Taxes are causing New Jersey businesses to reach a breaking point, according to Corey Temple, managing partner at the New Jersey headquarters of KPMG, one the state’s 50 largest private employers.
The company, which has more than 1,000 employees in Short Hills and another 2,000 in Montvale, works with corporate clients in the auditing, tax accounting and advisory space, and counts life sciences as the sector in which it has the largest number of clients in New Jersey.
KPMG did the auditing work for pharmaceutical company Celgene Corp. when it acquired Juno Therapeutics in January for $4.5 billion, and counts among its clients Teva Pharmaceuticals, the global life sciences company that is moving its U.S. headquarters from Pennsylvania to Parsippany.
Temple acknowledged the planned increases in the state’s corporate business tax rate keep him up at night. The fiscal 2019 budget, signed by Gov. Phil Murphy on July 1, calls for a corporate surcharge of 2.5 percent for two years and then 1.5 percent for two more years on corporations making $1 million in annual net incomes, which Murphy said will raise $425 million in the first year.
“We’re in the process of talking to a lot of our clients about the higher tax rate right now,” Temple said in an interview. “It’s certainly not good news for corporations in New Jersey. They understand the needs of the state and infrastructure needs we have, and that their employees need to drive on roads to get to work.
“But there’s a fine line of where you can push corporations from a tax standpoint, and there’s a point where you cross that line. Employees already pay heavy personal and property taxes, so when you combine that with the higher corporate business tax, at a certain point you’re going to go past that line.”
Temple, a member of the board of the New Jersey Chamber of Commerce, said he and other members have voiced their concerns to Trenton.
“I trust our leaders and our new governor, but certainly there’s concern that in a few years from now, we hope there are more Tevas coming in than leaving to go to Raleigh, N.C., or Pennsylvania,” he said. “We’re talking to our clients and helping them manage the incremental costs as best they can.”
Temple said he is perplexed by the state raising the business tax at a time when New Jersey corporations are poised to use tax breaks resulting from federal legislation passed late last year to reinvest in their companies by expanding and hiring new employees in the state.
“The tax cuts were made to allow companies the flexibility to reinvest in the U.S. and grow the economy,” he said. “If you’re just going to take those federal tax cut dollars and put them in state-increased tax costs, you’re not going to get the growth that you hoped for. There are some concerns on my part personally about this because the corporate tax hike could hinder growth in this state.”
As for KPMG, Temple said the firm has seen growth in its advisory and corporate accounting businesses, and is focused on helping life sciences clients add innovation to their companies.
“Life sciences is really exciting,” he said. “I describe it as being agnostic to underlying economic developments, and there are some tremendous stories here in New Jersey. We try to provide some help to them and bring value to them through the course of their journey, whether that journey is devising new information technology systems, helping with their cost structures or increasing their spending on research and development.”
Temple emphasized the firm’s employees must understand the innovations that are being offering in life sciences as well.
“Our advisory business is more linked to innovation,” he said. “It’s being aware of the innovative things that are out there in life sciences, whether it be robotics, data analytics or blockchain technology. Those are the buzzwords right now.
“Life sciences corporations have been successful since the recession because of their modest growth and very efficient cost savings. All of that innovation helps them be more efficient and enhance those cost savings. CEOs are starving for that right now.”
Temple said KPMG needs to be focused on research and development, and continuing to develop new technology. In January, it acquired Silicon Valley cybersecurity firm Cyberinc, one of the largest independent identity and access management technology providers in the world, to increase the firm’s capabilities.
“From a client-service standpoint, innovation has to be our main focus,” he said. “We have to be state-of-the-art in order to help clients understand new and innovative products.”