Voters would decide whether to approve the amendment during the November election, if three-fifths of both legislative houses this year approve sending it to voters.
Sen. Bob Smith said the tax would charge 40 cents per 1,000 gallons of water, equating to $32 per year for the average household.
"And the most important thing is it happens only if the people of New Jersey say they want it," said Smith, D-Middlesex. "This is not the Legislature imposing a tax."
A water tax has been discussed for years, but never implemented amid legislative concern over taxing a staple like water in a state that already has the nation's highest property taxes and lofty income, corporate and sales tax rates.
But Smith said voters would weigh the merits of imposing the tax with preserving farmland and open space.
"There is no free lunch," Smith said. "If you want open space preservation and farmland preservation, there has to be a source of money."
Voters in November approved borrowing $200 million for land preservation, but that money is set to run out in two years.
Smith said the water tax would make the program permanent and mean an end to borrowing for preservation, while providing $150 million in annual pay-as-you-go funding.
"That's a pretty good open space program, and it's forever," said Smith, the Senate Environment Committee chairman.
Republicans question the plan.
"I don't see why raising taxes is always the first option for the Democratic Party," said Senate Minority Leader Tom Kean, R-Union.
Democrats control the Senate 23-17.
The Senate Environment Committee delayed action on the bill Thursday after Smith said they would consider how to include money in it for historic preservation. Smith expects the panel to vote May 19 on sending the bill to the full Senate for more consideration.
The Legislature has until Aug. 3 to weigh proposed constitutional amendments.
But the plan was backed Thursday by environmentalists who argued the state needs stable, long-term funding for land preservation.
"It takes some courage because we are concerned about the high price of energy, the cost of food going up and the state budget, but it's also the right thing to do," said Jeff Tittel of the New Jersey Sierra Club.
But water companies and businesses bashed the idea, contending it would hurt consumers and water-reliant businesses ranging from pharmaceutical companies to dry cleaners.
"Every dollar spent on a new tax makes them that much less competitive," said David Brogan, a New Jersey Business & Industry Association vice president.
