Business insiders are concerned a cleanup bill for the four-year corporate business tax increase that was included in the state budget for the upcoming fiscal year is being rushed through the Legislature, according to several sources Tuesday.
The bill was introduced and voted out of Assembly and Senate committees on Monday. It is scheduled for votes in both houses Thursday.
The bill, promised to the business community in exchange for pushing the CBT through as part of the budget process this summer, has received lukewarm support, the insiders said. It has mostly been met with silence, as business leaders are still understanding the new bill’s potential impact, with some worried it does more harm than good — especially for global companies, they said.
The insiders requested anonymity due to ongoing discussions regarding the bill and because they deal with the Legislature and the governor.
The phased CBT increase passed in the summer — starting at a 2.5 percent increase, from 9 percent, for the first two years and 1.5 percent for the last two — would net the state more than $800 million in revenues, according to the Treasury Department.
But Anthony Russo, president of the Commerce and Industry Association of New Jersey, pointed to the latest statement from the Office of Legislative Services, which said it would be hard to determine the revenue the state could receive.
“The OLS does not have access to taxpayer data, which would allow it to determine the direction and magnitude of the bill’s impact on state revenues,” according to the fiscal statement for the bill.
Russo and others said there was no transparency with the new bill, and many anticipated coming back to the table after the holiday break to reconvene a group that had been integral in the original bill’s formation.
Instead, there were a few discussions at the end of last week, after some business experts had weighed in, and business advocates had been prepared to support the bill on Monday, according to insiders.
Instead, all testified in opposition.
Some of the insiders said the new bill was created by internal experts in the Legislature, as well as with discussions with Gov. Phil Murphy’s administration.
Murphy conditionally vetoed another bill which targeted some technical fixes last month, but which was unnecessary following fixes made to the original bill during the budget process. In his statement, the governor explained his push for certain other provisions in the corporate business tax structure.
“Beyond these essential fixes, my recommendations also implement the ‘Finnegan’ rather than the ‘Joyce’ approach to determining how income is allocated among subsidiaries of a company,” he said. “The Finnegan approach has been adopted by a number of northeastern states, including New York, as well as California. Notably, 33 of New Jersey’s top 50 CBT taxpayers in Fiscal Year 2017 filed in a state using the Finnigan method. Moreover, the Finnegan Model has been recommended by the Multistate Tax Commission. My recommended revisions also clarify when corporations may make a non-worldwide selection, known as a ‘Waters Edge election.’ These clarifications will ensure proper capture of income from corporations who choose to avail themselves of this option and help to ensure that we do not minimize future tax revenue.”
The New Jersey Business & Industry Association and New Jersey Chamber of Commerce — both of which were involved in discussions during the budget negotiations — have not released statements on the bill.
When reached for comment, chamber Executive Vice President Michael Egenton acknowledged there were some technical fixes that were requested in the new bill, but said that, overall, it is still unclear what kinds of unintended consequences might occur with this version.
“While the state chamber appreciates the technical corrections contained in this legislation, we are very concerned about the unintended consequences and specifically the impact of the (global minimum tax) and the net operating loss dividend fix,” Egenton said. “We believe these changes will have a negative impact on the innovation economy in New Jersey.”
When reached for comment, NJBIA president and CEO Michele Siekerka, said the new bill is bad.
“We are concerned that the bill will impose additional costs on New Jersey businesses, make us less competitive and impact our innovation economy,” she said.
State Sen. Tom Kean Jr. (R-Westfield) is opposed to the tax hike altogether, and released statements suggesting it could lead to the outmigration of companies.
“The additional tax burdens imposed by this new legislation will have a catastrophic impact on New Jersey’s largest employers,” he said. “Many already have one foot out the door following the CBT surcharges imposed by Democrats in July. This will just add fuel to the fire.
“At some point, New Jersey Democrats must realize that raising taxes isn’t the only solution. It’s their obsession with spending that’s the problem. We need strict limits that will prevent the governor and Legislature from spending more than taxpayers can afford.”
Kean also pointed to the latest Tax Foundation ranking, which ranks New Jersey last for its business tax climate.
“This continued instability in our state’s tax policy poses a very real threat to New Jersey’s efforts to retain employers when those businesses can find more predictable and tax-friendly environments in other states,” he said.