New York is expected to be minimal, as the sales tax rate in New York City is only slightly higher than the rate in New Jersey. However, the agreement could have a significant impact on retailers in New York, as it may discourage some New Jersey residents from shopping in the state.
In conclusion, the new sales tax agreement between New York and New Jersey is a significant development in the ongoing debate over how to allocate taxes for commuters who work in one state but live in another. While it may have a minimal impact on New Jersey residents, it could generate millions of dollars in additional revenue for New York and could impact retailers in the state. As with all tax changes, it will be important to monitor the effects of the agreement on both states in the coming months.