Despite concerns about import tariffs and Middle East war, state government revenue forecasters in New Jersey are predicting overall tax collections will slightly exceed their initial forecast, at least for now.
New projections have added more than $180 million to the expected bottom line, according to projections released by the state Department of the Treasury for the current fiscal year, which ends June 30,
The overall forecast upgrade is modest in the context of state government’s nearly $60 billion annual budget. Still, it represents some good news for Gov. Mikie Sherrill and lawmakers because it suggests they won’t have to manage a major revenue shortfall before the current fiscal year closes.
Moreover, the state budget surplus is now projected to top $7.2 billion by the end of June, according to the new projections, which were released as the Sherrill administration put forward her proposed budget for the fiscal year that begins July 1. That latest figure gives Sherrill and lawmakers a bigger cushion for any potential major economic fallout triggered by President Donald Trump’s broadening war in Iran.
For now, Sherrill administration officials say the war is invoking “uncertainty” that requires close monitoring. They are expected to provide another revenue update in May.
Income tax boom
By far, the income tax is providing the biggest near-term revenue boost for the state’s fiscal year 2026 budget. That stream through June is expected to generate more than $22 billion.
The income tax is the largest single source of state budget revenue, producing constitutionally dedicated funding for priorities like K-12 public education aid and direct property tax relief.
And with a new tax season underway, the state’s revenue forecasters are seeing some reason for optimism: They’ve added nearly $1 billion to the income tax projection through June.
A basis for that is explained in the revenue outlook section of the “Budget in Brief” released by the Sherrill administration on Tuesday.
“Given the strong performance of estimated payments and capital markets, final payments this spring are now expected to at least match last year’s high level, compared with an initial expectation of a slight decline,” the budget briefing states.
For annual collections from the state’s pass-through business alternative income tax, the forecast through June has also grown by more than 5%, to $4.8 billion. Treasury officials attributed that change to improvements in estimated payments.
Consumer spending
Meanwhile, left unchanged was the more than $14 billion revenue projection for the sales tax, the second-largest source of budget tax revenue.
That means the nearly 4% year-over-year increase that was initially forecast in the summer is expected to hold through June. That’s despite concerns about Trump’s widespread import tariffs that some economists feared would significantly dampen consumer spending.
In New Jersey, consumers “continue to spend, although they may be doing so with reduced discretionary income as nontaxable goods and services — such as groceries — consume a larger share of household budgets due to elevated price inflation,” the budget briefing states.
A continuing concern, though, is the state’s corporation business tax, or CBT, which is logging a year-over-year decline in collections. Its current fiscal year forecast has been reduced by $884 million, to $3.3 billion.
Treasury officials have attributed the decline to a number of factors, including significant tax-credit claims. Another contributor was federal tax changes enacted last year by Trump and the Republican Congress, the officials said.
“For many CBT taxpayers, H.R.1 significantly reshaped the corporate tax landscape,” according to the budget briefing, referring to the July 4, 2025, reconciliation law. “Because these federal modifications were enacted after the State finalized the FY 2026 Appropriations Act, the certified CBT projections were based on a tax environment that has since changed.”
Meanwhile, the Sherrill administration has marked down roughly $185 million in forecasted revenue from the corporate transit fee, a separate tax on top-earning corporations to support the New Jersey Transit operating budget.
The nation’s largest statewide commuter bus and rail operator has logged periodic service disruptions due to major winter storms. An NJ Transit spokesman did not immediately provide updated information to NJ Spotlight News when asked about the status of the agency’s current fiscal year operating budget late last month.
