LEGISLATIVE FISCAL ESTIMATE

[First Reprint]

ASSEMBLY, No. 2812

STATE OF NEW JERSEY

221st LEGISLATURE

 

DATED: JUNE 24, 2024

 

 

SUMMARY

 

Synopsis:

Exempts sales of investment metal bullion and investment coins from sales and use tax.

Type of Impact:

Annual State revenue loss.

Agency Affected:

Department of the Treasury.

 

 

Office of Legislative Services Estimate

Type of Fiscal Impact

Magnitude of Fiscal Impact

 

Annual State Revenue Loss

Between $6.0 Million and $8.0 Million

 

 

 

·         The Office of Legislative Services (OLS) estimates that the sales and use tax exemption of investment metal bullion and investment coins would reduce State revenues by between $6.0 million and $8.0 million annually.

·         The direct State revenue loss would be partially offset by any State revenue gain from indirect fiscal effects that the creation of a sales and use tax exemption may generate. The OLS, however, lacks the informational basis for quantifying any indirect State revenue gain from potential changes in the behavior of economic actors.

 

 

BILL DESCRIPTION

 

      This bill exempts from the sales and use tax the sale of investment metal bullion and investment coins.  The exemption would not apply to the sale of commemorative medallions or of jewelry or works of art made of coins.

FISCAL ANALYSIS

 

EXECUTIVE BRANCH

 

      None received.

 

OFFICE OF LEGISLATIVE SERVICES

 

      The OLS expects the sales and use tax exemption of investment metal bullion and investment coins to reduce State revenues by between $6.0 million and $8.0 million annually.

      Absent publicly available State-level sales data for investment metal bullion and investment coins, the OLS bases its estimate on nationwide sales by the United States Mint of gold, silver, platinum, and palladium bullion coins from federal fiscal years 2019 to 2023.

      The OLS recognizes that these data do not capture the resale of bullion coins on the secondary market and therefore understate the size of the metal bullion market in the United States.  

      Nationwide metal bullion coin sales by the United States Mint averaged $2.7 billion from federal fiscal years 2019 to 2023.  The OLS assumes that New Jersey metal bullion and coin sales are proportionally the same as New Jersey's share of the United States' total personal income in calendar year 2022, or 3.3 percent, according to the federal Bureau of Economic Analysis.  Doing so results in $89.8 million in estimated annual metal bullion sales in New Jersey.  At the State’s 6.625 percent sales tax rate, this yields an estimated $6.0 million in annual sales tax collections from the sale of metal bullion, which would be forgone under the bill.

      As the chart illustrates, however, the market is subject to significant volatility, which increases the estimate’s margin of error.  For that reason, and given that reported bullion coin sales in federal fiscal years 2021 to 2023 were significantly higher than before, the OLS performed the same calculation for the three-year nationwide sales average from federal fiscal years 2021 to 2023, or $3.6 billion.  The estimated amount of forgone revenue would be $8.0 million with the higher nationwide sales figure.

To ascertain the reasonableness of the $6.0 million to $8.0 million estimate in light of the data limitations, the OLS examined the revenue loss estimates of the sales and use tax exemption of metal bullion coin sales in neighboring states that publish estimates.  To that end, the OLS researched other states’ annual tax expenditure reports and then proportionalized the data to New Jersey based on population.  Excluding the revenue loss estimate for the State of New York, which appears to be significantly inflated by New York City’s unique position as a global financial center, the OLS calculates that a proportionalized New Jersey estimate would range from $4.8 million to $13.3 million.  This range aligns reasonably well with the OLS' initial estimate.      

      The OLS notes that the direct revenue loss would be partially offset by any indirect fiscal effects that the creation of a sales and use tax exemption for investment metal bullion and investment coin sales may generate.  Examples of such potential indirect revenue gains include additional trade shows, which would increase spending by attendees around the site of the trade shows.  Or the repatriation of sales to New Jersey, irrespective of whether the New Jersey resident purchaser currently complies with the legal obligation to pay the compensating use tax when sales tax is not collected on the sale in another jurisdiction.  If a sale were to newly occur in New Jersey because of the exemption, then the business making the sale would have more taxable income and could potentially grow.  The OLS, however, lacks the informational basis for quantifying any indirect State revenue gain from potential changes in the behavior of economic actors.

 

Section:

Revenue, Finance and Appropriations

Analyst:

Patrick Walsh

Assistant Fiscal Analyst

Approved:

Thomas Koenig

Legislative Budget and Finance Officer

 

This legislative fiscal estimate has been produced by the Office of Legislative Services due to the failure of the Executive Branch to respond to our request for a fiscal note.

 

This fiscal estimate has been prepared pursuant to P.L.1980, c.67 (C.52:13B-6 et seq.).