A compromise on the state budget’s revenue sources for fiscal year 2019 was reached Saturday evening, but details were scarce, and the business community was scrambling to understand the implications of what would end up being a $37.4 billion budget, with $765 million in surplus.
More specifically, it was trying to understand why “combined reporting” was included in the new corporate business tax — a tax that will be increased in the next four years (up 2.5 percent, to a total 11.5 percent, in the first two years, then 1.5 percent, to 10. 5 percent, in the final two years).
The business community was frustrated that combined reporting, which prevents companies from shifting income to other states, was included after providing weeks of guidance on the CBT.
“Combined reporting, where did that come from?” Michael Egenton, vice president of the New Jersey Chamber of Commerce, said. “We were under the assumption that was put on hold.
“I don’t know where that came from.”
Tom Bracken, the CEO and president of the state chamber, said he thought the idea of combined reporting had been dismissed.
“The whole issue of combined reporting was really off the table and never really mentioned in the last week,” he said. “To see that in the final agreement was a very big surprise.”
The CBT not only includes combined reporting, it includes a tax on repatriated assets.
Murphy said combined reporting would net the state $196 million, and a repatriation tax, retroactive to 2017, would net the state $200 million, plus an anticipated $40 million for the upcoming year.
Murphy said these revenues, combined with an expected $400 million that will come from raising the rate, will bring in at least $861 million in revenue from the CBT moves.
Egenton said the impact on the business community will be harder to quantify.
Combined reporting is complex, and how it will affect companies depends on where they are based. It’s not a straightforward issue and depends on the type of company, he said.
But, at the end of the day, it hurts businesses that call New Jersey home more than it hurts corporations overall.
“We were never under the assumption the combined reporting was in the mix,” he said. “Because of the complexity of combined reporting — and there was a recognition that … there’s a better way to do it that other states have done.”
New Jersey Business & Industry Association CEO and President Michele Siekerka said the business community was promised tax reform would be worked on in order to start the process of shifting the burden of revenue away from the businesses.
The budget is going to exist “on the backs of New Jersey business,” for the upcoming year, she said.
The three biggest sources of revenue for the state, according to the Office of Legislative Services, are the gross income tax, sales tax and the corporate business tax.
And while the corporate business tax rate is not the highest in the country, it does make New Jersey an outlier in the region, she said.
In addition to the changes in the CBT, the budget deal also includes an increase in the millionaire’s tax.
The increase is only for those making at least $5 million. They will now be taxed at 10.75 percent, up from the current 8.97 percent.
Murphy said what is now being called a “multimillionaire’s tax” will net $280 million.
Read more from ROI-NJ:
- Budget compromise still working its way through Legislature on Sunday; some suggest snag over combined reporting
- It’s not revenue, it’s relationships: Why Murphy’s legacy is tied to business community’s willingness to go along with his plans (Editor’s Desk)
- Business group leaders apprehensive about budget: Siekerka says, ‘This is all a big ask of business’
- Republicans respond: Why would raising taxes be worthy of a celebration?
- Friends or foes: Why one analyst is still worried about governor’s relationship with Legislature
- Budget agreement reached; shutdown avoided