New Jersey again ranks last in the United States with the worst overall tax environment for business, but the state has achieved a slightly higher corporate tax ranking, inching up to 39th in the nation from last year’s 40th spot, according to a report that by the nonprofit, nonpartisan Tax Foundation.
“New Jersey scores at the bottom by having the third-worst individual income tax, the fifth-worst sales tax, the 13th-worst corporate tax and the second-worst property tax,” according to the Tax Foundation’s “2012 State Business Tax Climate Index.”
The report is a snapshot of the state’s tax climate on July 1, 2011, the first day of the fiscal year for purposes of the nationwide survey, and any changes or improvements would be reflected in next year’s report of conditions in effect on July 1, 2012, according to the Tax Foundation.
The report’s author said New Jersey — with its legacy of very high, badly designed taxes — needs to be ambitious in its approach to changing the tax environment.
“New Jersey is ripe for what we call fundamental tax reform, broadening the base and lowering the rate, whether it’s corporate income tax, personal income tax, meaning get rid of tax preferences and lower the tax rate,” said Mark Robyn, the report’s author and an economist at Tax Foundation. “In New Jersey, it’s not about fiddling around on the edges, it’s really about having to make some really big changes.”
Gov. Chris Christie said the report, based on old numbers, doesn’t accurately reflect the proactive changes his administration has undertaken.
“It didn’t take into account our business tax cuts from last year, it didn’t take into account the lowering of property tax increases in 2011 — which was just reported — and has not taken into account the income tax cut that we’re going to pass this year,” Christie said. “When that does, we’ll move up.”
The report did cite recent actions by the state and pending proposals as positives that could cause New Jersey to rise in the rankings, but it calls the state’s corporate tax rate “comparatively high” among states that levy such a tax. Iowa’s corporate income tax rate is the worst, and Colorado’s the lowest.
Still, New Jersey could consider “reducing minimum tax on S corporations and reducing restrictions on the ability of taxpayers to carry forward net operating losses,” the report said. “While these changes will not be captured by the current methodology of the index, they would help to offset some of the negative components of the state’s tax system for those businesses affected.”
The state remained 48th on the individual income tax component of the index, and Christie argued the report backs up his proposal to cut income taxes.
“What it shows is that folks who try to say, on the Democratic side, that the tax situation in New Jersey is just fine are dead wrong — and that’s why I want to make these changes,” Christie said. “This report is even more proof that we need to institute the income tax cut, that we need to institute the rest of business tax cuts that we laid out in our plan last year, and that we need to continue through shared services and other efforts to make sure that our property taxes continue to move down.”