Sales and Use Tax Review Commission
The Commission's duties involve obtaining a fiscal impact determination and providing a brief policy analysis concerning proposed legislation that would affect the base to which the New Jersey Sales and Use Tax law would apply. Within 90 days after the introduction of such legislation, the Commission is required to provide its recommendation to the New Jersey Legislature on the proposed legislation.
Over time, public finance experts have identified a variety of characteristics that are desirable when constructing a tax system. Not all of those standards are directly pertinent to the work of the Commission. For example, "revenue adequacy" will not commonly be an issue that is addressed by the Commission when considering a particular proposal. Listed below are some characteristics of tax systems that may be helpful in considering proposals before the Commission.
The standard of Equity requires that the legislation be designed to fairly distribute the tax burden among the potential universe of taxpayers so that each taxpayer bears a fair share of that burden. To do so, the legislation should have both Horizontal Equity and Vertical Equity, as either may apply.
Horizontal Equity mandates that sales tax legislation be broadly based and taxes all similar transactions, persons or things in a similar manner.
Vertical Equity mandates proportionality among taxpayers according to ability to bear the tax burden.
However, both Horizontal Equity and Vertical Equity can be limited by exemptions from sales tax established by public policy initiatives designed to provide investment incentives or promote social change
The standard of Simplicity requires that sales tax legislation be drafted in such a manner to allow retailers to ascertain their tax collection responsibilities simply by reviewing the provisions of the proposed legislation itself, without resort to interpretative regulations. Simplicity is crucial to the effective implementation of sales and use tax legislation because tens of thousands of retailers are responsible for collecting tax, and are personally liable for uncollected tax. Due to that potential personal liability, it is imperative that the legislation give retailers the confidence that they are collecting the proper amount of tax.
The standard of Economic Neutrality requires that sales tax legislation have as limited an effect as possible on economic and financial decisions in order to minimize its impact on an otherwise efficient marketplace. In addition, the legislation should refrain from encouraging or subsidizing one segment of the State's economy at the expense of another.
The standard of Cost Efficiency requires that the costs of administration borne by the State and the costs of compliance borne by retailers be as low as is compatible with the other standards.