NJ Business Matters: The Blog of the CIANJ

Star Ledger: Extend Income Tax Hike Temporarily (For Real This Time)

The Star-Ledger uses its editorial page today to call for an extension of the income tax hike passed earlier this year on high-wage earners.

The crux of their argument is,

Chris Christie, the Republican governor-elect, still wants to cut taxes for the state’s wealthiest households next year. That was his promise during the campaign, and his spokeswoman affirmed that intention yesterday....

Christie says the tax cut is crucial to improving the business climate in New Jersey. While our top rate remains competitive with New York City, it is much higher than those in Pennsylvania and Delaware. But business executives choose locations for several reasons, not just income taxes. They look for a skilled workforce, good transportation, and quality of life. Many businesses, from dentists and pizzerias to law firms, are tied to local customers.

 A few counterpoints,

• This is not a tax cut; it is keeping the "just one year" promise made by legislators in June. The income tax increase passed as part of the budget process applied retroactively to income earned between January 1, 2009 and January 1, 2010 as per the original legislation. Therefore, the top marginal income tax rate is scheduled to be 8.97% next year. Making it 10.75% again requires a new law and is therefore a tax increase.
• The Star-Ledger asserts the tax increase last year will raise a total of $1 billion. That remains unknown given that income tax collections thus far are $122 million below the state's expectations.
• New Jersey's top income tax rate is topped only by Hawaii. That provides a disincentive for companies and entrepreneurs to locate or expand here. Why would they believe that an extension is only temporary when the one year increase would have already been extended and we have a host of other "temporary" taxes (such as TEFA) on which the sun never sets?

Gov Signs UEZ Reform Bill

Yesterday in Trenton, Governor Corzine signed a piece of CIANJ-endorsed legislation to aid small businesses within Urban Enterprise Zones. UEZ businesses are exempt from the state sales tax for certain purchases. However, current law requires many companies to pay the sales tax, and then apply for a rebate. The bill signed yesterday allows companies with up to $10 million in gross receipts to receive the exemption at the point-of-sale.

These are cash strapped times, and waiting on Trenton to go through its machinations puts even more pressure on a small business owner. And, as CIANJ President John Galandak told the Press of Atlantic City,

"Unnecessary regulations take money out of the economy, and make the job of a small-business owner even more difficult during these times. The legislation signed today offers a common-sense step toward improving the state's business climate." 

We thank the legislature for its overwhelming support and the Governor for his speedy signature. Our press release is available here. In the picture that accompanies the release, the devastatingly-handsome gentleman to the far right of the Gov is the boss.

 

The Slow March to Corporate Tax Reform

Yesterday, the Governor signed legislation that our regular blog readers could probably recite by heart: S-2130 would allow companies to carry their net operating losses forward for twenty tax years, rather than the current standard of seven. The bill puts New Jersey in line with about half of the states plus the federal government.

• The Governor's press release is available here

• This is the link to CIANJ's statement regarding the NOL bill and elimination of the throw-out rule.

Earlier this year, the Tax Foundation reported that New Jersey had the worst corporate tax climate in America. Despite the poo pooing of this report by our progressive friends, a tax climate actually does impact business decisions.

Start-up companies, especially technology firms, often operate at a loss in their first few years. Having a NOL carry-forward that is shorter than our bordering states provides incentive for these companies to locate in those states.

We applaud the Governor and legislature for recognizing this problem, which is a holdover from the corporate tax "reform" passed during the McGreevey Administration, and continue to push for the more sweeping changes that are still in the legislature.

Here is the video from CIANJ's appearance on My9's New Jersey Now to discuss the bill signed yesterday.

A Decade of Lost Jobs

The gloomy forecasts for New Jersey's immediate economic future continue. Today, a Rutgers University study predicts that New Jersey's private sector may have fewer jobs at the end of this decade than it did at the beginning. This would be the first time this "milestone" has been reached since the Great Depression.

In short, New Jersey's economic expansions in the 80's and 90's averaged the addition of about 73,000 jobs per year. The post-2001 recovery (when the McGreevey Administration and legislature decided to increase business taxes during an economic downturn) only added about 23,000 jobs per year. Therefore, this recession has a greater proportional impact on the overall job number.

It is another indictment of the failure of New Jersey's tax increasing policies. During good economic times, government regulation and spending designed to reach certain goals failed to do so. We failed to meet affordable housing goals, urban education goals and economic growth goals. Part of this (and we stress part) can be attributed to the explosion in the size of government, and the tax increases that came along with it.

Proponents of that governmental expansion have had several years and a time of economic boom and bust to look back at the results. That, and 400 years of economic history. The result will be fewer private sector jobs, the loss of native population and increased debt. Failure.

The state still has advantages that are the envy of the world. It is time to reduce the overall tax burden, push through corporate tax reform and let the private sector invest the way it sees fit. Many of Wall Street's troubles stem from the divorce of risk from the risk taker. The same fundamental flaw becomes evident when State Street spends other people's money as well.

Supporting the Sales Tax Holiday

A proposed partial sales tax holiday has been all the rage in New Jersey this week, and yesterday CIANJ joined with the good people at the National Federation of Independent Business, the NJ Retail Merchants Association and the NJ Restaurant Association in support of the proposal.

Here at Commerce and Industry, we do not have a history of supporting these holidays. Often, they do not encourage economic activity, but instead concentrate it during the holiday. This is different. The proposal made on Tuesday would cut the sales tax by 50% on all goods and services, and it would last for five weeks. That's a far cry from a three day break on back-to-school shopping, and no sales tax holiday has ever lasted more than 17 days. Plus, New Jersey's geographic location gives us the opportunity to lure shoppers from up to four states, just like Alabama did to Florida this year.

Hitting the links:

• Joint statement of support from the four participating organizations
• Transcript of NJ 101.5 coverage
• Coverage of CIANJ support in The Record

CIANJ President John Galandak outlines the need to pass this legislation to give New Jersey companies an advantage, and its consumers relief

Weekend TV: CIANJ On NJ's Corporate Tax Structure

As we wrote earlier in the week, New Jersey has the worst business tax climate in America, according to the Tax Foundation. If New Jersey were to neglect addressing this issue, we would be short-changing our economic development, and the ability to grow out of this recession. Regular blog readers know the issues we are pushing to have addressed in the near-term, as we move toward more sweeping tax reform.

On Sunday, yours truly will appear on Channel 9's New Jersey Now to discuss the issue opposite John Shure of New Jersey Policy Perspective. The episode will air this Sunday, October 12th at 12:00 p.m., and be one of three segments.

This is the second time I have appeared with Mr. Shure. For those of you on vacation during the summer, that debate about a proposed minimum wage hike is available below.

Look Who's 50

In the midst of yesterday's legislative activity, your blogger spent a few moments with the good people at the Tax Foundation. Nice people, but with bad news.

After years of being in the bottom five, New Jersey has finally managed to place 50th in terms of corporate tax structure. Here's a link to the full study, which shows a clear free market tilt in the west and a more hostile northeast.

At yesterday's committee hearings, speaker after speaker stressed that the current economy's shortcomings are national in nature. That's true, but there is an only-in-New-Jersey aspect to this because our growth in the early part of the decade was weak by historical standards. So if there are areas to fix in New Jersey, let's fix them.

When trying to address the New Jersey economy, you cannot ignore that we have the worst corporate tax climate. To do that is to the benefit of no one.

On Monday, Trenton Issues Its Own Stimulus Plan

Here's a quick glance at some of the bills that are going to be considered Monday in either the General Assembly or the State Senate. All of these reforms have long-been supported by CIANJ and will help New Jersey companies cope with the current economic slowdown and to grow into the future.

The changes on the docket include:

• A-2720 (Vas) - Under current law, UEZ businesses with $3 million in gross receipts must pay the Treasury the full sales tax, so that they can then apply for their 50% rebate. This creates added work for both the company and the State. A-2720 would allow the sales tax deduction to be effective immediately at the point-of-sale.
• A-2722 (Vas/Greenwald) - Eliminates New Jersey's so-called "throw-out" rule. Currently, a company doing business in New Jersey that sells its products in states that do not tax corporate income have that income partially taxed here in New Jersey. Passage of A-2722 would undo this harmful provision.
• A-1277 (Carroll) - Provides CBT and gross income tax credits for employers that regularly allow employees to telecommute as part of a structured plan. The credit will be equal to 1% of the portion of the week that an employee telecommutes (i.e. for a worker telecommuting 3 out of 5 days, the credit would be equal to 1% of 60% of the worker's weekly pay).
• A-3124 (Greenwald/McKeon) - NJ companies are allowed to carry their net operating losses forward for a period of seven tax years. The federal government, NY, PA, DE and others all allow these losses to be carried for 20 years. This legislation would bring NJ law to the 20 year mark. Similar legislation will be heard in both the General Assembly and the Senate.

That's a good day for New Jersey's economy and all its citizens. 

Today in Trenton: Letting Companies Use E-Mail

Update at 4:07 p.m. - the legislation passed the General Assembly unanimously, with the understanding that this is only the beginning of bringing real tax reform to New Jersey's companies.

This afternoon, the General Assembly will vote on a package of common-sense updates to New Jersey's corporate governance requirements. CIANJ submitted testimony in favor of the package last week and looks forward to an overwhelming majority of YES votes today. The changes include,

-- Allowing corporate notices to directors and shareholders to be sent electronically.

-- Eliminating a rule requiring at least 10-days' notice to shareholders about items that could be voted on.

-- Simplifying rules involving the resignation of corporate directors.

-- Providing speedier options for businesses filing with the state Division of Commercial Recordings.

-- Giving corporations more flexibility to adopt alternative voting methods to select directors.

-- Expanding the types of foreign business entities allowed to merge with corporations in the state.

-- Give corporations more flexibility to award stock grants instead of stock options to executives.

We will post the final vote tally later today. The changes have already been successfully implemented in Delaware, improving the state's business climate. Assuming passage today, the package would be sent to the Senate and could be considered as early as next week.

Gov Signs Bill To Limit BPU Interference

Earlier today, the Governor announced that he had signed pro-business legislation to more clearly define the role of the Board of Public Utilities in financial transactions. A-2906/S-1886 passed the legislature by overwhelming majorities in June, and helps prevent unnecessary government interference.

In September 2007, BPU issued and Order suggesting it had the right to oversee financial deals of a cable company's parent, even if the deal had nothing to do with cable television or New Jersey. For example, if Cablevision wanted to sell the Knicks, BPU could claim jurisdiction.

While the Board's role in consumer protection is important, this is excessive. S-1886 clearly defines BPU's role and limits their ability to interfere in deals such as the one described above.

It is a small step, but one that is unmistakably in the right direction.