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New Jersey’s unfriendly fiscal and business tax climate

Written By | Dec 3, 2019

CC BY-SA 4.0 File:2014-12-20 15 44 54 Welcome To New Jersey sign in front of the New Jersey Department of Transportation Headquarters in Ewing, New Jersey.JPG Created: 20 December 2014 Location: 40° 15′ 31.2″ N, 74° 47′ 45″ W

NEW JERSEY: New Jersey’s business community is constantly at odds with the taxing regime administered through state and local government systems. Tax policy is ranked high among the list of major determining factors to consider when expanding an existing business operation or creating an entirely new enterprise in the State of New Jersey. It can prevent business investment in the economy, inadvertently reducing the quality of living for state residents.

New Jersey Business Climate Ranks Low

From a state level, the New Jersey Business and Industry Association NJBIA ranks New Jersey’s business climate score at 16. The worst of 7 states compared in the matrix of tax rates to other surrounding states like Pennsylvania, New York, and Maryland.

Michele Siekerka, President and CEO of NJBIA presents the business outlook and economic report of NJ businesses that was just completed for 2019.

This is not a unique perspective. Tax Foundation, a DC-based tax policy research organization, shares the conclusion. They rank New Jersey last out of all 50 states in terms of tax policy. The rating is based on the structure of the taxing regime and the level of the tax rates, among other objective factors.

While these taxes fund vital government services like Police and Fire and the Transit system, other non-essential services are included in the final tax bill every business is saddled with. Items like debt servicing and legal fees for bond refunding and public pensions including sick leave payouts are added to your annual business tax bill. These and funding for other entertainment ventures that would never be viable without tax dollars are the added economic cost of doing business in New Jersey.

New Jersey Debt is 7% of average household income and ranks among the highest 5 states in the nation. At least 20 other states are less than half that rate. New Jersey’s debt to GDP appears in the same vicinity, among the top 5 states, at approximately 6.8 percent.

More importantly, to the New Jersey business community, those rules and the rates that trigger those payments change at the whim of the legislature and consent of its Governor.

New Jersey 2019 Fiscal policy changes

There are constant changes to the state tax laws, every year, there are at least a handful of program overhauls, updates, or new policy initiatives that may affect your December Income Statement.

  • First. the Alternative Minimum Assessment (AMT) is repealed. AMT the controversial taxing provisions established to encapsulate high-income earners, who avoided all tax liability, into the taxing regime became convoluted and outdated. Primarily due to the onerous calculation procedures. The index that was initially designed for high-income earners increasing applied to more and more middle-income families.
  • Current law also transitions New Jersey net operating losses (NOL) to a post-allocation method. Net operating losses allow a business to accumulate and write off losses beyond the current liability, in the future.
  • Combinable captive insurance companies are no longer exempt from the Corporation Business Tax but are exempt from the Insurance Premiums Tax.
  • There is a new surtax. The surtax is imposed only if the taxpayer’s allocated taxable net income is in excess of $1,000,000. The rate varies depending on the tax year (2.5% for tax years beginning on or after January 1, 2018, through December 31, 2019, and 1.5% for tax years beginning on or after January 1, 2020, through December 31, 2021)
  • No deduction under IRC §199A is allowed for either Corporation Business Tax or Gross Income Tax purposes for tax years beginning after December 31, 2017. Section 199A Qualified Business Income Deduction allows individuals to reduce their tax liability by deducting a percentage of income when they file.
Current New Jersey Tax Rates

The three largest taxes Gross Income, Sales and Corporate Business Tax (CBT) are measured and collected by New Jersey State Treasury. These are the major taxes almost every business except professional services are required to pay. Altogether businesses pay about $3 billion in CBT.  Economically, there was an approximately nine percent increase in the State’s take for all general tax purposes.

The sales tax rate is 6.625 percent. Sales taxes are remitted to the state for all sales of property not including certain specialty items like non-processed food, medicine, etc.

  • Corporate Business Tax 11.5 percent.
  • Property tax varies by municipality.
  • The gas tax is .42/gallon
New Jersey Business Tax Deadlines

Major taxes are remitted monthly through the online state portal. They include sales tax, cigarette tax, corporate business tax, motor fuel tax, gross income tax.  A full list of all New Jersey 2020 tax deadlines can be found here.

Pending legislation to watch for

Both these bills address two of the fundamental criteria that New Jersey lags in comparison to surrounding states. Those being the structure of the system and the total cost to taxpayers. These fiscally conservative bills consider the needs of the taxpayer ahead of the wants of government. From a public policy perspective, this is generally more effective at invigorating the economic climate than liberal tax and spend measures.

Senator Cardinale and Senator Kean Jr. Property tax deduction bill.

Legislation designed to increase the property tax deduction from $10,000 to $25,000. More than double the current amount. This bill is currently awaiting Senate Budget and Appropriations Committee approval. S.264.

Senators Bucco, Kean, and Oroho Zero-Based Budget Act;

This act requires State Treasurer to develop and integrate certain zero-based budgeting practices and procedures in the preparation and submission of Governor’s annual budget message. This bill is currently awaiting Senate Budget and Appropriations Committee approval S.527

Lead Image:

Welcome To New Jersey sign in front of the New Jersey Department of Transportation Headquarters in Ewing, New Jersey. (Note: while not technically at the state border, this is the sign placed at NJ’s borders)

Kerry Baynes

Kerry Baynes is currently a Msc University West Indies, Financial Economics. As a research assistant for the New Jersey State Senate, he was responsible for research on economic, budget/fiscal issues, and the impact of tax policy. He served as a Media Strategist for Garry Cobb For Congress, in 2014 and Giordano for Assembly, in 2015. Since 2006, he acted as Manager of Alpha Strategy Group, an Urban Media Company. Currently an Associate at World Financial Group (WFG), he works to build and protect wealth for families and individuals from all walks of life.