Bitter Struggle Over New Jersey Corporate Business Tax Heats Up

NEW JERSEY — A high-stakes budget battle involving a controversial tax on businesses is nearing the finish line in New Jersey.

As lawmakers race to finalize this year’s state budget before Friday’s deadline, social justice advocates and pro-business groups continue their bitter feud over New Jersey’s corporate business tax (CBT).

New Jersey has a 9 percent CBT, with businesses earning less than $1 million taxed on a sliding scale that bottoms out at 6.5 percent. It’s expected to raise a whopping $5 billion during the next fiscal year, making it one of the state’s meatiest sources of revenue.

New Jersey also charges an extra 2.5 percent “surtax” for companies that top $1 million in earnings – the source of the latest controversy. The combined total of 11.5 percent for those businesses is the highest corporate tax rate in the nation.

And depending on who you ask, that’s a really bad thing for New Jersey … or a really good one.

The 2.5 percent surcharge tax – which is at the center of the current controversy – rolled out in 2018, the year after Gov. Phil Murphy was first elected. The surcharge was originally scheduled for step downs in 2020 and 2021, but it was extended by the state Legislature. It will automatically expire on Jan. 1, 2024, unless it’s extended by new legislation or specific language in this year’s budget.

That latter prospect seems dim, however, as Murphy and other high-ranking Democratic lawmakers have said they’re planning to let it go the way of the dodo.

New Jersey lawmakers have until June 30 to approve a budget for the next fiscal year, which starts on July 1. Full Assembly and Senate votes on the new spending plan are expected to take place Friday.

The looming sunset of the CBT surcharge has been inspiring passionate appeals from critics and supporters alike.

Some arguments against extending the surcharge include:

• Lawmakers designed it to be temporary
• It’s harming the state’s business climate and hamstringing economic development
• A lower tax rate may create more economic growth – and more overall tax revenue

Some arguments in support of extending the surcharge include:

• It will mostly benefit mainly wealthy corporations – not “mom and pop” shops
• The loss of revenue will come at a time when the state needs all the funds it can get
• The money supports public services such as transportation, schools and affordable housing, which all make New Jersey a more attractive place for businesses

BUSINESS GROUPS: ‘LET IT EXPIRE’

Pro-business groups and some conservative lawmakers have rallied against the surcharge tax, which they say is an albatross around the neck of companies across New Jersey.

According to an annual regional business climate analysis from the New Jersey Business and Industry Association (NJBIA), the state 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. And the surcharge tax is a big part of the problem, the group says.

“It is not about whether some large successful companies can afford to pay the highest tax in the nation – it is about the massive number of jobs those employers provide and the impact on competitiveness from having the highest CBT in the nation and what it means for those jobs,” NJBIA Chief Government Affairs Officer Christopher Emigholz argued before the Senate Budget Committee in March.

Also that month, the New Jersey Society of Certified Public Accountants released the results of a survey that asked its members to rate the Murphy administration’s proposed budget. When asked what impact certain actions could have on strengthening the business environment in New Jersey, survey respondents believed an additional reduction in the corporate business tax would have the largest impact.

According to Assemblyman Christopher DePhillips, who has been a vocal supporter of dropping the tax, residents are leaving New Jersey to live in states with lower taxes like Florida, Texas and South Carolina.

Citing U.S. Census statistics, DePhillips posited that it’s not a coincidence that North Carolina has the lowest-in-the nation corporate tax rate and is also among the top states to gain the most new residents. And he says corporate taxes in New Jersey need to be slashed entirely – not just the surcharge.

“It is imperative that we cut our corporate business tax and not simply let the surcharge statutorily sunset,” DePhillips recently said.

The NJBIA and the Garden State Initiative recently released an infographic that “presents timely facts” relating to the scheduled sunset of the surtax, as well as the “many economic benefits” of lowering the state’s CBT rate (article continues below).

ADVOCATES: ‘HANDOUTS TO WEALTHY CORPORATIONS’

But according to a coalition of social justice advocates, letting the CBT expire will give massive tax breaks to already wealthy companies. And it’s the people of New Jersey who will pay the price, they say.

The stakes are astoundingly high, activists warn: the CBT represents the third-largest tax revenue in the state. Treasury officials have said letting the surcharge expire will cost the state $322.5 million in the fiscal year that begins July 1, and up to $1 billion in fiscal year 2025.

The change would only benefit a few highly profitable corporations, providing an average tax cut of $5 million to companies with more than $100 million in annual profits, according to a recent report from nonprofit think tank New Jersey Police Perspective (NJPP).

The report continues:

“Only the wealthiest corporations are required to pay the 2.5 percent tax on every dollar of net profit above $1 million, including multi-national businesses like Amazon, Walmart and Bank of America, which do business in New Jersey but are not headquartered here. The vast majority of New Jersey businesses – 98 percent – do not pay the surcharge at all because their annual profits fall below the $1 million profit threshold. In fact, just over 2,500 corporations pay the surcharge, according to the most recent state data. By targeting mega-corporations that make millions, if not billions, in profits every year, the surcharge is a sustainable revenue stream paid by the businesses that can afford it, sparing mom-and-pop businesses across the state.”

“New Jersey’s strong CBT revenue collections in the last few years are a clear indicator that corporations are thriving, and the surcharge has neither hurt their bottom line nor driven them out of the state — an exaggerated talking point favored by business lobbyists to lower their tax obligations,” the NJPP argues.

From 2009 to 2021, corporate tax revenue in New Jersey increased by 212 percent, with the largest increase happening between 2020 and 2021, the group says.

This rallying cry – “Stop The Corporate Millionaire Tax Cut” – has been one of the leading slogans at a wave of protests and rallies launched across the state this year. Along the way, advocates have gained support from local elected officials such as Newark Mayor Ras Baraka and Jersey City Mayor Steven Fulop.

“As Newark grows, it becomes more expensive,” Baraka said. “We asked the state to help us with housing, they did not have the money. While families were dying during the COVID-19 pandemic, the insurance companies were making super profits. We asked the state for relief; they didn't have the money again. There always seems to be enough money for corporations but not for us.”

“As long as there are people looking for food, for jobs, for housing, as long as our dignity is being challenged and in question, every city in the state of New Jersey needs as many resources as we can get,” Baraka added. “And those who have should pay.”

• See Related: Protesters Plan Rally Over Controversial NJ Business Tax

Other advocates have pointed out that state would be sunsetting its CBT surcharge at the same time that lawmakers are pushing through a massive, $1.2 billion housing tax credit program for seniors, known as the StayNJ plan. The deal isn’t expected to impact plans to let the CBT surcharge expire, administration officials told news outlets last week. Read More: 50 Percent Property Tax Cut: 'StayNJ' Deal Reached Among Legislators

But that’s not the only place the funds could be put to work for the public good, activists insist.

The loss of revenue will affect many school districts, health care services and major improvements to city facilities and infrastructure, according to Make the Road New Jersey. It will also worsen funding cuts to NJ Transit, which is already projecting an almost $1 billion dollar deficit, the group says.

Recently, members of the For the Many NJ coalition teamed up with NJ Transit riders to distribute ticket-sized flyers about the CBT surcharge at several train stations in North Jersey, as well as Trenton.

“It’s disappointing to see legislators putting mega-corporations’ interests, like Amazon, over the people they’re supposed to represent,” said Daniela Rivera Solando, who has been using public transportation since she was 13.

“Getting rid of the CBT surcharge does more harm than good to you, me, and small businesses alike,” Solando urged. “We don’t need more handouts to wealthy corporations – we need fewer service cuts and fares that are economically accessible for all.”

There have also been calls to use the CBT to expand New Jersey’s Child Tax Credit. A proposed state law would double the maximum tax credit for children under 6 to $1,000 and expand eligibility for the program to include kids up to 6-years-old.

“Providing a massive tax break to wealthy corporations by ending the corporate business tax surcharge threatens vital programs like expanding the Child Tax Credit,” said Elizabeth Roque, a mother of five and member of Make the Road New Jersey.

“For thousands of families like mine, the Child Tax Credit is an opportunity to rebuild an economy that works for everyone – not just the wealthy and wealthy corporations,” Roque said.

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