A New Jersey resident did not pay sales taxes on at least $4 million in purchases he made in New York and then shipped across the Hudson. Last week, the big buyer, who had been under pressure from Trenton, sent a check for $303,658 in sales taxes and interest owed. The reason: This is the last year to deduct state sales taxes from federal income taxes.
As the case of the New Jersey resident points out, the new tax season is about to arrive. Ripples from the new tax law have started to spread through the economy.
``There's been a lot of tax jockeying, which has moved consumption spending to this year,'' says Gary Ciminero, chief economist and senior vice-president of Fleet National Bank in Providence, R.I. Automobile dealers, yacht brokers, furriers, jewelers, and other sellers of big-ticket items have been heavily advertising the loss of the sales-tax deduction.
Over the short term, some of this consumer spending may spill over to next year, says Greg Ballentine, a tax economist with Peat Marwick Mitchell in Washington. ``Withholding rates are going down and paychecks are going up,'' he notes. ``It may give us a little spur.''
One small indication that this might happen came Tuesday when the Commerce Department released the index of leading and coincident indicators, showing a surge of 1.2 percent in November. Economists cautioned against reading too much into this one month jump, however. ``The first quarter is still going to be slow,'' Mr. Ciminero says.
In fact, a significant portion of the rise in the index was attributed to a rise in cotton prices, reflecting technical development involving government subsidies.
The tax law has prompted frenetic activity in real estate, because the capital gains tax will rise from 20 to 28 percent. This adds $80 in taxes for every $1,000 in profits. John Ryan, managing director at Landauer Associates Inc., real estate consultants in New York, says the change will mean ``substantially reduced activity'' during the first six months of 1987.
For example, the Exxon Building in New York City was recently sold for $610 million, an estimated $400 million profit for Exxon and Rockefeller Center, the owners. If the building were sold in 1987, the owners would have had to pay an extra $32 million in capital gains taxes.
The change in the capital gains rules will also mean some individuals will pay higher taxes next year. Jack Salomon, a tax partner at KMG Main Hurdman, an international accounting firm, says his company recently surveyed the tax returns of 900 clients, most of whom itemize their deductions. ``Most of these people are getting a 10 to 15 percent tax increase, not a decrease,'' he says. When individuals compute their 1987 tax returns, he adds, ``a lot of people are going to be awfully surprised.''
One group that has found an unpleasant side to the tax bill is independent consultants such as computer programmers, systems analysts, and other technicians. Companies that hire such consultants may have to consider them employees for income-tax purposes. This means the employer will have to collect social security, insurance, and other benefits.
``The bottom line is it puts me out of business,'' says Jon Overton of Prodata, a New York computer consultant, ``or I may have to join a large corporation whether I like it or not.''
Ironically, it may swell the ranks of the federal government, because the government hires thousands of such consultants.
On the other hand, some state treasuries are benefiting from the tax bill - at least temporarily.
Joseph Small, head of the New Jersey tax evasion sales force, says state revenues are higher than projected, in part because consumers are buying so they can deduct the state sales tax from their federal returns. Tax officials in New York State likewise say revenues are running higher. In fact, New York had enacted a special tax on large real estate transactions to meet a $75 million deficit in the state transit system. According to one unofficial estimate, the state picked up $100 million in December.
And because income-tax rates are lower next year when the top rate drops to 38.5 percent, some people are trying to defer income. Mr. Small tells of one man who has been asking for his large income-tax refund for months. ``He called the other day,'' Mr. Small says, ``and asked us not to rush it. He said, `Send it next year.'''
When the tax bill was signed into law, many economists thought it might stifle capital investment because business was losing the investment tax credit and accelerated depreciation rates. ``Capital intensive industries have clearly been hurt over the short term,'' says Tom Burns, manager of the economics department at Chevron Oil Company, which has a capital budget of about $3 billion in 1987.
The actual impact on suppliers of goods to capital intensive businesses appears to be spotty. In Hollis, N.H., president Gerry Letendre says Diamond Casting's backlog of industrial valves and hardware for computers is increasing, which is a good sign.
``Our conversations with customers indicate orders will be good for the first quarter,'' Mr. Letendre says.
But generally, the economic climate is not very good for capital investment anyway, Mr. Ballentine says. Factories are running at below 80 percent of their capacity, far below the need for new plant and equipment.