Murphy aims to impose tax on state’s top-revenue companies to pay for N.J. Transit shortfall: A Q&A on the details

Proposed Corporate Transit Fee would be imposed on companies with $10M or more revenue — but money raised (estimated $800M) will not be enough to close expected funding gap

Gov. Phil Murphy, during his budget address later Tuesday, will propose creating a tax on the highest-revenue companies in the state to serve as a continual source of funding for New Jersey Transit.

The tax, the 2.5% Corporate Transit Fee, will be placed on companies with a net annual profit of greater than $10 million.

It is not technically a renewal of the 2.5% Corporate Business Tax surcharge — which was allowed to sunset, after one extension, on Dec. 31 of last year. But the CTF essentially will do the same thing: Tax the business community to make up for a shortfall in the budget.

NJ Transit is projected to have deficits of more than $1 billion in the coming years.

The final details of the plan will be part of budgeting process that the administration takes on with the Legislature — a process that usually extends up to the June 30 deadline.

Here are some questions and answers on the proposal, according to various administration officials:

Q: What is the income threshold for a company to be taxed?

A: Companies with $10 million or more annual income will be taxed. The administration discussed numerous thresholds (from $5 million to $25 million) before deciding on the number.

Q: How many companies will be impacted?

A: Administration officials said they expect approximately 600 will be affected. The CBT surcharge impacted more than 3,000 companies, meaning approximately 2,500 small and midsize companies that were impacted by the CBT surcharge will be spared this tax.

Q: Will that raise enough revenue to account for the expected massive shortfall at NJ Transit?

A: No. Administration officials estimated the tax will raise approximately $800 million, acknowledging the number could be higher or lower depending on the economy.

Q: Will the plan come with a guarantee that the monies raised will be singularly dedicated to NJ Transit (as the Transportation Trust Fund has) or just go to the general fund?

A: Not clear. The details will have to be worked out with the Legislature, but administration officials did not indicate this was not a make-or-break wish.

Q: Will the plan mean the proposed 15% increase to riders on NJ Transit will be removed?

A: No. The plan to pay for NJ Transit will be a combination of additional monies from riders and corporations.

Q: Will the proposal come with a sunset date?

A: No.

Q: Will the business community be happy about this?

A: Lol. No.

Q: What’s the biggest complaint?

A: There are two, initially:

  1. There is not an immediate connection between the largest companies and NJ Transit. Amazon is the largest employer in the state; few of their employees get to work on NJ Transit. As opposed to this: Many riders take NJ Transit to go to their jobs in New York City.
  2. If your business is based in South Jersey, where NJ Transit has limited service (and where businesses and communities have been asking for more), you’re in part paying for some people in North Jersey to commute to the city.

Q: How will this tax impact the governor’s relationship with the business community in New Jersey?

A: They will no longer trust him on taxes (if they did previously). The governor repeatedly said the CBT was a necessary charge in tough times — and repeatedly said, ‘A deal is a deal’ when it came time to allow it to sunset. The credibility he gained with the business community for allowing it to sunset obviously will be lost.

Q: How will this tax impact the state’s ability to attract large companies?

A: It remains to be seen — and figures to be a company-by-company decision. The fact that New Jersey is a high tax state/expense state to do business has not necessarily slowed companies from wanting to relocate here. Will this have impact? It will make companies do what they always do: Calculate the cost of doing business here, account for the benefits of doing business here and then determine whether it makes sense to relocate here — or stay here.