Yesterday, the legislature moved forward with two pieces of CIANJ-supported legislation important to the state's business community. The Senate voted 38-0 to pass S-2130, which would allow companies to carry their net operating losses forward for 20 years.
Companies often operate in the red their first few years. About 20 states and the federal government allow companies to carry those losses forward against future earnings for 20 tax years. New Jersey caps it at seven. In total, 40 states either have longer carry-forward periods or do not tax corporate income at all. Bringing New Jersey to at least that standard would help our worst-in-the-nation corporate tax rating.
Meanwhile, the Assembly Appropriations Committee voted unanimously to get rid of New Jersey's unfair "throw-out" rule.
Like most states, NJ determines its tax portion of a multi-state company’s profits by a matrix that includes calculating what percentage of the firm’s sales took place in New Jersey. Almost all states have agreed that in the case of an inter-state sale, the profits count in the state where the product is sold, not where it originates.
However, some states either do not tax corporate income or do not tax specific business activities. These are referred to as “nowhere sales”. New Jersey takes these nowhere sales and applies its tax to them, even if the shipment neither originated from nor arrived in New Jersey. It is an especially punishing part of the tax code that was adopted under the McGreevey Administration and has put NJ companies at a competitive disadvantage. Repealing it has been a priority of CIANJ and would save corporate taxpayers an estimated $89 million annually. The measure passed by a 7-0 vote. It is expected to be voted upon by the full Assembly on Monday.
It's a slow march, but it is finally headed in the right direction.
