Recognizing the real impacts of another major N.J. business tax

Why 2.5% Corporate Transit Fee — which would be permanent — is worse than 2.5% CBT surcharge

While Gov. Phil Murphy tries to convince New Jersey businesses, the Legislature and himself that he is fair to our job creators and providers, it’s time to look at the painful realities about his Corporate Transit Fee proposal of a new and permanent 2.5% surtax on New Jersey’s corporations in his Fiscal Year 2025 state budget.

For starters, from the outside looking into New Jersey, this policy single-handedly puts our national notoriety of being the most challenging state for business on steroids.

But, internally, for everyone in New Jersey’s impacted business community, it’s even worse.

Competitive failure

While many myopically choose to focus on the profits of our largest corporations, we have a greater responsibility to view New Jersey from the lens of national and regional competitiveness.

Simply stated, New Jersey corporations are much less profitable, comparatively, when they are paying the highest Corporate Business Tax in the nation, by far, at 11.5%. That puts us at a huge competitive disadvantage regionally and nationally.

This tax/fee only exacerbates what we hear every day about our higher cost of doing business. Case in point: A New Jersey manufacturer bidding on a national contract already must absorb a premium that covers those higher costs, thus having less profits than its competitors.

Placing these burdens on our largest job providers gives them pause to stay here, and it will surely serve as a major disincentive for any large employer to come here.

And, for our consumers, it means more expense as well; the antithesis of affordability.

Across the river

To see how we lose in regional competitiveness, look no further than Pennsylvania.

The Keystone State is funding its SEPTA system without dedicated revenues from corporations, all while moving forward its multiyear plan to reduce its CBT to 4.9%.

Those who think large corporations won’t consider this major difference in CBT rates if considering a location in this region are fooling themselves.

The permanent hit

The previous 2.5% CBT surtax was temporary. The proposed new Corporate Transit Fee — which is just a pretty name for a major tax — is permanent and reestablishes New Jersey with the top CBT in the nation, by far.

While advocates supporting the surtax have called it a “modest” increase, it’s actually a permanent increase of nearly 30%. There is nothing modest about it. We offer that, if it was any sales, income or property tax increase of the same size, people would be pretty outspoken about it.

We have already heard directly from our corporations. When a tax is permanent, it’s a double hit to publicly traded companies. First, there’s a cash tax increase. Then there’s a hit on deferred tax liabilities that will negatively impact their balance sheet every quarter the change is enacted.

Put simply, this is a worse tax that will impact the cash they have and the investments they can make.

Was this needed now?

The last-minute pork and Christmas tree items added to the FY24 budget — with little to no transparency — exceeds the value of the proposed business tax increase in the FY25 budget.

But, the real question is why deliver this hit to business now, a proposal retroactive to Jan. 1, 2024, when New Jersey Transit’s fiscal cliff doesn’t hit until next year?

Effectively, the tax will raise more than $1 billion over 18 months, but the money for NJ Transit isn’t needed for a year-and-a-half. Clearly, the business community could have taken that money and invested it back into their business and workers versus having it sit in a state surplus.

Also, what happened to the very recent discussions Murphy mentioned about reviewing NJ Transit’s operating costs (which have risen 30% since 2019)? Or the fact that ridership remains 20% below pre-pandemic levels?

NJ Transit, in fact, received $4.5 billion in federal pandemic aid and still has the plausibility of receiving more funds through the 2021 infrastructure bill.

Yet, the decision is to reverse course and penalize our businesses now, with billions of surplus dollars available in the budget. What kind of message does that send?

A culture of mistrust

All last year, the governor committed to the sunset of the 2.5% CBT surtax. Just two weeks before his budget announcement, he said he would stick to it amid NJ Transit funding concerns.

So, our largest job creators essentially had the rug pulled out from under them.

It shouldn’t come as a surprise to our decision-makers that businesses require the ability to plan to be successful. When you make promises that drive investment, and then back out on them suddenly with no explanation, it’s beyond costly and disrespectful.

It shows businesses they can’t trust their leadership, which advances the worst of an anti-business culture that will undoubtedly have economic ramifications, for those already here and those who may have or will consider coming here in the future.

Corporation notation

Not surprisingly, the Murphy administration is touting that the new corporate surtax will “only” impact between 600-700 businesses — as if this would be some sort of victory.

Unfortunately, the impact extends well beyond there. These largest companies not only represent hundreds of thousands of jobs, but they also contract with smaller businesses all along their supply chain.

Now, they will have less money to fund those jobs, make investments in the community and to give work to small or midsize companies in New Jersey.

There is plenty of data showing how recent CBT decreases have led to more stimulative economic activity in other states. Murphy acknowledged such last year, when he said “a deal was a deal” in sunsetting the CBT surtax.

And, he went even further recently, acknowledging that New Jersey was a very expensive state for business and that when it came to sunsetting the CBT, we must be “cold-blooded about our economic development strategy.”

Somehow, he forgot about that, and the deal.

A tax break for smaller businesses?

Perhaps most disingenuous is the governor boasting that the small and medium-sized businesses will see a tax decrease from last year under this new threshold.

Let’s not forget it was the governor who temporarily raised the tax in the first place. Couple that with the massive Unemployment Insurance tax increases (with no federal COVID relief dollars, a choice by the governor) and property tax increases (with no ANCHOR relief), after paying the highest corporation taxes in the nation for six years.

Point being, there have been no tax breaks for small businesses.

No transportation nexus

We’ve said it before, we say it again and even Murphy had previously said it — there is no correlation between corporate taxes and public transportation.

Let’s start with companies in South Jersey. As Christina Renna at the Chamber of Commerce Southern New Jersey reminded us, there isn’t much in the way of NJ Transit benefiting those companies or their employees.

The same is said for many of our corporations across the state that are miles and miles from any train or bus line; and yet, they are being made to provide dedicated funding for it.

And, yes, our largest companies will now also be funding the many commuters who use trains and buses to go to work in New York City. What does that say about our competitive state?

The bottom line

This is a major mistake. Let’s fix it, now.

We are calling on the Legislature to right this wrong during this budget season. We will be holding them and Murphy accountable for their treatment of New Jersey businesses, both big and small, through June and beyond.

While policymakers can say what they want about their supposed support of New Jersey businesses, talk is cheap, and operating a business here in New Jersey is anything but.

Our state still has the chance to do better for our businesses. Let’s get that done.

Michele Siekerka is the CEO of the New Jersey Business & Industry Association.