A troubling New Jersey financial transaction tax proposal, which appeared to be gaining in popularity over the last few months, has reportedly been left out of the 2021 budget deal Governor Phil Murphy struck with legislative leaders last week. The decision to drop the transaction tax from the deal came days after the Wall Street Journal reported that prominent stock exchanges with data centers in New Jersey were prepared to exit the state if the tax plan was adopted. Although the financial transaction tax may be off the table this round, Governor Murphy still likes the idea and we are hearing that the concept is not permanently dead.

S2902/A4402 would impose a financial transaction tax on persons or entities that process 10,000 or more financial transactions through electronic infrastructure located in New Jersey during the year. According to the bill, there are reportedly billions of financial transactions processed daily, and many of those are processed through infrastructure located in New Jersey. The tax would be a quarter of a cent per financial transaction processed in the state and be levied on the processor.

Many well-known New York stock exchanges maintain their electronic infrastructure in New Jersey and have expressed their intention to leave New Jersey before becoming subject to the tax, which they argue harms not only their customers but also ordinary investors because the costs of the tax are passed down from the exchanges to everyone else in the market. Many US stock exchanges already maintain backup facilities in the Midwest. An industry-wide effort to test those Midwestern facilities is scheduled for September 26 to demonstrate their preparedness, and willingness, to relocate.

New Jersey’s financial transaction tax proposal may drive data center businesses out of the state before it is even adopted or formally considered by the state legislature, which teaches a valuable lesson: In a post-coronavirus world, states looking to make up billions in deficits by aggressively taxing businesses that survived the economic crisis risk finding out just how mobile businesses have become.