Fixing The Country’s ‘Worst’ Tax Climate

On the same day, in a bit of symmetry, the Tax Foundation, a nonpartisan Washington group, released a report saying that New Jersey’s tax system for business is the worst in the country “with a tax code that reads like a ‘What Not To Do’ for legislators.”

To further spice things up, while the meetings proceeded, the stock market suffered a sell-off, with the Dow Jones Industrial Average falling below 10,000 for the first time in four years.

The Assembly advanced 19 bills at the end of the day, five of which would help lighten the tax burden for businesses. The measures still require passage by both houses, and a signature by Gov. Jon S. Corzine, but the fact that they were released en masse and in a hurry typify the climate in Trenton.

“The Assembly is looking at this crisis from every angle,” said Assembly Speaker Joseph J. Roberts (D-Camden). “We have to be both pro-business and pro-consumer as we look to boost every segment of New Jersey’s economy.

Corzine stayed out of the fray last week, but is scheduled to address a joint session of the Legislature Oct. 16 to “discuss what the administration is going to do to move the state forward and through the national economic crisis,” said Robert Corrales, a spokesman for the governor.

Last Monday was dominated by the Legislature, particularly the lower house whose top officials claimed its 10 hearings on the economy were unprecedented.

Still, a lot of the bills advanced by the committees were not crafted after the crisis, but were measures that have been pushed for months—in some cases, years—by lobbyists for the New Jersey Business & Industry Association and the New Jersey Chamber of Commerce.

“Certainly, the financial crisis on Wall Street has lit a fire under the Legislature to really come up with solutions,” said Philip Kirschner, president of the NJBIA. “Thankfully we had some ready to go.”

The most highly-touted piece of legislation (A-3124 and S-2130) would extend the number of years companies can spread out net operating losses to 20 years, up from seven.

Under that bill, which was approved by Assembly and Senate committees last week, businesses that suffer a loss in one fiscal year would be able to deduct those losses from taxes paid in up to 20 future profitable years. The bill would particularly help manufacturing companies that see up and down years, and it would help startup technology and life sciences companies that often suffer losses for years before turning profitable, Kirschner said.

The federal government and more than half the states—including Pennsylvania and New York—allow net losses to be deducted for 20 years, according to the NJBIA.

“At the very least, from an economic standpoint, this bill will put us on par with other states, particularly our neighbors,” said Senate President Richard Codey (D-Essex), a sponsor of the bill. “Hopefully, it will encourage new businesses to set up shop here, help keep some of our struggling businesses in state and promote further investment.”

Republicans criticized the Democrats, who control both houses, for taking too long to move that bill. Sen. Joseph Kyrillos (R-Monmouth) said he introduced a similar measure three years ago to allow companies to stretch deductions. “Let’s be clear. I and other New Jersey Republicans pushed for economic development reform long before unemployment started to soar for highly-paid Wall Street traders,” Kyrillos said. “We were for job creation when factory workers and drug company researchers and telecommunications technicians were losing their jobs and homes. We remain its champions now.”

Another measure (A-2626), approved by an Assembly committee, allows manufacturers to base their Corporation Business Tax liability solely on their sales in New Jersey.

Lobbyists would like to see New Jersey revise the tax structure for all companies, not just manufacturing, but legislators fear an overhaul would cost the state too much in tax revenue, Kirschner said. The change for manufacturing companies alone is anticipated to reduce the amount of corporate taxes New Jersey collects by about $60 million, but it could be phased in over five years at $12 million per year, the NJBIA said.

Corzine asked the Legislature not to send him any legislation requiring an increase in spending, but he said he would make an exception for bills that would help spur the economy.