The importance of the Economic Opportunity Act of 2013 (EO13) cannot be overstated. Signed into law this past September, the act creates two larger, more attractive job creation and development incentive programs. The new programs allow New Jersey to offer greater incentives to more businesses in more areas of the state than we have ever seen before.
However, if we want to continue to compete for private-sector jobs and investment with other states and nations, New Jersey must go farther and look at ways to lower the overall tax burden on all businesses.
In 2011, NJBIA urged the Governor and the Legislature to cut business taxes, and they did. They cut the fee for S-corporations by 25 percent. They went to a Single Sales Factor, which no longer punishes companies with a large in-state presence. They allowed small businesses to net their losses against certain gains and carry forward those losses for 20 years. Finally, they fully phased out the energy tax known as the Transitional Energy Facilities Assessment. These tax cuts, coupled with full funding of incentives for technology, and research and development companies, will amount to approximately $2.3 billion over five years. That is significant.
However, we don’t have the luxury of living in a static environment, so we must keep watch on what other states are doing in order to compete. Under a new program in New York, certain start-up businesses located near colleges or universities can receive tax benefits such as no income tax for employees, as well as no sales, property or business taxes. And just last month, Governor Andrew Cuomo announced a plan to cut taxes by $2 billion.
In Pennsylvania, under their Keystone Opportunity Zone program, state and local taxes are reduced to almost zero through credits, waivers and comprehensive deductions. And the City of Philadelphia also provides significant tax abatements for development and improvements. Finally, while it failed to get final approval in 2013, Pennsylvania Governor Tom Corbett is still advocating for a 30 percent reduction in the corporate business tax.
To compete, New Jersey needs to take a closer look at possible tax code changes, from those that are aggressive and substantial, to those that are small. We understand that adequate revenues are needed to justify any cuts, but they must be considered in the context of setting priorities for our state, and making New Jersey a better place to do business.
NJBIA has advocated for a cut in both the income tax rate, which will help small businesses that pay their taxes through the Gross Income Tax, and the Corporate Business Tax rate. These tax cuts can be phased in over time, limiting the impact on New Jersey’s budget, but also providing a level of certainty to the business community that taxes are going down.
Another suggestion is to exempt sales taxes on services for products that are already tax exempt. For example, New Jersey exempts the purchase of certain business software from sales tax and then charges sales tax on any services performed on that software. The same holds true for manufacturing equipment. Also, our estate tax threshold, which is currently at $675,000, is lower than any of the surrounding states. Raising that threshold could help in small business succession planning.
Regardless of what direction we go over the next several years, New Jersey needs to build on its successes in order to compete. EO13 was a major step forward, but we also need to lower the overall tax burden in our state. That is the only way we can win the war for jobs, investment and an improved economy.