Arm Wrestling Match Over New Jersey’s Business Tax Is Heating Up

NEW JERSEY — An arm wrestling match over a tax on some of the state’s largest businesses is heating up in New Jersey.

On Monday – a day before Gov. Phil Murphy gives his annual budget address – a coalition of social justice groups gathered outside the Statehouse in Trenton. Holding signs that read “Stop The Corporate Millionaires’ Tax Cut,” they demanded that lawmakers keep the state’s corporate business tax surcharge in place (watch the video below).

Meanwhile, industry groups and some state lawmakers continue their efforts to kill the surcharge, arguing that it’s an albatross around the necks of New Jersey business owners (read more below).

At 9 percent, New Jersey has the highest corporate tax rate in the nation. The state also charges an extra 2.5 percent for corporate profits exceeding $1 million, which is the cause of the latest controversy.

The surcharge tax – which was rolled out in 2018, the year after Gov. Murphy was first elected – was originally scheduled for step downs in 2020 and 2021. Instead, it was extended by the state Legislature in 2020, and won't sunset until Jan. 1, 2024. However, Murphy and other high-ranking Democratic lawmakers have recently shown signs that they’re willing to let it expire.

Here are the arguments from both camps.

KEEP THE TAX

According to For The Many New Jersey, a coalition of more than 30 groups, eliminating the surcharge would cost the state at least $650 million in revenue every year.

The coalition warned that if the surcharge is allowed to expire, it would “blow a big hole in the state’s budget” and threaten investments in essential public services, programs and infrastructure that residents – and businesses – both rely on.

If the surcharge is allowed to expire, it will mostly benefit the biggest and most profitable businesses operating in New Jersey, the coalition said.

According to a report released last week by New Jersey Policy Perspective, only the top 2 percent of businesses operating in New Jersey pay the surcharge, including multi-national corporations not headquartered in the state like Amazon, Walmart and Bank of America.

Corporations with at least $10 million in annual profit would receive 70 percent of the tax cut, according to state data compiled in the report. Corporations with at least $100 million in annual profit would receive an average tax cut of $5 million. Businesses with less than $1 million in profit — representing 98 percent of businesses in the state — would receive no benefit from eliminating the surcharge, the group claims.

“This is a tax cut for some of the wealthiest corporations on the planet, not ‘Mom and Pop’ businesses,” said Sheila Reynertson, a policy analyst with New Jersey Policy Perspective.

“When big corporations don’t pay what they owe, we all have to make up the difference, either in higher taxes or in cuts to vital public services like schools and transportation,” Reynertson argued. “We should know by now that corporate tax cuts never trickle down.”

• See Related: NJ Has Nation's Highest Property Taxes (By A Long Shot), Report Says

During Monday’s rally, speakers from the coalition urged lawmakers to pass a budget that will “benefit all residents, not just corporate shareholders.”

As it stands, the corporate business tax is New Jersey’s third largest source of revenue, according to Kelly Conklin, president of the Main Street Alliance Board.

“Main Street businesses will have to pick up the revenue tab left by large multinational corporations, adding an undue burden to the struggles small businesses face year over year to make their margins, keep pace with inflation, retain their employees with competitive benefits and manage personal responsibilities,” Conklin said.

“Eliminating the Corporate Business Tax surcharge is not in the best interest of small businesses in New Jersey,” Conklin added.

“Allowing the corporate business tax surcharge to sunset would be yet another giveaway to the wealthiest corporations who already exploit tax avoidance loopholes to maximize short-term profits,” agreed Richard Lawton, executive director of the NJ Sustainable Business Council.

“Since 98 percent of New Jersey businesses have revenues that make them exempt from the surcharge, eliminating it would only compound the unfair competitive advantage that large, out-of-state companies already have over local businesses who do their part as responsible citizens to make New Jersey a great place to work and live,” Lawton added.

• See Related: Tax Cuts For Rich Corporations In NJ? More Protests As Budget Nears

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KILL THE TAX

Not so fast, the New Jersey Business and Industry Association (NJBIA) counters.

“While signs appear that New Jersey will let its 2.5 percent corporation business tax surcharge sunset at the end of this year, there are even more indications why it’s a good idea for the state to lower it beyond that,” the group recently wrote.

“There is great need and want for structural reform when it comes to New Jersey’s CBT,” said NJBIA Chief Government Affairs Officer Christopher Emigholz. “With the overall highest business tax burden in the nation and other states reducing their CBT, New Jersey should be looking at reducing that rate even more to remain competitive.”

The situation is dire, the group says.

According to the NJBIA’s annual regional business climate analysis, New Jersey is last in the region “by a wide margin” when it comes to business taxes and cost competitiveness, ranking behind New York, Massachusetts, Connecticut, Pennsylvania, Delaware and Maryland.

The 2023 analysis shows that New Jersey maintains the highest corporate business tax rate and property tax paid as a percentage of personal income out of those states, while also having the second highest top income tax rate, sales tax and maximum unemployment insurance tax contribution per employee among nearby states.

“Unfortunately, developments like New Jersey’s $1 billion Unemployment Insurance tax increase on employers have not offered any relief to businesses in our state,” NJBIA President and CEO Michele Siekerka said.

Meanwhile, employers are paying about half of New Jersey’s enormous tax burden – all while being excluded from the Murphy administration’s ANCHOR property tax relief program, the NJBIA says.

• See Related: Gov. Murphy's $49B Budget For 2023 Focuses On Property Taxes, Relief

Some Republicans, such as Assemblyman Christopher DePhillips (District 40), have been blasting New Jersey’s “highest-in-the-nation” corporate tax rate, with DePhillips recently pushing for a bill that would lower the rate to an overall 2.5 percent. Another proposed bill would temporarily reduce the corporate business tax to 7.5 percent and remove the 2.5 percent surcharge.

Other conservative politicians have been blasting the state’s corporate taxes and calling for an end to the surcharge, including former Assemblywoman BettyLou DeCroce.

“Anything that the state can do to improve its tax structure and demonstrate to the business community that the state is not anti-business is a desperately needed step in the right direction toward greater economic growth,” said DeCroce, a small business owner who is campaigning to return to the statehouse.

DeCroce dismissed the recent report from New Jersey Policy Perspective, calling them a “liberal think tank.”

“One thing I learned about liberal activists while I was in Trenton is that they want more taxes and they want every tax to be permanent and never disappear,” she said. “That’s bad policy.”

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