Gov. Phil Murphy signed the corporate business tax clean-up bill late Thursday, despite concerns expressed by the business community.
In a statement, Murphy acknowledged the bill, including the cleaned-up language, would affect some businesses disproportionally.
“I understand, however, that there exist concerns related to the bill’s tax treatment of income from controlled foreign corporations, known as Global Intangible Low-Taxed Income,” he said. “Consistent with the federal Tax Cuts and Jobs Act, Assembly Bill No. 4495 treats GILTI as income and then allows a corporate taxpayer to claim a 50 percent deduction on this income. While I believe it is appropriate to mirror the federal law in this regard, I appreciate that newly taxing GILTI may disproportionately impact certain New Jersey taxpayers.”
Murphy then said the Department of the Treasury has the authority to handle the situation on a case-by-case basis.
“I am assured by the Department of the Treasury that the director of the Division of Taxation maintains the discretion under existing law to provide relief to individual CBT taxpayers when appropriate to ensure the taxpayer’s CBT obligation fairly reflects its liability,” Murphy said. “I have instructed Treasury and Taxation to work with individual taxpayers to determine whether such relief may be appropriate in their individual cases. I have further directed Treasury and Taxation to closely monitor our peer states’ treatment of GILTI.
“New Jersey today joins several states that have already acted to tax GILTI, but I am advised that some of our neighboring states are still considering options. My administration will continue to evaluate the impact of our tax treatment of GILTI on New Jersey businesses and our competitiveness in the region. As governor, I remain steadfast in my commitment to creating a stronger and fairer New Jersey and growing our economy over the long term.”
The New Jersey Business & Industry Association was hoping the governor would veto the bill and give the sector time to address other concerns.
The worry remains that, with a rushed bill — the initial CBT bill was hastily passed as part of the budget in the summer — the state may unintentionally net more in tax revenues than it intends to.
NJBIA’s Michele Siekerka said the bill harms the same foreign companies the governor is pursuing in hopes they will expand their business in the state.
“With the bill now law, New Jersey will tax 50 percent of Global Intangible Low Taxed Income (GILTI), making our state a national outlier in its tax treatment of GILTI. New Jersey is now the only state, other than Maine, to have specifically considered, and affirmatively decided to tax 50 percent of GILTI,” Siekerka said in a statement Thursday.
“This provision will negatively impact any U.S. based company that files tax returns in New Jersey, and even more so those companies that are headquartered here in the state. It will further discourage companies from placing their headquarters here”
Siekerka added that other parts of the corporate business tax bill will further make New Jersey an outlier.
“This bill also reverses current law, which preserves the value of net operating losses (NOLs) when there is a dividend received deduction. Existing treatment of NOLs puts New Jersey in line with virtually all other states in the country. By undoing this law, small and medium sized startup companies that often don’t turn a profit in their early years will now be penalized,” Siekerka said.
“This will harm companies in the technology, life sciences, manufacturing, and logistics sectors and limit venture capital investment in the state. This is the same investment the governor was seeking to inspire in his economic plan announced earlier this week.”
The New Jersey Chamber of Commerce also expressed disappointment with the governor’s decision.
“While we are discouraged with the signing of this ‘cleanup’ legislation, we will continue to assess and collect data from our members and provide that feedback to our policymakers,” said executive vice president Michael Egenton.
“The State Chamber believes this issue is far from over and the evaluation process will shed light on the true impact of this measure on New Jersey job providers.”
The bill barely passed the Legislature last week. Some legislators said they were concerned that the issue was too complex and felt the bill was being forced through after its provisions were negotiated between the Governor’s Office and legislative leadership.