Gov. Phil Murphy signed a measure on Wednesday afternoon aimed at overhauling and simplifying many aspects of the state’s corporate business tax code.
The bill was a rare instance in Trenton when the business community, state Legislature and the Murphy administration were all in agreement on the matter.
Lawmakers unanimously approved the measure – Assembly Bill 4809 – in both the Assembly and Senate in late October.
“While it is of course concerning for our competitiveness that New Jersey’s corporate business tax rate is set to become the highest in the nation on Jan. 1, the technical adjustments made with this law will provide some important benefits – including a potentially great reduction in CBT paperwork for larger corporations,” Christopher Emigholz, vice president of government affairs at the New Jersey Business & Industry Association, said in a Wednesday statement.
The changes are focused on what’s known as “combined reporting,” a provision that came out of state budget talks in June 2018, as a means to prevent businesses from skirting New Jersey taxes by parking their assets in other states.
All the new changes are technical, and proponents say none will result in money lost or gained from either the state’s coffers or business owners’ wallets.
Sarlo
Several language errors in the 2018 bill would have led the state to accidentally impose $7 billion in taxes on businesses, which lawmakers scrambled to rectify. Many aspects of the June 2018 CBT changes were rushed through, lawmakers and Trenton insiders contend.
Senate Budget Chair Paul Sarlo, D-36th District, one of the measure’s sponsors, assured that this time the legislation would not have any unpleasant surprises.
“There were a lot of things that the business community was not happy with,” Sarlo said.
The amendments are designed to ensure that in the process of combined reporting, businesses are not needlessly taxed multiple times.
For example, the bill “treats a combined group as one taxpayer” for determining tax rates for “transactions between members of the group,” which often occurs with real estate, the NJBIA said.
Egenton
Another change is aimed at avoiding the “pyramid of taxing,” that is, the “potential payment of tax twice or more on the same income,” according to the State Treasury. Mike Egenton, vice president of government affairs for the New Jersey Chamber of Commerce, said the measure allows a “credit for dividends received from a subsidiary to avoid pyramiding of tax.”
The new bill also makes it easier for a company to transfer net-operating losses between units and avoid unnecessary taxation. The state set up the transfer program to help fledging, typically unprofitable research and development companies recoup losses and stay afloat.
Sheila Reynertson, a policy analyst at the progressive think tank New Jersey Policy Perspective, was more wary of the legislation, though NJPP ultimately came out in favor of the bill.
Reynertson
“It’s a very difficult bill to follow … what it says it’s doing, because it’s referring to the tax code in a very technical manner. You would have to know what the bill did before and what this new thing is doing,” she said. “You would have to know the ins and outs of the tax code.”
She was critical that the bill kept in loopholes that allowed businesses to skirt state taxes. And she was uncertain about whether the bill would truly be revenue neutral, given the sheer complexity of the measure.
The nonpartisan Office of Legislative Services said in an Oct. 29 analyses that it could not determine the impact the new law would have on state revenue.
CBT tax returns are due a month after the due date for federal tax returns, which contain information vital for the completion of the state CBT.
Murphy signed an order in October pushing back the deadline for this year by one month, after the federal government pushed back the business tax filing deadlines because of the COVID-19 pandemic.
