As we embark on a New Year, I wanted to provide a review of all of the various taxation and economic development policies that we worked on last year. We will continue to work on many of these in 2017 as well.
NJBIA has strongly opposed this legislation, which would require members of unitary business groups, or a group of affiliated companies, to file combined reports of Corporate Business Tax (CBT). Our three main concerns with the bill are 1) Increased complexity & uncertainty, 2) difficulty in predicting state revenues, and 3) NJ’s numerous safeguards already in place to ensure companies are paying accurate amounts of CBT. NJBIA testified against this legislation before the Senate Budget & Appropriations Committee in June and it has yet to be voted on by the full Senate.
For a copy of my full testimony, please click here.
This legislation (S-1513) would withhold state contracts or economic development grants from companies that utilize corporate inversions. A corporate inversion occurs when a U.S.-based multinational corporation restructures so that the U.S. parent is replaced by a foreign parent. Additionally, corporate inversions take place because of the anti-competitive nature of the federal tax code and have little to no impact on the collection of the state Corporate Business Tax. NJBIA opposed the bill and testified against it in September because withholding grants and contracts would likely cost New Jersey jobs and damage the state’s economy. The full Senate has yet to take action on this bill.
For a copy of my testimony on the legislation, please click here.
NJ-PA Income Tax Reciprocity Agreement
Residents of New Jersey and Pennsylvania will continue to pay income taxes where they live, instead of where they work, as a bi-state tax reciprocity agreement scheduled to be abolished in 2017 was re-instated in November of 2016. New Jersey initially had notified Pennsylvania it would be pulling out of the agreement. Since New Jersey’s top graduated income tax rate of 8.97 percent is significantly higher than Pennsylvania’s flat 3.07 percent rate, NJ businesses feared they’d lose valuable employees or be forced to raise wages to compensate for the tax change. NJBIA lobbied on our members’ behalf and welcomed the news from the Governor on November 22 that the tax reciprocity pact would remain in effect because $200 million in savings in the state budget had been realized through healthcare reforms.
Comprehensive Tax Reform and Transportation Trust Fund (TTF) Legislative Package
On October 14, 2016, Governor Christie signed P.L.2016, c.56 and P.L.2016, c.57 into law, which provided comprehensive tax reform and reauthorization of the Transportation Trust Fund (TTF). The Governor and the Legislature worked together in a bipartisan manner to craft legislation that addressed New Jersey’s tax climate, while also providing substantial investment in the state’s infrastructure. The highlights of the legislative package include:
- Estate Tax Elimination
Under this law, and NJBIA’s major 2016 achievement, New Jersey’s estate tax exemption amount is increased to $2 million as of January 1, 2017. The estate tax will be completely eliminated on resident decedents dying on or after January 1, 2018. Please note that this legislation has no impact on New Jersey’s transfer inheritance tax. NJBIA has long advocated for the repeal of the estate tax because it impacts small business succession planning and causes the outmigration of New Jersey residents to tax-friendlier states.
Additional information can be found on the New Jersey Division of Taxation’s website, by clicking here.
- Increase in New Jersey’s Pension and Retirement Income Exclusion
For years, accountants and financial planners had been telling their clients that New Jersey’s tax laws make this state too expensive for retirees to live in and this was due, in part, to New Jersey’s low exclusion when taxing retirement income. NJBIA worked to change the law, which increases the New Jersey gross income tax pension and retirement income exclusion five-fold over four years. Ultimately, this will increase the gross income tax pension and retirement income exclusion to $100,000 for joint filers, $75,000 for individuals, and $50,000 for married but filing separately. The law phases in the exclusion increase over four years as follows:
Please note that the bill retains the current provision that excludes taxpayers that have gross income of more than $100,000 from receiving the benefit of the pension and retirement income exclusion.
- Transportation Infrastructure
This law revised the “New Jersey Transportation Trust Fund Authority Act of 1984” to pay for the state’s capital transportation program for fiscal years 2017 through 2024 by authorizing up to $12 billion in borrowing and $16 billion in direct appropriations from the authority’s revenues. This sustained investment of $2 billion annually, which is supported by an increase in the gas tax, will fix the roads and bridges that are so crucial to New Jersey’s continued economic growth, particularly for our transportation and logistics industry, and it will also produce an estimated $4.7 billion a year in economic activity while creating 34,000 jobs directly and indirectly with annual payrolls of $1.4 billion.
I have completed a NJBIA Fast Facts which provides a full review of the legislative package. To access it, please click here.
Business Employment Incentive Program (BEIP)
NJBIA achieved a victory for job-creating businesses with P.L.2015, c.194, which was signed in January 2016. This law that allows long overdue BEIP grants owed to companies to be instead converted into tax credits. For almost two decades, BEIP grants had been awarded to companies that have collectively created more than 120,000 jobs and made more than $12 billion in capital investments in New Jersey, but since 2008 the program had been underfunded and no grants had been awarded in recent years. This law established a five-year schedule for issuance of the tax credits to companies that are still owed grants.
However, subsequent legislation was signed into law in June that changed the schedule to lessen the impact on the current state budget. The change decreased the percentage of the tax credits available in year one and year two of the five-year phase-in and increased the percentage amounts in years three, four, and five. NJBIA strongly opposed these changes.
Angel Investor Tax Credit Legislation
The bill, A-3631/S-158, will extend eligibility for the existing Angel Investor credit taken on the corporate business tax to the holding companies of qualified New Jersey emerging technology companies. Currently, investors must provide funding directly to the subsidiary in order to obtain the tax credit. Additionally, the bill will allow owners of S corporations that make qualifying investments in small high-tech companies to claim the Angel Investor Tax Credit on their personal income tax returns.
The future of New Jersey’s economy is linked to the state’s ability to attract innovative, high-tech companies. These small and emerging high-tech companies rely on research and development, as much as marketing and sales for their success. NJBIA has been working to build up New Jersey’s innovation ecosystem for the last six years and that effort continues through legislation that directly supports innovation.
For a copy of my testimony on the legislation, please click here. The bill has been approved by the Senate and awaits approval before the full Assembly before being sent to the Governor.
As always, please do not hesitate to contact me if you have any questions. Have a safe and happy New Year and I look forward to continuing our work together.