Murphy’s plans, GOP’s ideas could hasten migration from N.J.

While raising the minimum wage and increasing the millionaires tax are two goals for Gov.-elect Phil Murphy, two Republican tax bills currently making their way through the federal legislative branch propose slashing corporate and certain other business taxes.

How will this pan out for New Jersey?

Possibly with greater outmigration than the state has already seen, according to one tax expert.

“The theory is that, by reducing the amount that businesses and business owners have to pay, in the form of income tax, it leaves more money to be paid in the form of wages and investing in their business,” said Jordan Amin, a tax partner at EisnerAmper.

“Investing in the business doesn’t just mean capital investments in the business, but in people and wages. Hopefully, that will trickle down.”

Especially for larger businesses.

“Whether that’s invested or paid out to investors in dividends, that remains to be seen,” Amin said.

“I think where some of these provisions that are affecting New Jersey harder than some other states — like the repeal of the state and local tax deductions — the incoming governor wants to increase the highest income tax rate in the state, currently 9 percent, to 10.75 percent, and I think that that may meet some opposition, now that some of the state taxes are not going to be deductible at the federal level. And we have all read about people supposedly fleeing New Jersey for other low-tax or no-tax jurisdictions, such as Florida. I think that there is some concern (the tax) … could cause a greater migration outward.”

An ultrasimplified list of the winners and losers might look something like this (based on ROI-NJ interviews and national reports):

Winners: Foreign and multinationals; corporations; passive investors (real estate); small businesses (to a degree); oil companies; and beer, wine and liquor.

Losers: Construction; small legal or tax or medical practices; hospitals; health insurers; universities.

Real estate is especially interesting for New Jersey, where there is no shortage, according to WithumSmith+Brown tax partner Tony Nitti.

“If you own residential rental property or commercial rental property, not only would the income be subject to a property rate of 25 percent, but you will also get these shortened depreciation lives now,” he said.

With changes to the total years of depreciation of commercial real estate from the current nearly 40 years to 25 years, which results in a reduction in tax bills, “the real estate industry, real estate investors in general, benefit under either bill,” Nitti said.

New Jersey is also home to a healthy number of multinational companies. The mandatory repatriation, one of the most significant aspects of the bill, combined with a lowered corporate tax, could have two possible effects.

Now, these companies can go out of the country and, when they bring the revenue back to the U.S., it won’t be taxed a second time.

“This means there’s no reason to game the system anymore,” Nitti said.

But, it also means the companies could be motivated to do even more business out of the country.

Tax experts have bemoaned the lack of real tax reform, saying instead that patchwork fixes have been complicating the code over the years.

Amid all the opinions and upheaval, Amin said, it’s important to wait until a more concrete analysis can occur.

“We’re all analyzing one provision at a time, but we need to understand the relationship between all provisions to understand what the impact is going to be,” he said.