Budget Brings Lower Taxes for South Jersey Businesses

Trenton’s annual battle of the budget is over, and despite a fight over tax cuts, South Jersey businesses have a lot to like in the new spending plan.  The budget makes good on phasing in the tax cuts that had already been enacted in a bipartisan fashion last year.

This year’s budget includes $347.5 million in business tax savings and incentives (up from $180 million last year).  Early on, both the Governor and the Legislature seemed poised to add another tax cut.  Governor Chris Christie called for an across-the-board 10 percent cut in income tax rates in his budget address in March.  Legislators countered with an income tax credit program that would allow people to deduct some of their property taxes from their income tax bill.  Christie was willing to compromise and accept a tax credit tied to property taxes, but legislators said they wanted to make sure tax revenues meet the budget estimates, so they set aside $183 million for a possible tax cut in January.

It’s disappointing.  In a $31.7 billion budget, a tax cut would only represent one-half of 1 percent of total spending.  If a tax cut is the priority it needs to be, the state should unconditionally include it in the budget and make $183 million in spending contingent on revenue figures.  New Jersey should continue to encourage business expansion and the creation of more private-sector jobs.  Its excessive tax burden has long been an obstacle to that goal.  And while considerable progress has been made, New Jersey’s business tax climate still ranks near the bottom of the 50 states’.  The Tax Foundation and other national research organizations have consistently found that states with lower tax burdens enjoy faster growing economies and create new jobs more quickly than high-tax states.

But lost in this debate is the fact that the budget does include several important business tax cuts, supported on a bipartisan basis by the Governor and the Legislature.  Last year, the state allowed small businesses, such as limited liability companies and S corporations, the same ability as C corporations to carry forward net operating losses from unprofitable years into future profitable years.  This year’s budget contains the second year phase-in of that tax change.  Similarly, these businesses can now consolidate business income across related business entities.  In other words, losses from an LLC could be used to offset income from an S corporation, if both are owned by the same person.

Another big change is the phasing in of the “single sales factor” for calculating the tax on the New Jersey sales of multi-state companies. The old formula penalized companies with employees and facilities in New Jersey by charging them a higher rate on the same amount of sales than out-of-state companies that only sell here. The single-sales-factor formula eliminates that inequality.

The budget also continues phasing out the Transitional Energy Facility Assessment (TEFA), an outdated sales tax on electricity, which amounts to about 4 percent of your electricity bill.  Other important business-tax changes in the FY 2013 budget include a 25 percent reduction in the S corporation minimum tax, continued funding of the Research and Development Tax Credit program, and continued funding of the Technology Business Tax Certificate Transfer Program.

All in all, this budget is good for South Jersey businesses.  It makes good on the state’s bipartisan commitment to reform its business tax climate.

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Article provided by Philip Kirschner, President of New Jersey Business & Industry Association.  Feel free to contact Mr. Kirschner, at pkirschner@njbia.org

Pictured: Philip Kirschner